SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

(Mark One)

|ý | Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------------

for the fiscal year ended December 31, 2003

or

|o | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

For the Transition period from  to

Commission file number: 0-23940

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ALTERNATIVE RESOURCES CORPORATION(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

38-2791069(IRS Employer
Identification No.)600 Hart Road, Suite 300
Barrington, Illinois(Address of principal executive offices)

60010(Zip Code)


Registrant's telephone number, including area code:(847) 381-6701

Securities registered pursuant to Section 12(b) of the Act:None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 Par Value(Title of Class)

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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant (1) is an accelerated filer (as defined in Rule 12b-2 of the
Act). Yes o    No ý

The registrant estimates that the aggregate market value of the registrant's common stock held by non-affiliates of Alternative Resources Corporation
as of June 30, 2003 (based upon an estimate that 91.34% of the shares are so owned by non-affiliates and upon the closing price for the common stock on the OTC BB) on that date was
approximately $5,013,000. Determination of stock ownership by non-affiliates was made solely for the purpose of responding to these requirements and registrant is not bound by this
determination for any other purpose.

As
of March 19, 2004, 17,117,304 shares of the registrant's common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on June 10, 2004 (Part III).



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PART I

ITEM 1.    BUSINESS.

OVERVIEW

Alternative Resources Corporation ("ARC" or the "Company") is a leading provider of information technology services. The Company has developed a significant, high
quality business in the IT staffing industry with an emphasis on Help Desk, Desktop Support, Technology Deployment Service, and Field Service offerings. The Company also has a consulting practice that
supports those service offerings. The Company operates through 8 field offices with over 55 personnel in field sales, supported by 35 recruiters. The majority of the Company's sales and recruiting
personnel operate from home, creating a virtual network. The Company serves Fortune 1000 and mid-sized clients throughout the United States and Canada.

MAJOR DEVELOPMENTS IN 2003

ARC participates in a market that is cyclical in nature and extremely sensitive to economic changes. The Company's 2003 operating results continued to reflect the
reduced level of IT spending on applications development, systems enhancements and hardware. Many companies continue to be cautious and reduced the levels of manpower devoted to support IT
infrastructure. This was evidenced by the Company's drop of about 13% in its staff augmentation business.

In
2003, operating expenses were reduced by approximately $7.8 million based on previous restructuring actions. After an extensive study and in an ongoing effort to continue cost
reductions during 2002, the Company decided to restructure its service delivery function by eliminating the client support organization. This organization was primarily responsible for facilitating
the administrative tasks associated with maintaining a consulting workforce. In order to more effectively deal with the administration of a nationwide workforce, the Company has developed a Knowledge
Center that is responsible for inward (employee) and outward (customer) issues. These issues range from personnel matters such as employee benefits and payroll to customer matters such as billing and
credit matters. This enterprise-wide service center allowed the Company to streamline its operations by centralizing virtually all administrative functions. A total of 60 positions were
eliminated with the largest group being the client staffing managers. The remainder of positions eliminated was a mix of corporate staff and recruiting personnel. Another component of this
restructuring was decreased requirements for office space resulting from the reduction of personnel. Consequently, the Company recorded a reserve for severances and unutilized office space that
resulted from the shift to a functional model and the efficiencies created by the Knowledge Center.

During
2003, the Company began certain strategic initiatives in order to position itself for a return to growth and to leverage its recognized quality and customer relationships. There
were four key elements to our strategy for improving the Company's long-term financial performance. First, the sales force was realigned to enable more selling of solution type sales,
accomplished through increased sales and product training, and substantially upgrading of sales personnel. Second, the sales and delivery functions were more closely aligned to provide a stronger
selling team to more effectively sell total solutions to the customer. Third, the Company focused on building alliances with key customers and partners. Fourth, the Company began a program to refresh
all of its service offerings including the development of new technology to enhance its services.

ARC SERVICE OFFERINGS

Since 1996, ARC has evolved from a pure IT staffing company into a solutions-based provider of IT services. ARC's service offerings are designed to help clients
staff, manage, deploy, support and operate their IT programs. ARC is able to provide its clients with flexibility and expertise to address

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their
IT execution needs whether for managed delivery of a help desk, data center or network administration; developing applications to support business processes; deploying technology across an
enterprise; or providing qualified, motivated technical consultants for short or long-term engagements.

ARC
Staffing Services, offered since the Company's inception in 1988, enables clients to adapt their organizations to changing business or technology needs without adding to fixed costs
or making long-term commitments to staff. Client staffing needs are fulfilled in several ways:



ARC
Solutions Services provide management and delivery of infrastructure development and maintenance expertise, offering managed solutions and best practice methodologies. ARC assists
clients in integrating the resources, processes and systems for the design, deployment, operation and support of the client's key IT assets. The Company's solutions services are delivered through the
following service offerings:



ARC SALES APPROACH

The Company has developed a customized approach to the project assignment process that it believes results in a high degree of client and technical consultant
satisfaction and repeat business from clients. The Company believes a superior project assignment entails developing a comprehensive understanding of clients' needs, matching identified needs with
requisite skills on a timely basis, and monitoring performance throughout the project. However, the Company believes that the professional and interpersonal skills required to interact with clients
and interpret and communicate their needs differ greatly from those required to manage the recruitment and project assignment of technical consultants. Under the ARC approach, project responsibilities
are shared between account managers, recruiters and solutions design consultants.

Account
managers focus principally on building and fostering relationships with clients, understanding the client's organization and assessing the client's needs, and proposing tailored
staffing solutions. Recruiters focus principally on recruiting and establishing relationships with technical personnel, assessing their technical and interpersonal skills, and selecting appropriate
technical personnel for a project. Solutions design consultants provide the technical support necessary to ensure that the project design meets all the customer requirements.

Historically,
the Company categorized the market into three different tiers: Business Partners, which includes the Company's large national accounts, Select Accounts, which consists of
accounts with the potential for more than $1.0 million in annual revenue, and the General Market, which represents hundreds of companies outside the Fortune 1000. The Company's sales approach
has evolved into being more focused on the Business Partners and Alliances and Select Accounts. These accounts provide the greatest opportunity for the Company and allow the Company to build on its
customer relationships and take advantage of its quality of service delivery.

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The
Company maintains a technology support staff, which is primarily located at its headquarters in Barrington, Illinois to assist account managers in selling and delivering solution
services.

RECRUITING OF TECHNICAL PERSONNEL

The recruiting function, which had previously operated from three regional centers in Chicago, Philadelphia and Denver, supplemented by a network of recruiters
operating in various markets, has
evolved into a total virtual recruiting organization. Through the use of technology, the Company has been able to achieve greater efficiencies in recruiting and has developed a recruiting model that
is totally variable in terms of cost structure.

As
the leading edge of technology continues to outpace the availability of leading edge skills, the recruitment and retention of technical personnel represents an expanding challenge. To
recruit qualified technical personnel, the Company places newspaper advertisements, maintains a presence at local technical colleges and obtains referrals from its technical employees and clients. The
Company has also expanded its use of the Internet as a recruiting tool.

Prospective
technical consultants are required to complete an extensive questionnaire regarding skill levels, experience, education and availability, and to provide references.
Recruiters maintain an active database of qualified technical personnel along with their related skill levels and availability. This database, along with major job boards, is the primary tool used to
match qualified technical skills to client requests.

The
Company's recruiting efforts have been strengthened by two key developments: the enhancement of the Company's recruiting software and the development of a
just-in-time recruiting methodology.

The
Company implemented LINX, an enterprise front office management application. LINX supports the full transaction cycle of our staffing business encompassing prospecting, order entry,
recruiting and fulfillment. The application tracks existing clients, resources and partners as well as past and prospective clients, resources and partners. It is used extensively by sales, recruiting
and delivery personnel. LINX is tightly integrated into our back office applications as data flows directly to the Company's Peoplesoft Enterprise Software.

The
Company also implemented a just-in-time recruiting methodology, e-bench, for having technical resources immediately available for anticipated
demand. Through the development and maintenance of multiple hot lists the Company has resources that have been recruited and qualified against specific criteria and are managed to 8 hour
availability for interview and/or start by a dedicated recruiting team. ARC's e-bench represents a cost-effective method for delivering quality and speed to its customers.

In
order to retain a qualified workforce, the Company devotes considerable time and resources towards serving the needs of its technical consultants. All technical consultants receive a
competitive hourly wage determined by the Company and may be eligible to participate in the Company's 401(k) plan and earn bonuses based on referrals of technical personnel. The Company also provides
technical consultants access to computer based training programs. Technical consultants may also receive a benefits package that allows them to select from a variety of benefit options, including
comprehensive group medical insurance, vision and dental insurance, long-term disability insurance and group life insurance.

OPERATIONS

The Company operates through a network of 8 field offices utilized primarily to accommodate the field sales organization as well as to interview potential
candidates. The majority of the Company's

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sales
and recruiting personnel operate from home offices, creating a virtual network. The Company's principal executive offices are located in Barrington, Illinois.

CLIENTS

During 2003, the Company provided technical staffing solutions to a wide variety of entities including computer services companies, systems integrators,
telecommunications companies, banking and financial service entities, manufacturers, distributors, health care providers and utilities. The Company's computer service and systems integrator clients
often subcontract ARC's services to their own customers. In 2003, the Company's largest clients, Hewlett Packard and IBM, accounted for approximately 22% and 21%, respectively, of the Company's total
revenue. The Company's remaining clients consist of Fortune 1000 companies and mid-sized organizations with sizable and complex IT operations. The IT requirements of these organizations
often provide opportunities for major projects that extend for multiple years or generate additional projects.

ARC
will typically provide discounts on staffing services to its largest clients in exchange for the opportunity to sell more volume and the opportunity to sell its higher margin, value
added solutions services.

The
vast majority of the traditional Staffing business is invoiced on an hourly basis. Solutions business is invoiced on an hourly basis, fixed fee basis, or a per incident basis. In all
cases, invoicing is not processed until the services are rendered.

COMPETITION

The IT services industry is highly competitive and fragmented and has low barriers to entry. The Company competes for potential clients with providers of
outsourcing services, system integrators, computer system consultants, other providers of technical staffing services and, to a lesser extent, temporary personnel agencies. The Company competes for
technical personnel with private and public companies, other providers of technical staffing services, system integrators, providers of outsourcing services, computer system consultants, clients and
temporary personnel agencies.

The
Company believes that the principal competitive factors in obtaining and retaining clients are accurate assessment of clients' requirements, timely assignment of technical
consultants with appropriate skills, and the price of services. The Company is dependent upon its ability to continue to attract and retain technical personnel who possess the technical skills and
experience necessary to meet the IT servicing requirements of its clients. The principal competitive factors in attracting qualified technical personnel are schedule flexibility, the availability of
training, competitive benefits and compensation, as well as the availability, quality and variety of projects. The Company believes that many of the technical personnel included in its databases may
also be pursuing other employment opportunities. Therefore, the Company believes that responsiveness to the needs of technical personnel is an important factor in the Company's ability to fill
projects.

SEASONALITY

The Company's quarterly results are affected by employment taxes. In general, the first two quarters of the year carry a significant portion of payroll tax
expense. As employees reach annual payroll limits, typically in the third and fourth quarters, the Company's payroll tax expense is reduced. See "Quarterly Financial Information," included elsewhere
herein.

EMPLOYEES

At December 31, 2003, the Company employed approximately 225 staff employees and approximately 1,500 technical employees.

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FORWARD-LOOKING STATEMENTS

The Company makes forward-looking statements from time to time and desires to take advantage of the "safe harbor," which is afforded such statements under the
Private Securities Litigation Reform Act of 1995, when they are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from
those in the forward-looking statements. The statements contained in this Form 10-K, including those under "Management's Discussion and Analysis of Financial Condition and Results
of Operations," statements contained in future filings with the Securities and Exchange Commission and publicly disseminated press releases, and statements which may be made from
time-to-time in the future by management of the Company in presentations to shareholders, prospective investors, and others interested in the business and financial affairs of
the Company, which are not historical facts, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those set forth in the
forward-looking statements. Any projections of financial performance or statements concerning expectations as to future developments should not be construed in any manner as a guarantee that such
results or developments will, in fact, occur. There can be no assurance any forward-looking statement will be realized or that actual results will not be significantly different from that set forth in
such forward-looking statement.

In
addition to the risks and uncertainties of ordinary business operations, the forward-looking statements of the Company referred to above are also subject to the following risks and
uncertainties:



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EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company as of March 19, 2004 are as follows:

|Name               |  | Age |  | Position                                                               
|------------------ |  | --- |  | -----------------------------------------------------------------------
|Robert P. Stanojev |  | 62  |  | Chairman of the Board, President and Chief Executive Officer           
|Steven Purcell     |  | 53  |  | Senior Vice President, Chief Financial Officer, Secretary and Treasurer
|Tracy Linne        |  | 45  |  | Senior Vice President of Sales and Marketing                           
|Bill McLendon      |  | 44  |  | Senior Vice President                                                  
|Marino Petropoulos |  | 37  |  | Vice President and Chief Accounting Officer                            

Mr. Robert
P. Stanojev has served as President and Chief Executive Officer of the Company since November 2003 and has served as Chairman of the Board since
August 2002. Prior to joining the Company, Mr. Stanojev was a partner with Cap Gemini Ernst & Young U.S. (and its predecessors, including Ernst & Young Consulting), from
1972 to 2002 where he served most recently as a Senior Partner and as Global Director of Sales and Marketing. Prior to his career with Ernst & Young, Mr. Stanojev held various technical
and sales positions with RCA Corporation.

Mr. Steven
Purcell joined the Company in August 1998 as Senior Vice President, Chief Financial Officer, Secretary and Treasurer. In May 1999, Mr. Purcell was
elected to the Board of Directors. Prior to that he was Chief Financial Officer for American Business Information, a provider of business and consumer data and data processing services. From 1991 to
1996 he served as Vice PresidentFinance, Chief Financial Officer and Treasurer, of Micro Warehouse, a direct marketer of hardware, software and accessories. From 1985 to 1991, he worked
for Electrocomponents, PLC, a London-based distributor of electrical products, serving as Chief Executive Officer for its Misco, Inc. subsidiary and, prior to that, as Vice
PresidentFinance for Electrocomponents, Inc., the U.S. holding company.

Ms. Tracy
Linne was named Senior Vice President of Sales and Marketing in April 2003. She is responsible for sales, marketing and alliances. Ms. Linne joined ARC in
September 2002 as Sales Vice
President of the Northeast Region, where she was instrumental in building a sales and account management culture that has been standardized across the organization. Ms. Linne has more than
20 years of experience in fast-growing high technology companies and will continue to focus on the development of ARC's go-to-market strategy and the
execution of ARC's sales and strategic alliance initiatives. Ms. Linne has held executive and sales management positions at leading high technology companies, such as PeopleSoft, Austin-Hayne,
Central Point Software and Data General Corporation.

Mr. Bill
McLendon was named Senior Vice President in September 2002. From 1998 to September 2002, Mr. McLendon was an executive of Ranger Partners Group, an
affiliate of Ranger Aerospace, and most recently an Executive Vice President. Prior to this, Mr. McLendon was an officer of Steven's Aviation, a national provider of high-grade
technical services to general aviation, serving as General Manager of the Company's Colorado branch. From 1991 to 1994, Mr. McLendon was the Vice President of Operations of ATS Aerospace, a
developer and manufacturer of state-of-the art simulation systems for civic aviation agencies worldwide. Previously, from 1981 to 1991, Mr. McLendon was an officer and
F-15 pilot in the United States Air Force.

Mr. Marino
Petropoulos joined the Company as Financial Reporting Manager in March 1994. He was promoted to Vice President and Chief Accounting Officer in
December 2002. During his tenure with ARC, Mr. Petropoulos has held various positions within the Finance and Tax departments of the Company. Prior to joining ARC, Mr. Petropoulos
was a Senior Accountant from 1989 to 1994 with Ernst & Young, an international accounting firm.

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ITEM 2.    PROPERTIES.

The Company's principal executive office is currently located in approximately 42,000 square feet of office space in Barrington, Illinois, pursuant to a lease
agreement that expires in October 2009. The Company leases office space in major markets across the United States to facilitate its operations.

ITEM 3.    LEGAL PROCEEDINGS.

The Company is involved in various claims and legal actions, other than those described below, arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.

On
March 4, 2003, the Company filed a lawsuit against Bluecurrent, Inc. ("Bluecurrent"), one of its customers, captioned Alternative Resources Corporation v.
Bluecurrent, Inc. (case no. 030 1603). The lawsuit was filed in the United States District Court for the Northern District of Illinois and alleged that Bluecurrent breached its Master
Services Agreement with the Company by failing to pay approximately $5.0 million of invoices for services performed (the "Illinois lawsuit"). Bluecurrent asked the court to either dismiss the
action based on improper venue or transfer it to the United States District Court in Texas based on venue and convenience grounds.

Shortly
thereafter, on March 10, 2003, Bluecurrent filed suit against the Company in state court in Texas, captioned Bluecurrent, Inc. v. Alternative Resources Corporation.
(case no. GN30772) (the "Texas lawsuit"). Bluecurrent alleged in the Texas lawsuit that the Company breached the Master Services Agreement, submitted fraudulent invoices to Bluecurrent and interfered
with Bluecurrent's prospective contractual relationships.

On
May 29, 2003, Bluecurrent and the Company entered into an agreement providing for the settlement of the Illinois lawsuit and Texas lawsuit. Pursuant to the settlement
agreement, each of the Company and Bluecurrent released the other party from its obligations under the Master Service Agreement and from all claims under the respective lawsuits. In connection with
the releases, Bluecurrent agreed to pay the Company an aggregate amount of $5.3 million. Such amount was reduced by a credit of $1.5 million issued by the Company to Bluecurrent with
respect to outstanding invoices. On the settlement date, Bluecurrent paid the Company $850,000 which was applied to the aggregate cash settlement balance of $3.8 million. The remaining
settlement balance is payable in weekly installments of $100,000. As of December 31, 2003, the remaining receivable balance of this settlement was $550,000, which was fully collected in 2004.

In
addition to the credit issued by the Company, the Company has agreed not to develop its own integrated technically-enabled deployment tool for a period of fifteen months nor will it
perform any work using such tool for a specified group of customers identified in the settlement agreement.

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

None.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

ARC's common stock has been traded on the OTC Bulletin Board under the symbol "ALRC.OB" since June 20, 2001. Prior to that date, the Company's common stock
was traded on the NASDAQ National Market, but was delisted for failure to satisfy the minimum bid price requirement for continued listing. No cash dividends have been paid on the common stock since
the initial trading in 1994, except as noted below.

In
conjunction with the refinancing of the Company's revolving line of credit on January 31, 2002, the Company's Board of Directors redeemed all of the rights issued under its
stockholders' rights plan. The Company paid a redemption payment of $0.01 per right to stockholders on February 8, 2002 at a total cost of approximately $171,000.

As
of March 19, 2004, ARC had 218 stockholders of record and 17,117,304 outstanding shares of common stock. The following table represents the reported high and low sale prices of
the common stock for the periods indicated, during the years ended December 31, 2003 and 2002:

2003

2002High

Low

High

LowFirst Quarter

$
0.47

$
0.23

$
0.83

$
0.46Second Quarter


0.36


0.20


0.67


0.33Third Quarter


0.45


0.24


0.58


0.35Fourth Quarter


1.03


0.25


0.48


0.28


On
January 31, 2002, the Company entered into a Securities Purchase Agreement with Wynnchurch Capital Partners, a private equity investor, pursuant to which the Company sold to
Wynnchurch $10.0 million principal amount of 15.0% Senior Subordinated Convertible Notes due January 31, 2009. These notes were originally convertible into common stock of the Company at
a conversion price of $2.50 per share. At the Company's election, one-half of the interest may be deferred during the first four years subject to certain conditions. Effective
August 8, 2002, the Company and the private equity investor agreed to defer all of the interest. During 2003, the 15.0% Senior Subordinated Convertible Notes conversion price was reduced from
$2.50 to $1.50 per share of common stock. The reduction in conversion price was made in connection with a $2.0 million overadvance guarantee agreement between Wynnchurch Capital Partners, L.P.
and Fleet Capital Corporation as discussed in Note 3 of the Company's consolidated financial statements.

In
conjunction with the sale of these notes, the Company issued 10.0 million warrants (immediately exercisable) to the private equity investor to purchase shares of the Company's
common stock at $0.55 per share. Additionally, the Company issued 1.0 million warrants to purchase its common stock at $0.73 per share. These warrants were not exercisable for
one-year contingent on the Company meeting certain performance measures, however, the warrants would expire if such performance measures were met. As of December 31, 2002, the
Company did not meet the specific performance measures related to the 1.0 million contingent warrants and, accordingly, these warrants have become exercisable. The issuance and sale of the
convertible notes and warrants was exempt from registration under the Securities Act of 1933 by virtue of Section 4(2) exemption under the Act for sales not involving a public offering. During
2003, the exercise price of all outstanding warrants was reduced to $0.26 per share. The reduction in exercise price was made in connection with a $2.0 million overadvance guarantee agreement
between Wynnchurch Capital Partners, L.P. and Fleet Capital Corporation as discussed in Note 3 of the Company's consolidated financial statements.

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ITEM 6.    SELECTED FINANCIAL DATA.

|                                                          |                                                   | Year ended December 31, |        
|--------------------------------------------------------- | ------------------------------------------------- | ----------------------- | -------
|
|
|SELECTED OPERATING DATA:                                  |                                                   |                         |        
|Revenue                                                   |                                                   | $                       | 138,146
|Cost of services                                          |                                                   |                         | 105,449
|                                                          |                                                   |                         |        
|                                                          | Gross profit                                      |                         |        
|Selling, general and administrative expenses              |                                                   |                         | 37,438 
|Restructuring and other charges                           |                                                   |                         | 4,809  
|                                                          |                                                   |                         |        
|                                                          | Operating expenses                                |                         |        
|                                                          |                                                   |                         |        
|                                                          | Income (loss) from operations                     |                         |        
|Other expense, net                                        |                                                   |                         | (4,345 
|                                                          |                                                   |                         |        
|                                                          | Income (loss) before income tax expense (benefit) |                         |        
|Income tax expense (benefit)                              |                                                   |                         | (814   
|                                                          |                                                   |                         |        
|                                                          | Net loss                                          |                         | $      
|                                                          |                                                   |                         |        
|Basic and diluted loss per share                          |                                                   | $                       | (0.76  
|                                                          |                                                   |                         |        
|Shares used in computing basic and diluted loss per share |                                                   |                         | 17,117 
|                                                          |                                                   |                         |        
|SELECTED BALANCE SHEET DATA:                              |                                                   |                         |        
|Total assets                                              |                                                   | $                       | 33,813 
|Long-term debt                                            |                                                   |                         | 14,725 
|Stockholders' equity (deficit)                            |                                                   |                         | (16,385

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

EXECUTIVE SUMMARY

Alternative Resources Corporation ("ARC" or the "Company") is a leading provider of IT services to large and mid-size customers that allow clients to
staff, manage, deploy, support and operate their IT infrastructure. The IT industry is cyclical in nature and sensitive to changes in capital spending and systems development. Over the last several
years the overall economic conditions have not been conducive to growth in IT spending. In addition, significant IT spending took place in advance of the year 2000 further reducing IT investments in
the subsequent years.

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The
Company's 2003 operating results continued to reflect the reduced level of IT spending. Many companies continue to be cautious and reduced the level of manpower devoted to support IT
infrastructure as a means to reduce costs in an uncertain economic environment. This was evidenced by the Company's sharp drop in its staff augmentation business, a decline of 50% since 2001.

The
Company provides its services either as staff augmentation, or as a complete solution to the customer. In terms of the staff augmentation services, the Company has access to a wide
variety of IT skills through its extensive database. These skills range from computer operations, to application programming, to network engineers up to interim Chief Information Officers. These
services are billed on a time and material basis as the service is rendered.

The
solutions that the Company provides consist of service desk and desktop support services, deployment services, field services and consulting services. These services are usually
memorialized in a master service agreement, which addresses the terms and conditions that define the engagement. The master service agreement is further supported by a Statement of Work "SOW", which
provides the technical details of the services to be provided. The SOW is a stand-alone binding document signed by the Company and the customer outlining the project objectives, describing the
personnel, detailing the project phases and deliverables and stating the project pricing. Solutions type services are billed on a fixed fee basis or on a per incident basis.

During
2003, the Company began certain strategic initiatives in order to position itself for a return to growth and to leverage its recognized quality and customer relationships. There
were four key elements to our strategy for improving the Company's long-term financial performance. First, the sales force was realigned to enable more selling of solution type sales,
accomplished through increased sales and product training, and substantially upgrading of sales personnel. Second, the sales and delivery functions were more closely aligned to provide a stronger
selling team to more effectively sell total solutions to the customer. Third, the Company focused on building alliances with key customers and partners. Fourth, the Company began a program to refresh
all of its service offerings including the development of new technology to enhance its services.

As
background, during 2001 the Company reorganized its field structure from a branch-based model to a model organized by the functional areas of sales, recruiting and service delivery.
The revised model has a primary goal of reducing costs while more effectively delivering its service offerings. After reducing costs by $23.9 million in 2001, the first full year of the new
functional model, the Company further reduced costs by another $14.2 million in 2002. In order to continue to reduce costs, the Company further reorganized its service delivery function by
eliminating the client support organization during the second half of 2002. This organization was previously responsible for facilitating the administrative tasks associated with maintaining a
consulting workforce. In order to more effectively deal with the administration of a nationwide workforce, the Company has developed a Knowledge Center that is responsible for inward (employee) and
outward (customer) issues. These issues range from personnel matters such as employee benefits and payroll to billing and credit matters. This enterprise wide service center allowed the Company to
streamline its operations by centralizing virtually all administrative functions. A total of 60 positions were eliminated with the largest group being the client staffing managers. The remainder of
positions eliminated was a mix of corporate staff and recruiting personnel. Another component of this restructuring, which resulted from the reduction of personnel, was decreased requirements for
office space. Consequently, the Company recorded a reserve for severances and unutilized office space that has resulted from the shift to a functional model and the efficiencies created by the
Knowledge Center. In 2003, operating expenses were reduced by approximately $7.8 million based on previous restructuring actions. Additionally, during the third quarter of 2003 the Company
further reduced headcount as revenues continued to decline. The reductions were in all three functions: sales, delivery and corporate. The Company anticipates that these reductions will yield an
annual savings of $2.9 million in 2004.

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RESTRUCTURING AND OTHER CHARGES2003

During the third quarter of 2003, the Company incurred a $0.5 million restructuring charge representing severance costs associated with the restructuring
of the Company's sales, delivery and corporate staff. A total of 33 positions were eliminated, comprised of 11 in sales, 9 in delivery and 13 in corporate staff positions. The Company recorded an
additional restructuring charge of $0.4 million in the fourth quarter of 2003 related to the severance cost of two executive employees.

The
primary components of the restructuring charge can be summarized as follows:

Total
Initial
Reserve

2003
Cash
Payments

Balance at
December 31,
2003(in thousands)Severance

$
952

$
(270
)
$
682


The
remaining severance balance at December 31, 2003 will be paid primarily during the first quarter of 2004 with the exception of three employees. Included in this charge is the
severance of three executive employees that will be paid out in accordance with their respective employment agreements through
December 2007. The savings expected from this headcount reduction will be approximately $2.9 million and will be fully realized during 2004.

Additionally,
the Company recorded a charge for a debt modification and the write-off of origination fees of $4.5 million related to changes made to the terms of the
Senior Subordinated Convertible Notes. This was comprised of a $3.5 million debt modification charge and $1.0 million of origination fees written off. The debt modification and
origination fees expense represents a non-cash adjustment and has no impact on the amount of debt ultimately owed to Wynnchurch Capital Partners, L.P. The valuation of the notes was
determined based on advice from a third-party valuation specialist who utilized a valuation model. Based on the results, the fair value of the notes was determined to be $13.2 million versus
the carrying value of $9.7 million. As such, a $3.5 million charge was recognized for the debt modification to recognize the fair value of the notes in the financial statements.
Additionally, origination fees of $0.9 million related to these notes and $0.1 million related to the revolving credit commitment were written off due to the modifications.

RESTRUCTURING AND OTHER CHARGES2002

The Company recorded restructuring and other charges in the aggregate amount of $6.1 million during 2002. During the second quarter of 2002, the Company
recorded a charge of $1.1 million, classified as other charges, representing the severance pay associated with the departure of the Company's former Chief Executive Officer. During the third
quarter of 2002, the Company recorded a $4.7 million restructuring charge due to excess office space and the restructuring of the service delivery function. An additional $0.3 million
restructuring charge was recorded in the fourth quarter, which was also due to the restructuring of the service delivery function.

The
primary activity in the restructuring reserve can be summarized as follows:

|                            |  | Total
Initial
Reserve |       | 2002
Cash
Payments |   | Balance at
December 31,
2002 |   | 2003
Cash
Payments |       | Adjustment
to reserve |   | Balance at
December 31,
2003
|--------------------------- |  | --------------------- | ----- | ------------------ | - | ---------------------------- | - | ------------------ | ----- | --------------------- | - | ----------------------------
|
|Real estate costs           |  | $                     | 4,328 |                    | $ | (569                         | ) | $                  | 3,759 |                       | $ | (1,659                      
|Severance                   |  |                       | 627   |                    |   | (362                         | ) |                    | 265   |                       |   | (200                        
|Other charges               |  |                       | 1,100 |                    |   | (202                         | ) |                    | 898   |                       |   | (121                        
|                            |  |                       |       |                    |   |                              |   |                    |       |                       |   |                             
|Total restructuring reserve |  | $                     | 6,055 |                    | $ | (1,133                       | ) | $                  | 4,922 |                       | $ | (1,980                      
|                            |  |                       |       |                    |   |                              |   |                    |       |                       |   |                             

12

---

The
portion of the charge related to real estate costs, which totaled $4.3 million, relates to lease costs associated with decreased requirements for office space as the Company
restructured its service delivery organization. The costs associated with this charge related primarily to the value of ongoing lease obligations for vacated offices, net of anticipated sublease
income. A portion of the charge also related to broker commissions and estimated leasehold improvement costs necessary to sublease vacated offices.

The
$0.6 million severance charge related to head-count reductions associated with centralizing the service delivery organization as part of a
re-engineering exercise. A total of 60 positions were eliminated with the largest group being the client staffing managers. The remainder of positions eliminated was a mix of corporate
staff and recruiting personnel. The remaining severance balance at December 31, 2003 relates to an employee with an employment agreement. It is anticipated that this amount will be paid out
through July 2004.

The
$1.1 million other charges related to the severance pay associated with the departure of the Company's former Chief Executive Officer. The remaining balance at
December 31, 2003 is required to be paid in full by July 2004.

During
the third quarter of 2003, the Company reassessed its 2002 restructuring accrual requirements. Based on this review, the Company determined the remaining reserve was overstated by
$0.6 million due to various real estate cost assumptions made versus actual activity. The majority of this adjustment relates to the successful early termination negotiated on the lease of the
Company's previous headquarters.

13

---

RESULTS OF OPERATIONS

FISCAL 2003 COMPARED TO FISCAL 2002

The following table presents year-over-year changes in revenue and gross profit from 2002 to 2003.

Revenues

Gross Profit(in thousands)2002

$
158,693

$
42,738Staffing


(10,456
)

(5,134
)Solutions


(10,091
)

(4,907
)2003

$
138,146

$
32,697


Revenue.Revenues consist of fees earned from Staffing Services and Solutions Services. Revenue decreased
$20.5 million or 13.0% from $158.7 million in 2002 to $138.1 million in 2003, primarily from the slowdown in IT spending experienced industry-wide. The Company's
Solutions revenue decreased by $10.1 million or 12.8% from $78.7 million in 2002 to $68.6 million in 2003. The decline in solutions revenue was driven by declines in the
Technology Deployments and Field Service offerings. The decline in the Technology Deployments revenue is attributable to the loss of a major customer. The decline in Field Services was due to the
Company's largest customer of these services changing to a multi-vendor strategy. The Company's traditional staffing business decreased by $10.5 million or 13.1% from $80.0 million in
2002 to $69.5 million in 2003. The decrease in the staffing business reflects the general downturn in IT spending and more particularly, the emphasis by many companies to reduce the headcount
necessary to support the IT infrastructure.

Gross profit.Gross profit decreased by $10.0 million or 23.4% from $42.7 million in 2002 to
$32.7 million in 2003. Margins decreased by $5.1 million in the staffing service offerings due to decreased revenue and overall pricing pressure from customers. Margins in the solutions
service offerings decreased by $4.9 million. The most significant factor in the margin decline was the impact on Field Service margins as the Company adjusted its workforce to effect the
customers shift to multiple vendors. As a percentage of revenue, gross profit decreased by 3.2% from 26.9% in 2002 to 23.7% in 2003. The percentage decline was equally split between the two service
offerings.

Selling, general and administrative expenses.Selling, general and administrative expenses consist of salaries and benefits,
sales costs, recruiting, retention and training costs and management and administrative costs. Selling, general and administrative expenses decreased by $7.8 million or 17.2% from
$45.2 million in 2002 to $37.4 million in 2003. The decrease in selling, general and administrative expenses was primarily attributable to the restructuring actions the Company has taken
in the past, which is reflected in reduced office space and lower headcount. As a percentage of revenue, operating expenses decreased from 28.5% in 2002 to 27.1% in 2003.

Restructuring and other charges.Restructuring and other charges were $4.8 million in 2003 and $6.1 million in
2002. As a percentage of revenue, restructuring and other charges represented 3.5% in 2003 and 3.8% in 2002. As previously discussed, the restructuring and other charges in 2003 represented a
$4.5 million charge for a debt modification and write-off of origination fees and a $0.9 million charge for severance costs associated with the restructuring of the Company's
sales, delivery and corporate staff. The total 2003 restructuring charge is partially offset by a reduction to the 2002 restructuring reserve of $0.6 million due to a change in various real
estate cost assumptions made versus actual activity.

Other expense, net.Other expense, net, consists primarily of interest expense on the Company's outstanding debt. Other
expense, net, was $4.3 million in 2003, as compared to $3.7 million in 2002.

14

---

The
increase in other expense, net, is primarily attributable to higher interest rates on the debt as well as fees paid for amendments.

Income tax benefit.In 2003 and 2002, the Company recorded an income tax benefit of $0.8 million and
$1.1 million, respectively. The income tax benefits relates to refunds obtained due to a change in income tax law. In 2003, the benefit recorded is offset by taxes assessed in 2003 as the
result of an IRS audit.

FISCAL 2002 COMPARED TO FISCAL 2001

The following table presents year-over-year changes in revenue and gross profit from 2001 to 2002.

Revenues

Gross Profit(in thousands)2001

$
209,036

$
59,909Staffing


(59,194
)

(19,911
)Solutions


8,851


2,7402002

$
158,693

$
42,738


Revenue.Revenues consist of fees earned from Staffing Services and Solutions Services. Revenue decreased
$50.3 million or 24.1% from $209.0 million in 2001 to $158.7 million in 2002. The Company's Solutions revenue increased by $8.9 million or 12.7% from $69.8 million
in 2001 to $ 78.7 million in 2002. The increase was attributable to increases in the Company's traditional help desk services and its' deployment services. The Company's traditional staffing
business decreased by $59.2 million or 42.5% from $139.2 million in 2001 to $80.0 million in 2002. The decrease in the staffing business reflects the general downturn in IT
spending and more particularly, the emphasis by many companies to reduce the headcount necessary to support the IT infrastructure.

Gross profit.Gross profit decreased by $17.2 million or 28.7% from $59.9 million in 2001 to
$42.7 million in 2002. As a percentage of revenue, gross profit decreased by 1.8% from 28.7% in 2001 to 26.9% in 2002. The solutions business experienced a slight increase in gross margin while
the staffing business decreased by 300 basis points due to the very competitive IT staffing environment.

Selling, general and administrative expenses.Selling, general and administrative expenses consist of salaries and benefits,
sales costs, recruiting, retention and training costs and management and administrative costs. Selling, general and administrative expenses decreased by $14.2 million or 23.9% from
$59.4 million in 2001 to $45.2 million in 2002. The selling, general and administrative expense decrease was attributable to the restructuring actions begun in 1999, which is reflected
in reduced office space and lower headcount. The Company took further restructuring actions in late 2000, which is reflected in the 2000 restructuring and other charges. The continued impact of these
actions was further realized during 2002 resulting in a decrease of selling, general and administrative expenses of $14.2 million. As a percentage of revenues, selling, general and
administrative expenses increased by 0.1% from 28.4% in 2001 to 28.5% in 2002.

Restructuring and other charges.Restructuring and other charges were $6.1 million in 2002 and $0.0 in 2001. As a
percentage of revenue, restructuring and other charges represented 3.8% in 2002. The expense was primarily due to the restructuring charge recorded for excess office space, the severance related to
the restructuring of the service delivery function, and the severance associated with the departure of the Company's former Chief Executive Officer.

Other expense, net.Other expense, net, consists primarily of interest expense on the Company's outstanding debt. Other
expense, net, was $3.7 million in 2002, as compared to $3.6 million in 2001.

Income tax benefit.In 2002, the income tax benefit of $1.1 million relates to a refund obtained due to a change in
income tax law. There was no benefit in 2001.

15

---

LIQUIDITY AND CAPITAL RESOURCES

Current liabilities exceed current assets by $12.3 million at December 31, 2003. Included in current liabilities is $11.8 million of
outstanding borrowings against the revolving credit agreement that has a maturity date of January 31, 2005. The borrowings under the revolving credit agreement are classified as current in
accordance with EITF Issue No. 95-22, "Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that include both a Subjective Acceleration Clause
and a Lock Box Arrangement." The short-term debt declined by $6.7 million in 2003 primarily through the management of receivables and tax refunds.

Net
cash provided by operations was $7.8 million in 2003. Net cash provided by operations was principally the result of a decrease in accounts receivable of approximately
$12.9 million, offset partially by a net loss of $13.1 million (adjusted for depreciation and amortization of $3.6 million and a charge related to the modification of debt and
write-off of origination fees of $4.5 million), as well as decreases in accrued expenses and other liabilities of $2.1 million, payroll and related expenses of
$1.3 million and accounts payable of $1.0 million. The significant decrease in accounts receivable was due to a payment agent agreement entered into with IBM Credit, LLC in the first
quarter of 2003. This agreement provides for an expedited receipt of outstanding IBM receivables from 45 days to 15 days in exchange for a discount of 0.76%.

Net
cash used in investing activities was $0.1 million all of which was for capital spending. Beginning with the quarter ended December 31, 2003, the Company has been
restricted by its credit agreement to capital spending of $50,000 per quarter.

Net
cash used in financing activities was $7.7 million for the year ended December 31, 2003 due primarily to the payments of short-term debt during 2003.

On
January 31, 2002, the Company replaced its existing bank line with a $30.0 million senior secured revolving credit facility with Fleet Capital Corporation, a subsidiary
of the FleetBoston Financial Corporation. Additionally, $10.0 million principal amount of Senior Subordinated Convertible Notes was sold to Wynnchurch Capital Partners, L.P., a private equity
investor.

The
revolving credit facility is secured by the assets of the Company, principally consisting of accounts receivable. The credit facility has a three-year term and bears
interest at LIBOR plus 3.25% or the bank's base rate plus 2.00%.

During
2002, the Company and Fleet Capital Corporation executed four amendments to the revolving credit agreement. These amendments were required to waive events of default that occurred
relative to the fixed charge and tangible net worth covenants. Both covenants were reset with tangible net worth reestablished at $2.8 million and the fixed charge covenant reestablished at an
allowable shortfall of $0.7 million through October 1, 2002 and a ratio of 1:1, thereafter. In addition, the borrowing limit subject to pledged accounts receivable as collateral was
reduced to $28.0 million and certain restrictions were placed on the amount of capital spending in consideration for the waiver of existing financial loan covenants.

During
2003, the Company and Fleet Capital Corporation executed additional amendments to the revolving credit agreement. The Fifth Amendment addressed the fact that the Company had
entered into litigation with a major customer, Bluecurrent. This action eliminated that account from the Company's borrowing base creating a borrowing overadvance. The amendment allowed for an
overadvance of $2.0 million through December 31, 2003. In addition, the amendment waived the events of default relative to the fixed charge and tangible net worth covenants that occurred
at December 31, 2002. The tangible net worth covenant was reset at ($1.0) million and the fixed charge shortfall was set to $1.0 million through March 31, 2003 and
$1.4 million up through June 30, 2003 and a ratio of 1:1, thereafter. The Sixth Amendment eliminated the requirement that any amounts received as a result of the settlement with
Bluecurrent reduce the Wynnchurch Capital Partners, L.P. guarantee as discussed

16

---

below.
The Seventh Amendment waived the events of default as of June 30, 2003 relating to the tangible net worth and fixed charge covenants. Additionally, the covenants were reset for the
remainder of 2003 as follows; the tangible net worth covenant was reset to ($5.0) million with the fixed charge covenant reset to an allowable shortfall of $0.7 million for the three months
ended September 30, 2003, and $1.0 million for the six months ended December 31, 2003. The fixed charge covenant will be 1:1, thereafter. In addition, the interest rate was
changed effective August 1, 2003 from the bank's base rate plus 1.00% to the base rate plus 2.00%. As of December 31, 2003, the applicable rate is 6.00%, which represents the bank's base
rate plus 2.00%. The Seventh Amendment also reduced the maximum revolving credit commitment from $28.0 million to $23.0 million. The Eighth Amendment waived the events of default as of
September 30, 2003 relating to the tangible net worth and fixed charge covenants. Additionally, the covenants were reset for future periods as follows: the tangible net worth covenant was reset
to ($8.5) million for the quarter ending December 31, 2003 and each quarter thereafter. The fixed charge covenant was reset to an allowable shortfall of $1.0 million for the three months
ending December 31, 2003, $1.8 million for the six months ended March 31, 2004, and $1.9 million for the nine months ending June 30, 2004. The fixed charge covenant
will be 1:1, thereafter. Capital expenditures will also be limited to $50,000 per quarter commencing with the quarter ended December 31, 2003. The Company was in compliance with its covenants
as of December 31, 2003.

The
Senior Subordinated Convertible Notes originally bore interest at 15% and are due January 31, 2009. These notes initially were convertible into common stock anytime after
January 31, 2002 at a conversion price of $2.50 per share. At the Company's election, one-half of the interest could be deferred during the first four years, subject to certain
conditions. In conjunction with the sale of these notes, the Company issued 10.0 million warrants to purchase shares of the Company's common stock at $0.55 per share. An additional
1.0 million warrants to purchase its common stock at $0.73 per share were not exercisable for one year contingent upon the Company meeting certain performance measures, however, the warrants
would expire if such performance measures were met. As of December 31, 2002, the Company did not meet the specific performance measures related to the 1.0 million contingent warrants and
these warrants did not expire.

Throughout
2002, the Company and Wynnchurch Capital Partners, L.P. executed four amendments to the securities purchase agreement. These amendments were required to waive events of
default that occurred relative to the fixed charge and tangible net worth covenants. Both covenants were reset with tangible net worth reestablished at $2.6 million and the fixed charge
covenant reestablished at an allowable shortfall of $0.7 million through October 1, 2002 and a ratio of .95:1, thereafter. In addition,
the Company and Wynnchurch Capital, L.P. agreed to defer all quarterly cash interest payments until the Company satisfied the covenants with the senior lender, Fleet Capital Corporation.

In
2003, in connection with an amendment to the Company's credit agreement with Fleet Capital Corporation, Wynnchurch Capital Partners, L.P. executed a guarantee with Fleet Capital
Corporation to allow overadvances of up to $2.0 million through December 31, 2003, reduced by any payments received from Bluecurrent. In consideration, Wynnchurch Capital Partners, L.P.
and the Company amended their agreements. The 15% Senior Subordinated Convertible Notes conversion price was reduced from $2.50 to $1.50 per share of common stock. The exercise price of all
outstanding warrants was reduced to $0.26 per share. Additionally, a provision was made that any draw on the guarantee by the Company could be satisfied with a purchase by Wynnchurch Capital Partners,
L.P. of additional 15% Senior Subordinated Convertible Notes having a principal amount equal to the Company's draw and having terms equal to the outstanding 15% Senior Convertible Notes, and provided
for a $0.3 million fee to Wynnchurch Capital Partners, L.P. in the event of a draw upon their guarantee. The $0.3 million fee would be payable through the issuance of additional 15%
Senior Subordinated Convertible Notes. As of December 31, 2003, the Company has not been required to draw on the guarantee, and no additional Convertible Notes have been issued. In
July 2003, Wynnchurch Capital

17

---

Partners,
L.P. agreed to waive the agreed requirement that their guarantee be reduced by any amounts received from Bluecurrent. Consequently, Bluecurrent's initial payment of $0.9 million did
not reduce the $2.0 million guarantee. However, all subsequent payments from Bluecurrent will continue to reduce the outstanding guarantee. In consideration for this waiver, Wynnchurch Capital
Partners, L.P. received a fee of $0.1 million payable as interest and added to the principal amount of the notes. Under the Sixth Amendment to the securities purchase agreements, Wynnchurch
Capital Partners, L.P. waived the events of default as of June 30, 2003, relating to the tangible net worth and fixed charge covenants. Additionally, the covenants were reset for the remainder
of 2003 as follows: the tangible net worth covenant was reset to ($5.3) million with the fixed charge covenant reset to an allowable shortfall of $0.7 million for the three months ended
September 30, 2003 and $1.0 million for the six months ending December 31, 2003. The fixed charge covenant will be 0.95:1 thereafter. In addition, the interest rate of the Senior
Subordinated Convertible Notes was changed effective July 1, 2003 from 15% to 16% per annum. In September 2003, Wynnchurch Capital Partners L.P. agreed to maintain its
$2.0 million guarantee and not to reduce such guarantee by any payments received from Bluecurrent. In consideration for maintaining the guarantee, the Company agreed to pay Wynnchurch Capital
Partners, L.P. $0.3 million payable as additional interest and added to the principal amount of the notes. The Company also executed a Seventh Amendment to the securities purchase agreement
that waived the events of default that occurred as of September 30, 2003 and reset the financial covenants for future quarters. The covenants were reset for future quarters as follows; the
tangible net worth covenant was reset to ($8.9) million for the quarter ended December 31, 2003 and each quarter thereafter. The fixed charge covenant was reset to an allowable shortfall of
$1.0 million for the three months ended December 31, 2003, $1.8 million for the six months ended March 31, 2004, and $1.9 million for the nine months ended
June 30, 2004. The fixed charge covenant will be 0.95:1 thereafter. Capital expenditures will also be limited to $52,500 per quarter commencing with the quarter ended December 31, 2003.
In consideration for this waiver and for continuing to maintain the $2.0 million guarantee, Wynnchurch Capital Partners, L.P. will receive a monthly fee of $30,000 for each month such guarantee
is in effect. This fee will be payable as additional interest and added to the principal amount of the notes. On March 29, 2004, a letter of agreement was executed to maintain the
$2.0 million guarantee until June 30, 2004. The Company was in compliance with its covenants as of December 31, 2003. Wynnchurch Capital Partners, L.P. has waived compliance by
the Company with respect to the financial covenants through January 1, 2005.

Due
to the change in the underlying terms of the Convertible Notes and Warrants, the original valuation of the warrants was reassessed during the second quarter of 2003. The fair value
ascribed to these warrants was determined to be approximately $2.3 million prior to the price change and $2.4 million subsequent to the price change. This change in value ascribed to the
price change of approximately $69,000 was amortized over the seven-month life of the guarantee as a non-cash interest charge. The valuation of the warrants was determined based on advice
from a third-party valuation specialist who utilized a valuation model with the following inputs: measurement date of April 14, 2003; fair value of $0.23; exercise price of $0.55 prior to the
price change ($0.73 for contingent warrants) and $0.26 subsequent to the price change; contractual term of 10 years from the original issue date; dividend rate of zero; volatility rate of
123.5%; and risk-free interest rate of 3.76%. A non-cash interest charge of approximately $0.3 million and $0.4 million was recorded for the years ended
December 31, 2003 and 2002, respectively, related to the original valuation of the warrants in January, 2002, plus the amortization of the guarantee value.

During
the third quarter of 2003, the Company concluded that the change in interest rate combined with the change in conversion price of the convertible notes in the second quarter of
2003 met the criteria of an extinguishment of debt per EITF 96-19 "Debtors Accounting for a Modification or Exchange of Debt Instruments," as the change in the present value of the notes
exceeded the present value prior to the modifications by more than 10%. The debt modification and origination fees write-off expense represents a non-cash adjustment and has no impact on
the amount of debt

18

---

ultimately
owed to Wynnchurch Capital Partners, L.P. The valuation of the notes was determined based on advice from a third-party valuation specialist who utilized a valuation model. Based on the
results, the fair value of the notes was determined to be $13.2 million versus the carrying value of $9.7 million. As such, a $3.5 million charge was recognized for the
modification of debt to recognize the fair value of the notes in the financial statements. Additionally, origination fees of $0.9 million related to these notes and $0.1 million related
to the revolving credit commitment were written off due to the modifications.

The
Company currently anticipates its cash balances and funds from operations, together with funds available under its credit facility should be sufficient to meet all of its anticipated
cash requirements for at least the next 12 months. Wynnchurch Capital Partners, L.P. has provided a commitment up to $5.0 million of additional financing, should the need arise, on such
terms as the Company, its Board of Directors and Wynnchurch Capital Partners, L.P. may agree. General economic and industry conditions could impact the Company's ability to meet anticipated cash
requirements. Since the existing credit facility is secured by the assets of the Company, principally consisting of accounts receivable, these uncertainties may directly impact the availability of
this credit facility. Additionally, the Company's ability to successfully meet debt covenants in future periods is a significant risk factor.

The
following summarizes the Company's contractual obligations at December 31, 2003, and the effect such obligations are expected to have on our liquidity and cash in the future
periods.

|                                   |  | Payments Due by Period
|---------------------------------- |  | ----------------------
|
|
|Contractual Obligations:           |  |                       
|Senior Secured Revolving Credit    |  | $                     
|Securities Purchase Agreement      |  |                       
|Non-cancelable operating leases    |  |                       
|                                   |  |                       
|Total contractual cash obligations |  | $                     
|                                   |  |                       

Although
the Senior Secured Revolving Credit facility is listed above as due within one year, the facility has an expiration date of January 31, 2005. The Company has classified
this instrument as current based on the requirements of EITF Issue No. 95-22, "Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements That Include
both a Subjective Acceleration Clause and a Lock-Box Arrangement."

19

---



QUARTERLY FINANCIAL RESULTS

The following tables set forth certain unaudited quarterly results of operations of the Company for 2003 and 2002. The quarterly operating results are not
necessarily indicative of future results of operations.

|                                             |                   | Three Months Ended (unaudited) |       
|-------------------------------------------- | ----------------- | ------------------------------ | ------
|
|
|Statement of Operations Data:                |                   |                                |       
|Revenue                                      |                   | $                              | 36,846
|Cost of services                             |                   |                                | 27,668
|                                             |                   |                                |       
|                                             | Gross profit      |                                |       
|Selling, general and administrative expenses |                   |                                | 9,850 
|Restructuring and other charges              |                   |                                |      
|                                             |                   |                                |       
|Total operating expenses                     |                   |                                | 9,850 
|                                             |                   |                                |       
|Loss from operations                         |                   |                                | (672  
|Other expense, net                           |                   |                                | (983  
|                                             |                   |                                |       
|Loss before income taxes                     |                   |                                | (1,655
|Income tax expense (benefit)                 |                   |                                | (1    
|                                             |                   |                                |       
|Net loss                                     |                   | $                              | (1,654
|                                             |                   |                                |       
|Loss per share:                              |                   |                                |       
|                                             | Basic and diluted |                                | $     
|                                             |                   |                                |       
|Weighted-average common shares outstanding:  |                   |                                |       
|                                             | Basic and diluted |                                |       
|                                             |                   |                                |       

|                                             |                   | Three Months Ended (unaudited) |       
|-------------------------------------------- | ----------------- | ------------------------------ | ------
|
|
|Statement of Operations Data:                |                   |                                |       
|Revenue                                      |                   | $                              | 40,759
|Cost of services                             |                   |                                | 29,336
|                                             |                   |                                |       
|                                             | Gross profit      |                                |       
|Selling, general and administrative expenses |                   |                                | 12,056
|Restructuring and other charges              |                   |                                |      
|                                             |                   |                                |       
|Total operating expenses                     |                   |                                | 12,056
|                                             |                   |                                |       
|Loss from operations                         |                   |                                | (633  
|Other expense, net                           |                   |                                | (811  
|                                             |                   |                                |       
|Loss before income taxes                     |                   |                                | (1,444
|Income tax expense (benefit)                 |                   |                                | (950  
|                                             |                   |                                |       
|Net loss                                     |                   | $                              | (494  
|                                             |                   |                                |       
|Loss per share:                              |                   |                                |       
|                                             | Basic and diluted |                                | $     
|                                             |                   |                                |       
|Weighted-average common shares outstanding:  |                   |                                |       
|                                             | Basic and diluted |                                |       
|                                             |                   |                                |       

20

---

CRITICAL ACCOUNTING POLICIES

The Company's consolidated financial statements are impacted by the accounting policies used, and the estimates and assumptions made by management. The most
significant accounting policies and management estimates that affect the presentation of the consolidated financial statements include revenue recognition, allowance for doubtful accounts, analysis of
goodwill impairment and valuation allowance for deferred tax assets.

Revenue Recognition

The Company recognizes revenues as services are performed, utilizing four different billing methodologies, as follows: (1) time and material billing,
whereby the client is billed by the hour on a
weekly basis for past services performed; (2) project-based billing, for which fees are fixed and are based on specific contracts; (3) per-incident billing, whereby the
Company charges a fee for each specific task related to certain services; and (4) fee-based billing, which is used for candidate placement/recruiting fees and vendor management
fees. The Company typically provides discounts on staffing services to its largest clients in exchange for the opportunity to sell more volume, as well as the opportunity to sell its higher-margin,
value-added services. All revenues are recognized net of such discounts and after services have been completed.

Allowance for Doubtful Accounts

The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customers' current credit
worthiness. The Company continuously monitors collections and payments from its customer base and maintains a provision for estimated credit losses based upon historical experience and any specific
customer collection issues that have been identified. The Company specifically reviews outstanding account balances that are overdue 90 days or more in making its assessment of the provision
for bad debts in each period. While the Company has historically had sufficient coverage of allowances for credit losses, it cannot guarantee that it will continue to experience the same credit loss
rates as in past periods.

Goodwill Impairment

On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). This Statement dictates that
goodwill and intangible assets with indefinite useful lives should be tested for impairment at least annually, instead of being amortized on an ongoing basis. The Company has terminated its policy of
amortizing goodwill on a monthly basis and performs an annual analysis of goodwill impairment, using the discounted future cash flows methodology in determining fair value.

Valuation Allowance for Deferred Tax Assets

The Company records a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized. A valuation
allowance was established for the net deferred tax asset given the uncertainty with respect to the future realization of deferred tax assets. This valuation allowance is required given that the net
operating losses have no remaining carryback potential and the lack of ability to accurately forecast taxable income over the 20 year net operating loss carryforward period. When a valuation
allowance is deemed necessary, the Company records an adjustment to the deferred tax asset, with a corresponding charge to the statement of operations. In the event that the Company determines that it
would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets would increase income, or reduce a net loss, in the period
such determination was made.

21

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RECENT ACCOUNTING PRONOUNCEMENTS

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with an Exit or Disposal Activity," which supercedes EITF
No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)," which is
effective for exit or disposal activities initiated after December 31, 2002. SFAS No. 146 requires that a company record a liability when that liability is incurred and can be measured
at fair value. Incurred is defined as when an event obligates the entity to transfer or use assets. The recognition of termination benefits to employees will depend on whether additional service is
required of the employee. If the employee must continue to provide service for a period of at least a minimum of sixty days in order to be eligible for the benefits (called a "minimum retention
period"), the fair value of the benefits should be accrued over the time the employee renders the service. If future service beyond a minimum retention period is not required, the liability for the
fair value of the benefits should be recognized at the time the company communicates the arrangement to the employees. The Company adopted this statement in the year beginning January 1, 2003
and followed this guidance in the 2003 restructuring charge. This statement did not have a material effect on the Company's consolidated financial position or results of operations.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosurean Amendment of FASB Statement
No. 123." This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has elected not to
change to the fair value based method of accounting for stock-based employee compensation. The Company accounts for employee stock options under Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees," under which no compensation cost was recognized and provides the disclosures required by SFAS No. 123 and SFAS No. 148.

In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement establishes
standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered
into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003 except for certain provisions related to
mandatorily redeemable financial instruments, which have been deferred. The Company does not believe that the adoption of the remaining provisions of SFAS No. 150 will have a material effect on
the consolidated financial statements or results of operations.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The market risk that the Company is exposed to primarily relates to changes in interest rates on its borrowings. At December 31, 2003, the Company had
$11.8 million in floating-rate debt. An adverse change in interest rates during any period that the loan is outstanding would cause an increase in interest expense. A 100 basis
point increase in the bank's base rate would increase the annual amount of interest paid by $0.1 million.

The
Company does not currently have any derivative financial instruments.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Reference is made to the financial statements, financial statement schedule and notes thereto included elsewhere in this report and listed under Item 15.

22

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

None.

ITEM 9A.    CONTROLS AND PROCEDURES



PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.









ITEM 11.    EXECUTIVE COMPENSATION.

The information required by this Item is set forth in the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on June 10, 2004,
under the captions "Executive Compensation" and "Board of Directors," which information is hereby incorporated herein by reference.

23

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ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Certain of the information required by this Item is set forth in the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on
June 10, 2004, under the caption "Securities Beneficially Owned by Principal Stockholders and Management," which information is hereby incorporated herein by reference.

Equity Compensation Plan Information:

Alternative Resources Corporation currently has two equity compensation plans. Details of the Company's Incentive Stock Option Plan are contained within
Note 8 of the Company's consolidated financial statements. The Incentive Stock Option Plan is approved by the Company's security holders.

The
Company has a second equity compensation plan that is not approved by security holders. This plan is primarily utilized as a hiring incentive by the Board of Directors to recruit key
executives and directors. Options are offered and issued upon acceptance of employment. The terms and provisions of the options granted under this plan are determined by the Board of Directors at the
time of grant. These options were issued at the fair market value as of the time of the grant. The terms and conditions of these grants are similar to the terms and conditions of options granted under
the Incentive Stock Option Plan with the exception that they provide for accelerated vesting upon a change in control of the Company.

|                                                           |  | Year ended December 31, 2003
|---------------------------------------------------------- |  | ----------------------------
|
|Equity compensation plans approved by security holders     |  | 1,454,483                   
|Equity compensation plans not approved by security holders |  | 1,050,000                   
|Total                                                      |  | 2,504,483                   

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

On January 31, 2002, $10.0 million principal amount of Senior Subordinated Convertible Notes was sold to Wynnchurch Capital Partners, L.P., a
private equity investor. The Senior Subordinated Convertible Notes originally bore interest at 15% and are due January 31, 2009. These notes initially were convertible into common stock anytime
after January 31, 2002 at a conversion price of $2.50 per share. At the Company's election, one-half of the interest could be deferred during the first four years, subject to
certain conditions. In conjunction with the sale of these notes, the Company issued 10.0 million warrants to purchase shares of the Company's common stock at $0.55 per share. An
additional 1.0 million warrants to purchase its common stock at $0.73 per share were not exercisable for one year contingent upon the Company meeting certain performance measures, however, the
warrants would expire if such performance measures were met. As of December 31, 2002, the Company did not meet the specific performance measures related to the 1.0 million contingent
warrants and these warrants did not expire.

Throughout
2002, the Company and Wynnchurch Capital Partners, L.P. executed four amendments to the securities purchase agreement. These amendments were required to waive events of
default that

24

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occurred
relative to the fixed charge and tangible net worth covenants. Both covenants were reset with tangible net worth reestablished at $2.6 million and the fixed charge covenant
reestablished at an allowable shortfall of $0.7 million through October 1, 2002 and a ratio of .95:1, thereafter. In addition, the Company and Wynnchurch Capital, L.P. agreed to defer
all quarterly cash interest payments until the Company satisfied the covenants with the senior lender, Fleet Capital Corporation.

In
2003, in connection with an amendment to the Company's credit agreement with Fleet Capital Corporation, Wynnchurch Capital Partners, L.P. executed a guarantee with Fleet Capital
Corporation to allow overadvances of up to $2.0 million through December 31, 2003, reduced by any payments received from Bluecurrent. In consideration, Wynnchurch Capital Partners, L.P.
and the Company amended their agreements. The 15% Senior Subordinated Convertible Notes conversion price was reduced from $2.50 to $1.50 per share of common stock. The exercise price of all
outstanding warrants was reduced to $0.26 per share. Additionally, a provision was made that any draw on the guarantee by the Company could be satisfied with a purchase by Wynnchurch Capital Partners,
L.P. of additional 15% Senior Subordinated Convertible Notes having a principal amount equal to the Company's draw and having terms equal to the outstanding 15% Senior Convertible Notes, and provided
for a $0.3 million fee to Wynnchurch Capital Partners, L.P. in the event of a draw upon their guarantee. The $0.3 million fee would be payable through the issuance of additional 15%
Senior Subordinated Convertible Notes. As of December 31, 2003, the Company has not been required to draw on the guarantee, and no additional Convertible Notes have been issued. In
July 2003, Wynnchurch Capital Partners, L.P. agreed to waive the agreed requirement that their guarantee be reduced by any amounts received from Bluecurrent. Consequently, Bluecurrent's initial
payment of $0.9 million did not reduce the $2.0 million guarantee. However, all subsequent payments from Bluecurrent will continue to reduce the outstanding guarantee. In consideration
for this waiver, Wynnchurch Capital Partners, L.P. received a fee of $0.1 million payable as interest and added to the principal amount of the notes. Under the Sixth Amendment to the securities
purchase agreements, Wynnchurch Capital Partners, L.P. waived the events of default as of June 30, 2003, relating to the tangible net worth and fixed charge covenants. Additionally, the
covenants were reset for the remainder of 2003 as follows: the tangible net worth covenant was reset to ($5.2) million with the fixed charge covenant reset to an allowable shortfall of
$0.7 million for the three months ended September 30, 2003 and $1.0 million for the six months ending December 31, 2003. The fixed charge covenant will be 0.95:1
thereafter. In addition, the interest rate of the Senior Subordinated Convertible Notes was changed effective July 1, 2003 from 15% to 16% per annum. In September 2003, Wynnchurch
Capital Partners L.P. agreed to maintain its $2.0 million guarantee and not to reduce such guarantee by any payments received from Bluecurrent. In consideration for maintaining the guarantee,
the Company agreed to pay Wynnchurch Capital Partners, L.P. $0.3 million payable as additional interest and added to the principal amount of the notes. The Company also executed a Seventh
Amendment to the securities purchase agreement that waived the events of default that occurred as of September 30, 2003 and reset the financial covenants for future quarters. The covenants were
reset for future quarters as follows; the tangible net worth covenant was reset to ($8.9) million for the quarter ended December 31, 2003 and each quarter thereafter. The fixed charge covenant
was reset to an allowable shortfall of $1.0 million for the three months ended December 31, 2003, $1.8 million for the six months ended March 31, 2004, and $1.9 million for
the nine months ended June 30, 2004. The fixed charge covenant will be 0.95:1 thereafter. Capital expenditures will also be limited to $52,500 per quarter commencing with the quarter ended
December 31, 2003. In consideration for this waiver and for continuing to maintain the $2.0 million guarantee, Wynnchurch Capital Partners, L.P. will receive a monthly fee of $30,000 for
each month such guarantee is in effect. This fee will be payable as additional interest and added to the principal amount of the notes. On March 29, 2004, a letter of agreement was executed to
maintain the $2.0 million guarantee until June 30, 2004. The Company was in compliance with its covenants as of December 31, 2003. Wynnchurch Capital Partners, L.P. has waived
compliance by the Company with respect to the financial covenants through January 1, 2005. Additionally, Wynnchurch Capital Partners, L.P. has

25

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provided
a commitment up to $5.0 million of additional financing, should the need arise, on such terms as the Company, its Board of Directors and Wynnchurch Capital Partners L.P. may agree.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this Item is set forth in the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on June 10, 2004,
under the captions "Independent Accountants," which information is hereby incorporated herein by reference.

PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.

Page(a)

(i)

FINANCIAL STATEMENTSIndependent Auditors' Report

34Consolidated Balance Sheetsas of December 31, 2003 and 2002

35Consolidated Statements of Operationsyears ended December 31, 2003, 2002 and 2001

36Consolidated Statements of Comprehensive Income (Loss)years ended December 31, 2003, 2002 and 2001

37Consolidated Statements of Stockholders' Equity (Deficit)years ended December 31, 2003, 2002 and 2001

38Consolidated Statements of Cash Flowsyears ended December 31, 2003, 2002 and 2001

39Notes to Consolidated Financial Statements

40(ii)

FINANCIAL STATEMENT SCHEDULESIndependent Auditors' Report

54Schedule IIValuation and Qualifying Accounts

55(iii)

EXHIBITSExhibits submitted with the Annual Report on Form 10-K as filed with the Securities and Exchange Commission and those incorporated by reference to other filings are listed on the Exhibit Index

28(b)



REPORTS ON FORM 8-K:On November 14, 2003, the Company furnished pursuant to Items 7, 9 and 12, a Form 8-K announcing that it had issued a press release on that date, setting forth the Company's third quarter 2003 earnings and filing a copy of the press
release therein.On November 25, 2003, the Company filed a Form 8-K reporting under Item 5, announcing the appointment of Robert P. Stanojev as President and Chief Executive Officer.On March 25, 2004, the Company furnished pursuant to Items 7 and 12, a Form 8-K announcing that it had issued a press release on that date, setting forth the Company's fourth quarter 2003 earnings and filing a copy of the press release
therein.


26

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 30, 2004.

| | ALTERNATIVE RESOURCES CORPORATION
| | ---------------------------------
| | By                               

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in
the capacities indicated on March 30, 2004.

|Signature                               |  | Title                                                                                                          
|--------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------
|                                        |  |                                                                                                                
|/s/ROBERT P. STANOJEVRobert P. Stanojev |  | Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)                     
|/s/STEVEN PURCELLSteven Purcell         |  | Senior Vice President, Chief Financial Officer, Secretary, Treasurer and Director (Principal Financial Officer)
|/s/JOANNE BRANDESJoAnne Brandes         |  | Director                                                                                                       
|/s/SYD N. HEATONSyd N. Heaton           |  | Director                                                                                                       
|/s/JOHN A. HATHERLYJohn A. Hatherly     |  | Director                                                                                                       
|/s/FRANK G. HAYESFrank G. Hayes         |  | Director                                                                                                       
|/s/RICHARD J. RENAUDRichard J. Renaud   |  | Director                                                                                                       
|/s/MICHAEL J. HERINGMichael J. Hering   |  | Director                                                                                                       

27

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EXHIBIT INDEX

|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                                                                                   
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Amended and Restated Certificate of Incorporation, as amended. Incorporated herein by reference to Exhibit 3.1 to the Company's Form 10-K for the year ended December 31, 1998. (File No. 0-23940)                                                                                                                                                                            
|3.2            |  | Amended and Restated By-Laws. Incorporated herein by reference to Exhibit 3.1 to the Company's Form 10-Q for the period ended June 30, 2002. (File No. 0- 23940)                                                                                                                                                                                                              
|4.1            |  | Credit and Security Agreement dated January 31, 2002 among Alternative Resources Corporation, ARC Services Inc., ARC Solutions, Inc., ARC Midholding, Inc. and Writers Inc. as joint and several co-borrowers, and Fleet Capital
Corporation as lender. Incorporated herein by reference to Exhibit 4.1 to the Company's Form 8-K dated February 12, 2002. (File No. 0-23940).
|4.2            |  | $30,000,000 Revolving Credit Note under the Credit and Security Agreement. Incorporated herein by reference to Exhibit 4.2 to the Company's Form 8-K dated February 12, 2002. (File No. 0-23940).                                                                                                                                                                             
|4.3            |  | Securities Purchase Agreement dated January 31, 2002, among Alternative Resources Corporation, Wynnchurch Capital Partners, L.P. and Wynnchurch Capital Partners Canada, L.P. Incorporated herein by reference to Exhibit 4.3 to the Company's
Form 8-K dated February 12, 2002. (File No. 0-23940).                                                                          
|4.4            |  | 15% Senior Subordinated Convertible Promissory Note dated January 31, 2002 and due January 31, 2009 in the principal amount of $4,920,208 issued to Wynnchurch Capital Partners, L.P. Incorporated herein by reference to Exhibit 4.4 to
the Company's Form 8-K dated February 12, 2002. (File No. 0-23940).                                                                  
|4.5            |  | 15% Senior Subordinated Convertible Promissory Note dated January 31, 2002 and due January 31, 2009 in the principal amount of $5,079,792 issued to Wynnchurch Capital Partners Canada, L.P. Incorporated herein by reference to
Exhibit 4.5 to the Company's Form 8-K dated February 12, 2002. (File No. 0-23940).                                                           
|4.6            |  | Stock Purchase Warrant for 4,920,208 shares of Alternative Resources Corporation common stock, dated January 31, 2002 and issued to Wynnchurch Capital Partners, L.P. Incorporated herein by reference to Exhibit 4.6 to the Company's
Form 8-K dated February 12, 2002. (File No. 0-23940).                                                                                  
|4.7            |  | Stock Purchase Warrant for 5,079,792 shares of Alternative Resources Corporation common stock, dated January 31, 2002 and issued to Wynnchurch Capital Partners Canada, L.P. Incorporated herein by reference to Exhibit 4.7 to the Company's
Form 8-K dated February 12, 2002. (File No. 0-23940).                                                                           
|4.8            |  | Contingent Stock Purchase Warrant for 492,021 shares of Alternative Resources Corporation common stock, dated January 31, 2002 and issued to Wynnchurch Capital Partners, L.P. Incorporated herein by reference to Exhibit 4.8 to the Company's
Form 8-K dated February 12, 2002. (File No. 0-23940).                                                                         
|4.9            |  | Contingent Stock Purchase Warrant for 507,979 shares of Alternative Resources Corporation common stock, dated January 31, 2002 and issued to Wynnchurch Capital Partners Canada, L.P. Incorporated herein by reference to Exhibit 4.9 to the
Company's Form 8-K dated February 12, 2002. (File No. 0-23940).                                                                  
|               |  |                                                                                                                                                                                                                                                                                                                                                                               

28

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|4.10 |  | Registration Rights Agreement dated January 31, 2002, among Alternative Resources Corporation, Wynnchurch Capital Partners, L.P. and Wynnchurch Capital Partners Canada, L.P. Incorporated herein by reference to Exhibit 4.10 to the Company's
Form 8-K dated February 12, 2002. (File No. 0-23940).                                                                                                                            
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.11 |  | Subordination and Intercreditor Agreement dated as of January 31, 2002, among Wynnchurch Capital Partners, L.P., Wynnchurch Capital Partners Canada, L.P., Alternative Resources Corporation, ARC Service, Inc., ARC Solutions, Inc., ARC
Midholding, Inc., Writers, Inc., and Fleet Capital Corporation. Incorporated herein by reference to Exhibit 4.11 to the Company's Form 8-K dated February 12, 2002. (File No. 0-23940).
|4.12 |  | Pledge Agreement dated January 31, 2002, among Alternative Resources Corporation, ARC Service, Inc., ARC Solutions, Inc., ARC Midholding, Inc., Writers Inc. and Fleet Capital Corporation. Incorporated herein by reference to
Exhibit 4.12 to the Company's Form 8-K dated February 12, 2002. (File No. 0-23940).                                                                                                              
|4.13 |  | Pledge Agreement dated January 31, 2002, among Alternative Resources Corporation, Wynnchurch Capital Partners, L.P., and Wynnchurch Capital Partners Canada, L.P. Incorporated herein by reference to Exhibit 4.13 to the Company's
Form 8-K dated February 12, 2002. (File No. 0-23940).                                                                                                                                        
|4.14 |  | Company Security Agreement dated January 31, 2002, among Alternative Resources Corporation, Wynnchurch Capital Partners, L.P. and Wynnchurch Capital Partners Canada, L.P. Incorporated herein by reference to Exhibit 4.14 to the Company's
Form 8-K dated February 12, 2002. (File No. 0-23940).                                                                                                                               
|4.15 |  | Guarantor Security Agreement dated January 31, 2002, among ARC Service, Inc., ARC Solutions, Inc., ARC Midholding, Inc., Writers Inc., Wynnchurch Capital Partners, L.P. and Wynnchurch Capital Partners Canada, L.P.
Incorporated herein by reference to Exhibit 4.15 to the Company's Form 8-K dated February 12, 2002. (File No. 0-23940).                                                                                    
|4.16 |  | Guaranty dated January 31, 2002, made by ARC Service, Inc., ARC Solutions, Inc., ARC Midholding, Inc. and Writers Inc., for the benefit of Wynnchurch Capital Partners, L.P. and Wynnchurch Capital Partners Canada, L.P.
Incorporated herein by reference to Exhibit 4.16 to the Company's Form 8-K dated February 12, 2002. (File No. 0-23940).                                                                                
|4.17 |  | First amendment to credit and security agreement dated August 7, 2002, incorporated herein by reference to Exhibit 4.1 to the Company's Form 10-Q for the period ended June 30, 2002. (File No. 0-23940)                                                                                                                                                                                                                         
|4.18 |  | Second amendment to credit and security agreement dated August 30, 2002, incorporated herein by reference to Exhibit 4.1 to the Company's Form 10-Q for the period ended September 30, 2002. (File No. 0-23940)                                                                                                                                                                                                                  
|4.19 |  | Third amendment to credit and security agreement dated November 14, 2002, incorporated herein by reference to Exhibit 4.2 to the Company's Form 10-Q for the period ended September 30, 2002. (File No. 0-23940)                                                                                                                                                                                                                 
|4.20 |  | First amendment to the securities purchase agreement dated August 7, 2002, incorporated herein by reference to Exhibit 4.2 to the Company's Form 10-Q for the period ended June 30, 2002. (File No. 0-23940)                                                                                                                                                                                                                     
|4.21 |  | Fourth amendment to credit and security agreement dated December 27, 2002, incorporated herein by reference to Exhibit 4.35 of the Company's Form 10-K for the period ended December 31, 2002. (File No. 0-23940)                                                                                                                                                                                                                
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  

29

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|4.22 |  | Second amendment to securities purchase agreement dated August 30, 2002, incorporated herein by reference to Exhibit 4.36 of the Company's Form 10-K for the period ended December 31, 2002. (File No. 0-23940)      
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.23 |  | Third amendment to securities purchase agreement dated November 14, 2002, incorporated herein by reference to Exhibit 4.37 of the Company's Form 10-K for the period ended December 31, 2002. (File No. 0-23940)     
|4.24 |  | Fourth amendment to securities purchase agreement dated December 27, 2002, incorporated herein by reference to Exhibit 4.38 of the Company's Form 10-K for the period ended December 31, 2002. (File No. 0-23940)    
|4.25 |  | Fifth amendment to credit and security agreement dated April 14, 2003, incorporated herein by reference to Exhibit 4.1 of the Company's Form 10-Q for the period ended March 31, 2003. (File No. 0-23940)            
|4.26 |  | Fifth amendment to securities purchase agreement dated April 14, 2003, incorporated herein by reference to Exhibit 4.2 of the Company's Form 10-Q for the period ended March 31, 2003. (File No. 0-23940)            
|4.27 |  | First amendment to subordination and intercreditor agreement dated April 14, 2003, incorporated herein by reference to Exhibit 4.3 of the Company's Form 10-Q for the period ended March 31, 2003. (File No. 0-23940)
|4.28 |  | Guaranty agreement dated April 14, 2003, incorporated herein by reference to Exhibit 4.4 of the Company's Form 10-Q for the period ended March 31, 2003. (File No. 0-23940)                                          
|4.29 |  | Amendment to subordinated convertible promissory notes dated April 14, 2003, incorporated herein by reference to Exhibit 4.5 of the Company's Form 10-Q for the period ended March 31, 2003. (File No. 0-23940)      
|4.30 |  | Amendment to stock purchase and contingent warrants dated April 14, 2003, incorporated herein by reference to Exhibit 4.6 of the Company's Form 10-Q for the period ended March 31, 2003. (File No. 0-23940)         
|4.31 |  | Sixth amendment to credit and security agreement dated July 15, 2003, incorporated herein by reference to Exhibit 4.1 of the Company's Form 10-Q for the period ended June 30, 2003. (File No. 0-23940)              
|4.32 |  | First amendment to the Guaranty agreement dated July 15, 2003, incorporated herein by reference to Exhibit 4.2 of the Company's Form 10-Q for the period ended June 30, 2003. (File No. 0-23940)                     
|4.33 |  | Seventh amendment to credit and security agreement dated August 14, 2003, incorporated herein by reference to Exhibit 4.3 of the Company's Form 10-Q for the period ended June 30, 2003. (File No. 0-23940)          
|4.34 |  | Eighth amendment to credit and security agreement dated November 14, 2003, incorporated herein by reference to Exhibit 4.1 of the Company's Form 10-Q for the period ended September 30, 2003. (File No. 0-23940)    
|4.35 |  | Second amendment to the Guaranty agreement dated November 14, 2003, incorporated herein by reference to Exhibit 4.2 of the Company's Form 10-Q for the period ended September 30, 2003. (File No. 0-23940)           
|     |  |                                                                                                                                                                                                                      

30

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|4.36 |  | Sixth amendment to security purchase agreement dated August 14, 2003, incorporated herein by reference to Exhibit 4.3 of the Company's Form 10-Q for the period ended September 30, 2003. (File No. 0-23940)    
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.37 |  | Second amendment to convertible promissory notes dated August 14, 2003, incorporated herein by reference to Exhibit 4.4 of the Company's Form 10-Q for the period ended September 30, 2003. (File No. 0-23940)  
|4.38 |  | Seventh amendment to security purchase agreement dated November 14, 2003, incorporated herein by reference to Exhibit 4.5 of the Company's Form 10-Q for the period ended September 30, 2003. (File No. 0-23940)

31

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Exhibits
10.1 through 10.10 and exhibits 10.12 through 10.21 are management contracts or compensatory plans or arrangements.

|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                              
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1           |  | Amended and Restated Stock Option Plan. Incorporated herein by reference to Exhibit 10 to the Company's Form 10-Q for the period ended June 30, 1997. (File No. 0-23940)                                                                                                                 
|10.2           |  | Form of Indemnity Agreement between Alternative Resources Corporation and its officers. Incorporated herein by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1, as amended, Registration
No. 33-76584.                                                    
|10.3           |  | Executive Employment Agreement between Alternative Resources Corporation and Raymond R. Hipp dated July 23, 1998. Incorporated herein by reference to the Exhibit 10.1 to the Company's Form 10-Q for the period ended
September 30, 1998. (File No. 0-23940).                           
|10.4           |  | Executive Employment Agreement between Alternative Resources Corporation and Steven Purcell dated August 1, 1998. Incorporated herein by reference to the Exhibit 10.2 to the Company's Form 10-Q for the period ended September 30,
1998. (File No. 0-23940).                           
|10.5           |  | Stock Option Agreement between Alternative Resources Corporation and Raymond R. Hipp dated July 23, 1998. Incorporated herein by reference to the Exhibit 10.8 to the Company's Form 10-K for the period ended December 31, 1999.
(File No. 0-23940).                                    
|10.6           |  | Stock Option Agreement between Alternative Resources Corporation and Steven Purcell dated August 3, 1998. Incorporated herein by reference to the Exhibit 10.9 to the Company's Form 10-K for the period ended December 31, 1999.
(File No. 0-23940).                                    
|10.7           |  | Executive Employment Agreement between Alternative Resources Corporation and Miner Smith dated July 16, 2001. Incorporated herein by reference to the Exhibit 10.7 to the Company's Form 10-K for the period ended December 31, 2001.
(File No. 0-23940).                                
|10.8           |  | Stock Option Agreement between Alternative Resources Corporation and Miner Smith dated July 16, 2001. Incorporated herein by reference to the Exhibit 10.8 o the Company's Form 10-K for the period ended December 31, 2001. (File
No. 0-23940).                                         
|10.9           |  | Executive Employment Agreement between Alternative Resources Corporation and Sharon McKinney dated November 1, 2000. Incorporated herein by reference to the Exhibit 10.9 to the Company's Form 10-K for the period ended December 31,
2000. (File No. 0-23940).                         
|10.10          |  | Executive Employment Agreement between Alternative Resources Corporation and Victor Fricas dated November 1, 2000. Incorporated herein by reference to the Exhibit 10.10 to the Company's Form 10-K for the period ended December 31,
2000. (File No. 0-23940).                          
|10.11          |  | Indemnification Agreement between Alternative Resources Corporation and individual members of the Board of Directors dated February 4, 2002. Incorporated herein by reference to the Exhibit 10.11 of the Company's Form 10-K for the
period ended December 31, 2001. (File No. 0-23940).
|10.12          |  | Executive Employment Agreement between Alternative Resources Corporation and George W. Watts dated July 1, 2002. Incorporated herein by reference to the Exhibit 10.1 to the Company's Form 10-Q for the period ended June 30,
2002. (File No. 0-023940)                                 
|10.13          |  | Executive Separation Agreement between Alternative Resources Corporation and Raymond R. Hipp dated June 13, 2002. Incorporated herein by reference to the Exhibit 10.2 to the Company's Form 10-Q for the period ended June 30,
2002. (File No. 0-023940)                                
|               |  |                                                                                                                                                                                                                                                                                          

32

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|10.14 |  | Director Agreement between Alternative Resources Corporation and Robert Stanojev dated August 5, 2002. Incorporated herein by reference to the Exhibit 10.3 to the Company's Form 10-Q for the period ended June 30, 2002. (File
No. 0-023940)                    
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.15 |  | Executive Employment Agreement between Alternative Resources Corporation and Bill McLendon dated September 16, 2002. Incorporated herein by reference to the Exhibit 10.1 to the Company's Form 10-Q for the period ended September 30,
 2002. (File No. 0-023940)
|10.16 |  | Executive Separation Agreement between Alternative Resources Corporation and Miner Smith dated August 2, 2002. Incorporated herein by reference to the Exhibit 10.2 to the Company's Form 10-Q for the period ended September 30,
2002. (File No. 0-023940)       
|10.17 |  | Executive Separation Agreement between Alternative Resources Corporation and Sharon McKinney dated August 22, 2003. Incorporated herein by reference to the Exhibit 10.1 to the Company's Form 10-Q for the period ended September 30,
2003. (File No. 0-023940)  
|10.18 |  | Executive Employment Agreement between Alternative Resources Corporation and Tracy Linne dated June 25, 2003.                                                                                                                                                     
|10.19 |  | Executive Separation Agreement between Alternative Resources Corporation and George W. Watts dated December 15, 2003.                                                                                                                                             
|10.20 |  | Executive Separation Agreement between Alternative Resources Corporation and Vic Fricas dated December 12, 2003.                                                                                                                                                  
|21    |  | Subsidiaries of Alternative Resources Corporation                                                                                                                                                                                                                 
|23    |  | Consent of KPMG LLP                                                                                                                                                                                                                                               
|31.1  |  | Certification of Chief Executive Officer pursuant to Rule 13a-15(e) or Rule 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                      
|31.2  |  | Certification of Chief Financial Officer pursuant to Rule 13a-15(e) or Rule 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                      
|32    |  | Certification Pursuant to 18 U.S. C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                          

33

---



INDEPENDENT AUDITORS' REPORT

THE
BOARD OF DIRECTORS AND STOCKHOLDERS
ALTERNATIVE RESOURCES CORPORATION:

We
have audited the accompanying consolidated balance sheets of Alternative Resources Corporation and subsidiaries (the "Company") as of December 31, 2003 and 2002, and the
related consolidated statements of operations, comprehensive income (loss), stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended
December 31, 2003. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alternative Resources Corporation and
subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2003, in conformity with accounting principles generally accepted in the United States of America.

As
discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, on January 1, 2002.

|                                 | /s/ KPMG LLP
|-------------------------------- | ------------
|Chicago, Illinois
March 30, 2004 |             

34

---



ALTERNATIVE RESOURCES CORPORATION        CONSOLIDATED BALANCE SHEETS

|                                               |                                                                                                                                                                                     | December 31, |        
|---------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | -------
|
|
|ASSETS                                         |                                                                                                                                                                                     |              |        
|Current Assets:                                |                                                                                                                                                                                     |              |        
|                                               | Cash and cash equivalents                                                                                                                                                           |              | $      
|                                               | Trade accounts receivable, net of allowance for doubtful accounts, $326 in 2003 and $2,002 in 2002                                                                                  |              |        
|                                               | Prepaid expenses                                                                                                                                                                    |              |        
|                                               | Income taxes receivable                                                                                                                                                             |              |        
|                                               | Other receivables                                                                                                                                                                   |              |        
|                                               |                                                                                                                                                                                     |              |        
|Total current assets                           |                                                                                                                                                                                     |              | 22,777 
|                                               |                                                                                                                                                                                     |              |        
|Property and Equipment:                        |                                                                                                                                                                                     |              |        
|                                               | Office equipment                                                                                                                                                                    |              |        
|                                               | Furniture and fixtures                                                                                                                                                              |              |        
|                                               | Software                                                                                                                                                                            |              |        
|                                               | Leasehold improvements                                                                                                                                                              |              |        
|                                               |                                                                                                                                                                                     |              |        
|                                               |                                                                                                                                                                                     |              | 32,586 
|                                               | Less accumulated depreciation and amortization                                                                                                                                      |              |        
|                                               |                                                                                                                                                                                     |              |        
|Net property and equipment                     |                                                                                                                                                                                     |              | 7,533  
|                                               |                                                                                                                                                                                     |              |        
|Other Assets:                                  |                                                                                                                                                                                     |              |        
|                                               | Goodwill                                                                                                                                                                            |              |        
|                                               | Other assets                                                                                                                                                                        |              |        
|                                               |                                                                                                                                                                                     |              |        
|Total other assets                             |                                                                                                                                                                                     |              | 3,503  
|                                               |                                                                                                                                                                                     |              |        
|Total assets                                   |                                                                                                                                                                                     | $            | 33,813 
|                                               |                                                                                                                                                                                     |              |        
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |                                                                                                                                                                                     |              |        
|Current Liabilities:                           |                                                                                                                                                                                     |              |        
|                                               | Cash overdraft                                                                                                                                                                      |              | $      
|                                               | Short-term debt                                                                                                                                                                     |              |        
|                                               | Accounts payable                                                                                                                                                                    |              |        
|                                               | Payroll and related expenses                                                                                                                                                        |              |        
|                                               | Accrued expenses                                                                                                                                                                    |              |        
|                                               | Accrued restructuring and other charges                                                                                                                                             |              |        
|                                               | Income taxes payable                                                                                                                                                                |              |        
|                                               |                                                                                                                                                                                     |              |        
|Total current liabilities                      |                                                                                                                                                                                     |              | 35,035 
|                                               |                                                                                                                                                                                     |              |        
|                                               | Long-term debt                                                                                                                                                                      |              |        
|                                               | Other liabilities                                                                                                                                                                   |              |        
|                                               |                                                                                                                                                                                     |              |        
|Total liabilities                              |                                                                                                                                                                                     |              | 50,198 
|                                               |                                                                                                                                                                                     |              |        
|Stockholders' Equity (Deficit):                |                                                                                                                                                                                     |              |        
|                                               | Preferred stock ($.01 par value, 1,000,000 shares authorized; none issued and outstanding)                                                                                          |              |        
|                                               | Common stock ($.01 par value, 50,000,000 shares authorized; 17,703,104 and 17,702,819 issued and 17,117,304 and 17,117,019 outstanding at December 31, 2003 and 2002, respectively) |              |        
|                                               | Additional paid-in capital                                                                                                                                                          |              |        
|                                               | Accumulated other comprehensive income (loss)                                                                                                                                       |              |        
|                                               | Accumulated deficit                                                                                                                                                                 |              |        
|                                               |                                                                                                                                                                                     |              |        
|                                               |                                                                                                                                                                                     |              | (11,588
|                                               | Treasury shares, at cost (585,800 shares in 2003 and 2002, respectively)                                                                                                            |              |        
|                                               |                                                                                                                                                                                     |              |        
|Total stockholders' deficit                    |                                                                                                                                                                                     |              | (16,385
|                                               |                                                                                                                                                                                     |              |        
|Total liabilities and stockholders' deficit    |                                                                                                                                                                                     | $            | 33,813 
|                                               |                                                                                                                                                                                     |              |        

See accompanying notes to consolidated financial statements.

35

---

ALTERNATIVE RESOURCES CORPORATION        CONSOLIDATED STATEMENTS OF OPERATIONS

|                                             |                                | Year Ended December 31, |        
|-------------------------------------------- | ------------------------------ | ----------------------- | -------
|
|
|Revenue                                      |                                | $                       | 138,146
|Cost of services                             |                                |                         | 105,449
|                                             |                                |                         |        
|                                             | Gross profit                   |                         |        
|                                             |                                |                         |        
|Selling, general and administrative expenses |                                |                         | 37,438 
|Restructuring and other charges              |                                |                         | 4,809  
|                                             |                                |                         |        
|                                             | Operating expenses             |                         |        
|                                             |                                |                         |        
|                                             | Income (loss) from operations  |                         |        
|Other expense, net                           |                                |                         | (4,345 
|                                             |                                |                         |        
|                                             | Loss before income tax benefit |                         |        
|Income tax benefit                           |                                |                         | (814   
|                                             |                                |                         |        
|                                             | Net loss                       |                         | $      
|                                             |                                |                         |        
|Net loss per share:                          |                                |                         |        
|                                             | Basic and diluted              |                         | $      
|                                             |                                |                         |        
|Shares used to compute net loss per share:   |                                |                         |        
|                                             | Basic and diluted              |                         |        
|                                             |                                |                         |        

See
accompanying notes to consolidated financial statements.

36

---



ALTERNATIVE RESOURCES CORPORATION        CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

|                                                 |                                                                   | Year Ended December 31, |        
|------------------------------------------------ | ----------------------------------------------------------------- | ----------------------- | -------
|
|
|Net loss                                         |                                                                   | $                       | (13,081
|Other comprehensive income (loss):               |                                                                   |                         |        
|                                                 | Foreign currency translation adjustment, net of tax               |                         |        
|Unrealized holding gain on security, net of tax: |                                                                   |                         |        
|                                                 | Reclassification adjustment for gain included in loss, net of tax |                         |        
|                                                 |                                                                   |                         |        
|Other comprehensive income (loss)                |                                                                   |                         | 8      
|                                                 |                                                                   |                         |        
|Comprehensive loss                               |                                                                   | $                       | (13,073
|                                                 |                                                                   |                         |        

See
accompanying notes to consolidated financial statements.

37

---

ALTERNATIVE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(in thousands)

|                                                           |  |   |  |   |   |  |        |   |   |     |   |      |   |   |        |   |   |        |   | Accumulated Other
Comprehensive Income |      |   |  
|---------------------------------------------------------- |  | - |  | - | - |  | ------ | - | - | --- | - | ---- | - | - | ------ | - | - | ------ | - | -------------------------------------- | ---- | - | -
|
|
|
|Balance at December 31, 2000                               |  |  |  | $ |  |  | 17,391 |   | $ | 174 |   | (586 | ) | $ | (4,797 | ) | $ | 27,425 |   | $                                      | (318 | ) | $
|Amortization of restricted stock deferred compensation     |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   |       |   |                                        | 221  |   |  
|Cancellation of restricted common stock                    |  |  |  |   |  |  | (130   | ) |   | (1  | ) |     |   |   |       |   |   | (13    | ) |                                        |     |   |  
|Issuance of common stock to employee stock purchase plan   |  |  |  |   |  |  | 296    |   |   | 3   |   |     |   |   |       |   |   | 146    |   |                                        |     |   |  
|Payments to employee stock purchase plan                   |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   | (50    | ) |                                        |     |   |  
|Translation adjustment, net of tax                         |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   |       |   |                                        |     |   |  
|Realized gain on available-for-sale securities, net of tax |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   |       |   |                                        |     |   |  
|Net loss                                                   |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   |       |   |                                        |     |   |  
|                                                           |  |   |  |   |   |  |        |   |   |     |   |      |   |   |        |   |   |        |   |                                        |      |   |  
|Balance at December 31, 2001                               |  |  |  |   |  |  | 17,557 |   |   | 176 |   | (586 | ) |   | (4,797 | ) |   | 27,508 |   |                                        | (97  | ) |  
|Amortization of restricted stock deferred compensation     |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   |       |   |                                        | 97   |   |  
|Cancellation of restricted common stock                    |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   | (31    | ) |                                        |     |   |  
|Issuance of common stock to employee stock purchase plan   |  |  |  |   |  |  | 146    |   |   | 2   |   |     |   |   |       |   |   | 83     |   |                                        |     |   |  
|Value assigned to warrants issued                          |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   | 3,135  |   |                                        |     |   |  
|Dividends paid, stockholder rights plan                    |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   |       |   |                                        |     |   |  
|Translation adjustment, net of tax                         |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   |       |   |                                        |     |   |  
|Net loss                                                   |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   |       |   |                                        |     |   |  
|                                                           |  |   |  |   |   |  |        |   |   |     |   |      |   |   |        |   |   |        |   |                                        |      |   |  
|Balance at December 31, 2002                               |  |  |  |   |  |  | 17,703 |   |   | 178 |   | (586 | ) |   | (4,797 | ) |   | 30,695 |   |                                        |     |   |  
|Value assigned to warrants issued                          |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   | 69     |   |                                        |     |   |  
|Translation adjustment, net of tax                         |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   |       |   |                                        |     |   |  
|Net loss                                                   |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   |       |   |                                        |     |   |  
|                                                           |  |   |  |   |   |  |        |   |   |     |   |      |   |   |        |   |   |        |   |                                        |      |   |  
|Balance at December 31, 2003                               |  |  |  | $ |  |  | 17,703 |   | $ | 178 |   | (586 | ) | $ | (4,797 | ) | $ | 30,764 |   | $                                      |     |   | $
|                                                           |  |   |  |   |   |  |        |   |   |     |   |      |   |   |        |   |   |        |   |                                        |      |   |  

See accompanying notes to consolidated financial statements.

38

---



ALTERNATIVE RESOURCES CORPORATION        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                          |                                                                            | Year Ended December 31,            |                                       
|----------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ---------------------------------- | --------------------------------------
|
|
|Cash flows from operating activities:                                                     |                                                                            |                                    |                                       
|                                                                                          | Net loss                                                                   |                                    | $                                     
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |                                                                            |                                    |                                       
|                                                                                          | Depreciation and amortization                                              |                                    |                                       
|                                                                                          | Realized net gain on sales of securities                                   |                                    |                                       
|                                                                                          | Deferred income taxes                                                      |                                    |                                       
|                                                                                          | Provision for doubtful accounts                                            |                                    |                                       
|                                                                                          | Deferred compensation on restricted shares                                 |                                    |                                       
|                                                                                          | Non-cash interest expense from deferred financing costs                    |                                    |                                       
|                                                                                          | Non-cash interest expense from accretion of warrants                       |                                    |                                       
|                                                                                          | Non-cash interest expense from security purchase agreement                 |                                    |                                       
|                                                                                          | Non-cash expense of debt modification charge and origination fee write-off |                                    |                                       
|                                                                                          | Impairment of fixed assets                                                 |                                    |                                       
|                                                                                          |                                                                            | Changes in assets and liabilities: |                                       
|                                                                                          |                                                                            |                                    | Trade accounts receivable             
|                                                                                          |                                                                            |                                    | Prepaid expenses                      
|                                                                                          |                                                                            |                                    | Income taxes                          
|                                                                                          |                                                                            |                                    | Other receivables                     
|                                                                                          |                                                                            |                                    | Other assets                          
|                                                                                          |                                                                            |                                    | Accounts payable                      
|                                                                                          |                                                                            |                                    | Payroll and related expenses          
|                                                                                          |                                                                            |                                    | Accrued expenses and other liabilities
|                                                                                          |                                                                            |                                    |                                       
|Net cash provided by (used in) operating activities                                       |                                                                            |                                    | 7,797                                 
|                                                                                          |                                                                            |                                    |                                       
|Cash flows from investing activities:                                                     |                                                                            |                                    |                                       
|                                                                                          | Purchases of property and equipment                                        |                                    |                                       
|                                                                                          | Proceeds from sale of investment                                           |                                    |                                       
|                                                                                          |                                                                            |                                    |                                       
|Net cash used in investing activities                                                     |                                                                            |                                    | (140                                  
|                                                                                          |                                                                            |                                    |                                       
|Cash flows from financing activities:                                                     |                                                                            |                                    |                                       
|                                                                                          | Proceeds from short-term debt                                              |                                    |                                       
|                                                                                          | Payments on short-term debt                                                |                                    |                                       
|                                                                                          | Proceeds from issuance of debt and warrants                                |                                    |                                       
|                                                                                          | Cash paid for cancellation of stockholder rights plan                      |                                    |                                       
|                                                                                          | Payments to employee stock purchase plan                                   |                                    |                                       
|                                                                                          | Proceeds from issuance of shares to the employee stock purchase plan       |                                    |                                       
|                                                                                          | Cash overdraft                                                             |                                    |                                       
|                                                                                          |                                                                            |                                    |                                       
|Net cash provided by (used in) financing activities                                       |                                                                            |                                    | (7,701                                
|                                                                                          |                                                                            |                                    |                                       
|Effect of exchange rate changes on cash and cash equivalents                              |                                                                            |                                    | 9                                     
|                                                                                          |                                                                            |                                    |                                       
|Net increase (decrease) in cash and cash equivalents                                      |                                                                            |                                    | (35                                   
|Cash and cash equivalents at beginning of year                                            |                                                                            |                                    | 54                                    
|                                                                                          |                                                                            |                                    |                                       
|Cash and cash equivalents at end of year                                                  |                                                                            | $                                  | 19                                    
|                                                                                          |                                                                            |                                    |                                       
|Supplemental disclosures of cash flow information:                                        |                                                                            |                                    |                                       
|                                                                                          | Cash paid for interest                                                     |                                    | $                                     
|                                                                                          | Cash paid for income taxes                                                 |                                    | $                                     
|                                                                                          | Cash refunds received for income taxes                                     |                                    | $                                     

See accompanying notes to consolidated financial statements.

39

---



ALTERNATIVE RESOURCES CORPORATION        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Business

Alternative Resources Corporation ("ARC" or the "Company") was incorporated in Delaware on March 8, 1988 and is a leading provider of information
technology services. The Company has developed a significant, high quality business in the IT staffing industry with an emphasis on Help Desk, Desktop Support, Technology Deployment Service, and Field
Service offerings. The Company also has a consulting practice that supports those service offerings. The Company operates through 8 field offices with over 55 personnel in field sales, supported by 35
recruiters. The majority of the Company's sales and recruiting personnel operate from home, creating a virtual network. The Company serves Fortune 1000 and mid-sized clients throughout the
United States and Canada.

Principles of Consolidation

The operations of the Company are conducted through a parent holding company, three operating subsidiaries and three affiliates. The accompanying financial
statements include the consolidated financial position and results of operations of the Company and its subsidiaries with all intercompany transactions eliminated.

Segment Information

Management has considered the requirements of Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise
and Related Information," and has determined that the Company has one operating segment. ARC provides its services through two primary service lines called ARC Staffing Services and ARC Solutions
Services. These service lines do not meet the definition of a "segment" within the meaning of SFAS No. 131, as discrete financial information is unavailable. To date, discrete information by
service line has not been considered relevant by management for purposes of making decisions about allocations of resources, as both service lines share the same pool of technical resources and client
base, as well as the same distribution model.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash equivalents include all deposits in banks and highly liquid investments with original maturities of three months or less.

Goodwill

Through December 31, 2001, goodwill representing the excess of purchase price over fair market value of net assets acquired, was amortized on a
straight-line basis over 40 years. Adjustments to the carrying value of goodwill were made when the sum of expected future discounted cash flows from the business acquired was less
than book value.

40

---

In
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," the Company ceased amortization of goodwill effective January 1, 2002. Goodwill is now reviewed for
impairment on an annual basis, or more frequently if events or circumstances indicate that the carrying value may not be recoverable. The review is a two-step process beginning with an
estimation of the fair value of the reporting unit. The first step is a screen for impairment and the second step measures the amount of any impairment. The fair value amounts are determined by
discounting future cash flows of the reporting unit as developed by management. The Company performed its annual impairment test on December 31, 2003, the results of which did not indicate an
impairment.

The
following table illustrates the pro-forma impact of the goodwill amortization on the Company's 2001 net loss:

2001(in thousands)Reported net loss

$
(3,074
)Add: goodwill amortized (net of tax)


76Adjusted net loss

$
(2,998
)Reported loss per share

$
(0.18
)Impact on loss per share


Adjusted loss per share

$
(0.18
)


Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets
ranging from two to seven years. Software includes development costs for internal IT projects currently in progress and will be amortized upon completion over two to seven years. Leasehold
improvements are amortized using the straight-line method over the life of the related leases, generally three to five years.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment in accordance with the provisions of SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to
future undiscounted cash flows expected to be generated by the asset. If the carrying amount of the assets is less then the sum of the future undiscounted cash flows such assets are considered to be
impaired. The impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the discounted cash flows of the assets. The discount rate used is the Company's
expected rate of return. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Deferred Financing Costs

Included in other assets are deferred financing costs associated with the Company's debt. These financing costs are being amortized using a
straight-line method over the lives of the respective agreements.

41

---

Translation of Foreign Currencies

Assets and liabilities of the Company's Canadian operations are translated at the rate of exchange in effect on the balance sheet date; income and expenses are
translated at the weighted average rates of exchange prevailing during the year. The related translation adjustments are reflected as a foreign currency translation adjustment in stockholders' equity.
Foreign currency transaction gains and losses for the years presented were not material.

Revenue Recognition

Revenues are recognized as services are performed, utilizing four different billing methodologies, as follows: (1) time and material billing, whereby the
client is billed by the hour on a weekly basis for past services performed; (2) project-based billing, for which fees are fixed and are based on specific contracts;
(3) per-incident billing, whereby the Company charges a fee for each specific task related to certain services; (4) and fee-based billing, which is used for
candidate placement/recruiting fees and vendor management fees. The Company typically provides discounts on staffing services to its largest clients in exchange for the opportunity to sell more
volume, as well as the opportunity to sell its higher-margin, value-added services. All revenues are recognized net of such discounts and after services have been completed.

In
December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition in Financial Statements," which updated
Topic 13, "Revenue Recognition," to be consistent with other authoritative literature. The Company adopted SAB 104 in the fourth quarter of 2003. The implementation of SAB 104 did not
have a material effect on the financial position or results of operations of the Company.

In
December 2001, the FASB staff issued Topic No. D-103, "Income Statement Characterization of Reimbursements Received for
"Out-of-Pocket" Expenses Incurred" ("Topic D-103"), subsequently recharacterized as Emerging Issues Task Force "EITF" No. 01-14, which is
effective for fiscal years beginning after December 15, 2001. EITF No. 01-14 requires that certain out-of-pocket expenses rebilled to customers be
recorded as revenue versus an offset to the related expense. Comparative financial statements for prior periods must be conformed to this presentation. The Company historically recorded rebilled
out-of-pocket expenses as an offset to the related expense. Effective January 1, 2002, the Company changed its presentation to reflect rebilled expenses as revenue and
also conformed the presentation for prior periods. The impact of adopting this pronouncement resulted in the reclassification of $7.3 million of expenses to 2001.

Concentration of Credit Risk

The Company provides services to clients including systems integrators, telecommunications companies, banking and financial services entities, manufacturers,
distributors, health care providers, and utilities throughout the United States. In 2003, 2002 and 2001, the largest client accounted for approximately 22%, 25% and 20%, the second largest client
accounted for approximately 21%, 17% and 17% and the third largest client accounted for 4%, 5% and 5% of the Company's total revenues, respectively.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of
existing assets and liabilities and tax loss carryforwards and credits and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and

42

---

liabilities
of a change in tax rates is recognized in income in the period that includes the enactment date.

Stock Options

The Company accounts for its stock options in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related interpretations. Under APB 25, no compensation cost has been recognized for the Company's stock-based compensation plans. The Company continues to apply
the provisions of APB 25 and provides the pro forma disclosures required by SFAS No. 123 and SFAS No. 148.

Historically,
the pro forma effects noted below included the impact of restricted shares issued in November 2000. The table excludes the impact of restricted shares.

The
following data reflect the pro forma effects of the stock-based compensation cost for the Company's stock option transactions in accordance with SFAS No. 123 and SFAS
No. 148:

2003

2002

2001(in thousands, except per share data)Net loss, as reported

$
(13,081
)
$
(11,135
)
$
(3,074
)Pro forma compensation expense


(312
)

(399
)

(510
)Pro forma net loss

$
(13,393
)
$
(11,534
)
$
(3,584
)Diluted loss per share:As reported

$
(0.76
)
$
(0.65
)
$
(0.18
)Pro forma


(0.78
)

(0.67
)

(0.21
)


The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used
for grants in 2003, 2002 and 2001, respectively: risk-free interest rates of 3.8%, 4.3%, and 4.6%; expected lives of 7, 7 and 4 years; expected volatility of 165%, 112% and 101%;
and no dividends expected to be paid.

Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments, except for debt, approximate their fair values due to the short maturity of these instruments. The
carrying amount of debt approximates its fair value given its interest rate is comparable to a similar rate that could be obtained on other debt instruments.

Computation of Earnings Per Share

Basic earnings (loss) per share is based on the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share is based on
the weighted average number of common shares outstanding and includes the dilutive effect of unexercised stock options and warrants which are in-the-money using the treasury
stock method. Dilutive securities have not been included in the weighted average shares used for the calculation of earnings per share in periods of net loss because the effect of such securities
would be anti-dilutive. At December 31, 2003, 2002 and 2001, potentially dilutive securities consisted of options to purchase 1,490 thousand, 30 thousand and
60 thousand shares of common stock, respectively. In addition, the Company issued 11.0 million warrants to purchase common stock in connection with its debt refinancing described in
Note 3. These warrants are also potentially dilutive securities as of December 31, 2003 and 2002.

43

---

Reclassification

Certain prior year balances have been reclassified in order to conform to the current year presentation.

2.     RESTRUCTURING AND OTHER CHARGES

Restructuring and Other Charges2003

During the third quarter of 2003, the Company incurred a $0.5 million restructuring charge representing severance costs associated with the restructuring
of the Company's sales, delivery and corporate staff. A total of 33 positions were eliminated, comprised of 11 in sales, 9 in delivery and 13 in corporate staff positions. The Company recorded an
additional restructuring charge of $0.4 million in the fourth quarter of 2003 related to the severance cost of two executive employees.

The
primary components of the restructuring charge can be summarized as follows:

Total
Initial
Reserve

2003
Cash
Payments

Balance at
December 31,
2003(in thousands)Severance

$
952

$
(270
)
$
682


The remaining severance balance at December 31, 2003 will be paid primarily during the first quarter of 2004 with the exception of three employees.
Included in this charge is the severance of three executive employees that will be paid out in accordance with their respective employment agreements through December 2007.

During
the third quarter of 2003, the Company reassessed its 2002 restructuring accrual requirements. Based on this review, the Company determined the remaining reserve was overstated by
$0.6 million due to various real estate cost assumptions made versus actual activity. The majority of this adjustment relates to the successful early termination negotiated on the lease of the
Company's previous headquarters.

Additionally,
the Company recorded a charge for a debt modification and the write-off of origination fees of $4.5 million related to changes made to the terms of the
Senior Subordinated Convertible Notes. This was comprised of a $3.5 million debt modification charge and $1.0 million of origination fees written off. The debt modification and
origination fees write-off expense represents a non-cash adjustment and has no impact on the amount of debt ultimately owed to Wynnchurch Capital Partners, L.P. The valuation
of the notes was determined based on advice from a third-party valuation specialist who utilized a valuation model. Based on the results, the fair value of the notes was determined to be
$13.2 million versus the carrying value of $9.7 million. As such, a $3.5 million charge was recognized for the debt modification to recognize the fair value of the notes
in the financial statements. Additionally, origination fees of $0.9 million related to these notes and $0.1 million related to the revolving credit commitment were written off due to the
modifications.

Restructuring and Other Charges2002

The Company recorded restructuring and other charges in the aggregate amount of $6.1 million during 2002. During the second quarter of 2002, the Company
recorded a charge of $1.1 million, classified as other charges, representing the severance pay associated with the departure of the Company's former Chief Executive Officer. During the third
quarter of 2002, the Company recorded a $4.7 million restructuring charge due to excess office space and the restructuring of the service delivery function. An additional $0.3 million
restructuring charge was recorded in the fourth quarter, which was also due to the restructuring of the service delivery function. The primary components of the restructuring and other charges can be
summarized as follows:

44

---

The
primary activity in the restructuring reserve can be summarized as follows:

|                            |  | Total
Initial
Reserve |       | 2002
Cash
Payments |   | Balance at
December 31,
2002 |   | 2003
Cash
Payments |       | Adjustment to
reserve |   | Balance at
December 31,
2003
|--------------------------- |  | --------------------- | ----- | ------------------ | - | ---------------------------- | - | ------------------ | ----- | --------------------- | - | ----------------------------
|
|Real estate costs           |  | $                     | 4,328 |                    | $ | (569                         | ) | $                  | 3,759 |                       | $ | (1,659                      
|Severance                   |  |                       | 627   |                    |   | (362                         | ) |                    | 265   |                       |   | (200                        
|Other charges               |  |                       | 1,100 |                    |   | (202                         | ) |                    | 898   |                       |   | (121                        
|                            |  |                       |       |                    |   |                              |   |                    |       |                       |   |                             
|Total restructuring reserve |  | $                     | 6,055 |                    | $ | (1,133                       | ) | $                  | 4,922 |                       | $ | (1,980                      
|                            |  |                       |       |                    |   |                              |   |                    |       |                       |   |                             

The portion of the charge related to real estate costs, which totaled $4.3 million, relates to lease costs associated with decreased requirements for
office space as the Company restructured its service delivery organization. The costs associated with this charge related primarily to the value of ongoing lease obligations for vacated offices, net
of anticipated sublease income. A portion of the charge also related to broker commissions and estimated leasehold improvement costs necessary to sublease vacated offices.

During
the third quarter of 2003, the Company reassessed its 2002 restructuring accrual requirements. Based on this review, the Company determined the remaining reserve was overstated by
$0.6 million due to various real estate cost assumptions made versus actual activity. The majority of this adjustment relates to the successful early termination negotiated on the lease of the
Company's previous headquarters.

The
$0.6 million severance charge related to head-count reductions associated with centralizing the service delivery organization as part of a
re-engineering exercise. A total of 60 positions were eliminated with the largest group being the client staffing managers. The remainder of positions eliminated was a mix of corporate
staff and recruiting personnel. The remaining severance balance at December 31, 2003 relates to an employee with an employment agreement. It is anticipated that this amount will be paid out
through July 2004.

The
$1.1 million other charges related to the severance pay associated with the departure of the Company's former Chief Executive Officer. The remaining balance at
December 31, 2003 is required to be paid in full by July 2004.

3.     BORROWINGS

Short-Term Borrowings:

On January 31, 2002, the Company replaced its existing bank line with a $30.0 million senior secured revolving credit facility with Fleet Capital
Corporation, a subsidiary of the FleetBoston Financial Corporation.

The
$30.0 million revolving credit facility is secured by the assets of the Company, principally consisting of accounts receivable. The credit facility has a
three-year term and bears interest at LIBOR plus 3.25% or the bank's base rate plus 2.00%.

Although
the Senior Secured Revolving Credit facility is classified as short-term, the facility has an expiration date of January 31, 2005. The Company has classified
this instrument as current based on the requirements of EITF Issue No. 95-22, "Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements That Include
both a Subjective Acceleration Clause and a Lock-Box Arrangement."

Throughout
2002, the Company and Fleet Capital Corporation executed four amendments to the revolving credit agreement. These amendments were required to waive events of default that
occurred

45

---

relative
to the fixed charge and tangible net worth covenants. Both covenants were reset with tangible net worth reestablished at $2.8 million and the fixed charge covenant reestablished at an
allowable shortfall of $0.7 million through October 1, 2002 and a ratio of 1:1, thereafter. In addition, the borrowing limit subject to pledged accounts receivable as collateral was
reduced to $28.0 million and certain restrictions were placed on the amount of capital spending in consideration for the waiver of existing financial loan covenants.

In
2003, the Company and Fleet Capital Corporation executed additional amendments to the revolving credit agreement. The Fifth Amendment addressed the fact that the Company had entered
into litigation with a major customer, Bluecurrent. This action eliminated that account from the Company's borrowing base creating a borrowing overadvance. The amendment allows for an overadvance of
$2.0 million through December 31, 2003. In addition, the amendment waived the events of default relative to the fixed charge and tangible net worth covenants that occurred at
December 31, 2002. The tangible net worth covenant was reset at ($1.0) million and the fixed charge shortfall was set to $1.0 million through March 31, 2003 and
$1.4 million up through June 30, 2003 and a ratio of 1:1, thereafter. The Sixth Amendment eliminated the requirement that any amounts received as a result of the settlement with
Bluecurrent reduce the Wynnchurch Capital Partners, L.P. guarantee as discussed below. The Seventh Amendment waived the events of default as of June 30, 2003 relating to the tangible net worth
and fixed charge covenants. Additionally, the covenants were reset for the remainder of 2003 as follows; the tangible net worth covenant was reset to ($5.0) million with the fixed charge covenant
reset to an allowable shortfall of $0.7 million for the three months ended September 30, 2003, and $1.0 million for the six months ended December 31, 2003. The fixed charge
covenant will be 1:1, thereafter. In addition, the interest rate was changed effective August 1, 2003 from the bank's base rate plus 1.00% to the base rate plus 2.00%. As of December 31,
2003, the applicable rate is 6.00%, which represents the bank's base rate plus 2.00%. The Seventh Amendment also reduced the maximum revolving credit commitment from $28.0 million to
$23.0 million. The Eighth Amendment waived the events of default as of September 30, 2003 relating to the tangible net worth and fixed charge covenants. Additionally, the covenants were
reset for future periods as follows: the tangible net worth covenant was reset to ($8.5) million for the quarter ending December 31, 2003 and each quarter thereafter. The fixed charge covenant
was reset to an allowable shortfall of $1.0 million for the three months ending December 31, 2003, $1.8 million for the six months ended March 31, 2004, and
$1.9 million for the nine months ending June 30, 2004. The fixed charge covenant will be 1:1, thereafter. Capital expenditures will also be limited to $50,000 per quarter commencing with
the quarter ended December 31, 2003. The Company was in compliance with its covenants as of December 31, 2003.

Long-Term Borrowings:

On January 31, 2002, $10.0 million principal amount of Senior Subordinated Convertible Notes was sold to Wynnchurch Capital Partners, L.P., a
private equity investor.

The
Senior Subordinated Convertible Notes originally bore interest at 15% and are due January 31, 2009. These notes were initially convertible into common stock anytime after
January 31, 2002 at a conversion price of $2.50 per share. At the Company's election, one-half of the interest could be deferred during the first four years, subject to certain
conditions. In conjunction with the sale of these notes, the Company issued 10.0 million warrants to purchase shares of the Company's common stock at $0.55 per share. An additional
1.0 million warrants to purchase its common stock at $0.73 per share were not exercisable for one year contingent upon the Company meeting certain performance measures, however, the warrants
would expire if such performance measures were met. As of December 31, 2002, the Company did not meet the specific performance measures related to the 1.0 million contingent warrants and
these warrants did not expire.

46

---

Throughout
2002, the Company and Wynnchurch Capital Partners, L.P. executed four amendments to the securities purchase agreement. These amendments were required to waive events of
default that occurred relative to the fixed charge and tangible net worth covenants. Both covenants were reset with tangible net worth reestablished at $2.6 million and the fixed charge
covenant reestablished at an allowable shortfall of $0.7 million through October 1, 2002 and a ratio of .95:1, thereafter. In addition, the Company and Wynnchurch Capital, L.P. agreed to
defer all quarterly cash interest payments until the Company satisfied the covenants with the senior lender, Fleet Capital Corporation.

In
2003, in connection with an amendment to the Company's credit agreement with Fleet Capital Corporation, Wynnchurch Capital Partners, L.P. executed a guarantee with Fleet Capital
Corporation to allow overadvances of up to $2.0 million through December 31, 2003, reduced by any payments received from Bluecurrent. In consideration, Wynnchurch Capital Partners, L.P.
and the Company amended their agreements. The 15% Senior Subordinated Convertible Notes conversion price was reduced from $2.50 to $1.50 per share of common stock. The exercise price of all
outstanding warrants was reduced to $0.26 per share. Additionally, a provision was made that any draw on the guarantee by the Company could be satisfied with a purchase by Wynnchurch Capital Partners,
L.P. of additional 15% Senior Subordinated Convertible Notes having a principal amount equal to the Company's draw and having terms equal to the outstanding 15% Senior Convertible Notes, and provided
for a $0.3 million fee to Wynnchurch Capital Partners, L.P. in the event of a draw upon their guarantee. The $0.3 million fee would be payable through the issuance of additional 15%
Senior Subordinated Convertible Notes. As of December 31, 2003, the Company has not been required to draw on the guarantee, and no additional Convertible Notes have been issued. In
July 2003, Wynnchurch Capital Partners, L.P. agreed to waive the agreed requirement that their guarantee be reduced by any amounts received from Bluecurrent. Consequently, Bluecurrent's initial
payment of $0.9 million did not reduce the $2.0 million guarantee. However, all subsequent payments from Bluecurrent will continue to reduce the outstanding guarantee. In consideration
for this waiver, Wynnchurch Capital Partners, L.P. received a fee of $0.1 million payable as interest and added to the principal amount of the notes. Under the Sixth Amendment to the securities
purchase agreements, Wynnchurch Capital Partners, L.P. waived the events of default as of June 30, 2003, relating to the tangible net worth and fixed charge covenants. Additionally, the
covenants were reset for the remainder of 2003 as follows; the tangible net worth covenant was reset to ($5.2) million with the fixed charge covenant reset to an allowable shortfall of
$0.7 million for the three months ended September 30, 2003 and $1.0 million for the six months ending December 31, 2003. The fixed charge covenant will be 0.95:1
thereafter. In addition, the interest rate of the Senior Subordinated Convertible Notes was changed effective July 1, 2003 from 15% to 16% per annum. In September 2003, Wynnchurch
Capital Partners L.P. agreed to maintain its $2.0 million guarantee and not to reduce such guarantee by any payments received from Bluecurrent. In consideration for maintaining the guarantee,
the Company agreed to pay Wynnchurch Capital Partners, L.P. $0.3 million payable as additional interest and added to the principal amount of the notes. The Company also executed a Seventh
Amendment to the securities purchase agreement that waived the events of default that occurred as of September 30, 2003 and reset the financial covenants for future quarters. The covenants were
reset for future quarters as follows: the tangible net worth covenant was reset to $(8.9) million for the quarter ended December 31, 2003 and each quarter thereafter. The fixed charge
covenant was reset to an allowable shortfall of $1.0 million for the three months ended December 31, 2003, $1.8 million for the six months ended March 31, 2004, and
$1.9 million for the nine months ended June 30, 2004. The fixed charge covenant will be 0.95:1 thereafter. Capital expenditures will also be limited to $52,500 per quarter commencing
with the quarter ended December 31, 2003. In consideration for this waiver and for continuing to maintain the $2.0 million guarantee, Wynnchurch Capital Partners, L.P. will receive a
monthly fee of $30,000 for each month such guarantee is in effect. This fee will be payable as additional interest and added to the principal amount of the notes. On March 29, 2004, a letter of
agreement was executed to maintain the $2.0 million guarantee until June 30, 2004. The Company was in compliance with its covenants as of December 31,

47

---

2003.
Wynnchurch Capital Partners, L.P. has waived compliance by the Company with respect to the financial covenants through January 1, 2005. Additionally, Wynnchurch Capital
Partners, L.P. has provided a commitment up to $5.0 million of additional financing, should the need arise, on such terms as the Company, its Board of Directors and Wynnchurch Capital
Partners, L.P. may agree.

Due
to the change in the underlying terms of the Convertible Notes and Warrants, the original valuation of the warrants was reassessed during the second quarter of 2003. The fair value
ascribed to these warrants was determined to be approximately $2.3 million prior to the price change and $2.4 million subsequent to the price change. This change in value ascribed to the
price change of approximately $69,000 is being amortized over the seven-month life of the guarantee as a non-cash interest charge. The valuation of the warrants was determined based on
advice from a third-party valuation specialist who utilized a valuation model with the following inputs: measurement date of April 14, 2003; fair value of $0.23; exercise price of $0.55 prior
to the price change ($0.73 for contingent warrants) and $0.26 subsequent to the price change; contractual term of 10 years from the original issue date; dividend rate of zero; volatility rate
of 123.5%; and risk-free interest rate of 3.76%. A non-cash interest charge of approximately $0.4 million and $0.3 million was recorded for the years ended
December 31, 2002 and 2003, respectively, related to the original valuation of the warrants in January 2002, plus the amortization of the guarantee value.

During
the third quarter of 2003, the Company concluded that the change in interest rate combined with the change in conversion price of the convertible notes in the second quarter of
2003 met the criteria of an extinguishment of debt per EITF 96-19 "Debtors Accounting for a Modification or Exchange of Debt Instruments," as the change in the present value of the notes
exceeded the present value prior to the modifications by more than 10%. The debt modification and origination fees write-off expense represents a non-cash adjustment and has no
impact on the amount of debt ultimately owed to Wynnchurch Capital Partners, L.P. The valuation of the notes was determined based on advice from a third-party valuation specialist who utilized a
valuation model. Based on the results, the fair value of the notes was determined to be $13.2 million versus the carrying value of $9.7 million. As such, a $3.5 million charge was
recognized for the modification of debt to recognize the fair value of the notes in the financial statements. Additionally, origination fees of $0.9 million related to these notes and
$0.1 million related to the revolving credit commitment were written off due to the modifications.

As
of December 31, 2003, the Company has three irrevocable standby letters of credit for $1.8 million, which expire as follows: $0.5 million on November 1,
2004, $0.5 million on November 15, 2004, and $0.8 million on December 31, 2004.

The
principal portion of long-term debt becomes due as follows:

Year ending December 31,

(in thousands)2004

$
11,7892005


2006


2007


2008


2009 and thereafter


13,727Total

$
25,516


Although the senior secured revolving credit facility is listed above as due within one year, the facility has an expiration date of January 31, 2005. The
Company has classified this instrument as current based on the requirements of EITF Issue No. 95-22, "Balance Sheet Classification of

48

---

Borrowings
Outstanding under Revolving Credit Agreements That Include both a Subjective Acceleration Clause and a Lock-Box Arrangement."

4.     LEASES

The Company leases its office facilities under noncancelable operating leases. Rental expense for operating leases during 2003, 2002 and 2001 was
$1.2 million, $2.5 million and $2.8 million, respectively.

Future
minimum lease payments and sublease income under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2003, are:

Year ending December 31,

Operating Lease
Payments

Operating Sublease
Income(in thousands)2004

$
2,882

$
(838
)2005


1,796


(219
)2006


1,266


(25
)2007


1,186


2008


1,221


Thereafter


936


Total

$
9,287

$
(1,082
)


5.     OTHER EXPENSE, NET

Other expense, net, for the years ended December 31, 2003, 2002 and 2001 is comprised of the following:

2003

2002

2001(in thousands)Interest income

$
9

$
72

$
373Interest expense


(4,354
)

(3,749
)

(4,319
)Gain on sale of security








349$
(4,345
)
$
(3,677
)
$
(3,597
)


49

---

6.     INCOME TAXES

Income tax expense (benefit) is summarized as follows for the years ended December 31, 2003, 2002 and 2001:

2003

2002

2001(in thousands)Current:Federal

$
(817
)
$
(1,068
)
$
120State


3


(26
)

98Foreign








Total current


(814
)

(1,094
)

218Deferred:Federal








(728
)State








510Total deferred








(218
)$
(814
)
$
(1,094
)
$



The reasons for the difference between the effective tax rate and the corporate federal income tax rate for the years ended December 31, 2003, 2002 and
2001 are as follows:

2003

2002

2001(in thousands)Federal income tax rate

(35.0
)%
(35.0
)%
(35.0
)%Items affecting federal income tax rate:State income taxes, net of federal tax benefits

(3.0
)%
(3.3
)%
5.0
%Valuation allowance

41.9
%
14.1
%
28.8
%Nondeductible amortization and impairment charges


%

%
0.9
%Nondeductible original issue discount interest expense

1.6
%
1.2
%

%Nondeductible accretion of warrants

0.8
%
1.1
%

%Receipt of prior year refund

(9.9
)%


Tax liability

4.1
%


Reduction of prior year net operating loss


%
6.2
%

%Other permanent differences

(6.4
)%
6.7
%
0.3
%Effective income tax rate

(5.9
)%
(9.0
)%

%


50

---

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31,
2003 and 2002 are as follows:

2003

2002(in thousands)Deferred tax assets:Property and equipmentdepreciation

$
627

$
37Net operating loss


4,980


1,938Lease cancellation accrual


923


1,903Receivable reserves


130


801Deferred rent payable


155


141Accrued liabilities


3,453


797Gross deferred tax assets


10,268


5,617Valuation allowance


(8,451
)

(2,623
)Net deferred tax assets


1,817


2,994Deferred tax liabilities:Software development costs


(1,750
)

(2,723
)Prepaid assets


(67
)

(271
)Gross deferred tax liabilities


(1,817
)

(2,994
)Net deferred tax liability

$


$



At December 31, 2003, the Company had gross federal and state net operating loss carryforwards of $10.6 million and $26.4 million,
respectively, which are available to offset taxable income through 2023. The Company recognized a net tax benefit of $0.8 million. The net tax benefit is comprised of a refund of
$1.4 million received due to a change in the tax law, offset by $0.6 million in taxes assessed for prior years as the result of an IRS audit in 2003.

Prior
to 2001, no valuation allowance for deferred tax assets had been recorded as the Company believed it was more likely than not that the deferred tax assets would be realized in the
future. Beginning in 2001, a valuation allowance was established for the net deferred tax asset given the uncertainty with respect to the future realization of deferred tax assets. This valuation
allowance is required given that the net operating losses have no remaining carryback potential and the lack of ability to accurately forecast taxable income over the 20 year net operating loss
carryforward period. The change in the valuation allowance was $5.8 million.

7.     EMPLOYEE SAVINGS PLAN

The Company sponsors a 401(k) plan ("the Plan"). The Plan covers each employee who has completed 1,000 hours of service in a 12-month period
commencing with the start of employment. The Company, in an amount to be determined at the Company's discretion, bases contributions to the Plan on percentages of employee salaries, plus a matching
contribution, which was discontinued by the
Company effective March 31, 2002. Vesting in the Company's contributions is based on length of service over a five-year period. Contributions by the Company on behalf of all
employees approximated $0.0, $0.2 million and $0.6 million during 2003, 2002 and 2001, respectively.

8.     STOCK OPTIONS

During 1994, the Company amended and restated the stock option plan adopted in 1992. Under the amended and restated Incentive Stock Option Plan ("Option Plan"),
officers and key employees may be granted non-qualified stock options, incentive stock options, performance units, and stock appreciation rights. The Option Plan also provides for
automatic annual grants to each non-affiliate

51

---

director
of non-qualified stock options to purchase up to 5,000 shares of common stock. The purchase price per share for such options will be equal to the fair market value of a share of
common stock on the date of grant. As such, there has been no compensation cost recognized in operations. Any such options will be exercisable one year after the date of grant and will terminate upon
the earlier of 90 days following the date on which such director ceases to serve on the Board or 10 years after the date of grant.

The
exercise price of incentive stock options granted under the Option Plan must be equal to at least 100% of the fair market value of the Company's common stock subject to the option on
the date of the grant. The incentive stock options granted by the Company may not be exercised during the first six months from the date granted and, thereafter, generally become exercisable at a rate
of 2.38% of the total shares subject to the option on and after the first day of each calendar month. The maximum term of a stock option under the Option Plan is 10 years.

In
the event employment is terminated for any reason other than gross and willful misconduct, death or disability, vested options are exercisable within 30 days after such
termination of employment. Termination due to gross and willful misconduct terminates the option as of the date of the misconduct. Upon death or disablement, vested options are exercisable within six
months after the date of death or disablement by the executors, administrators or applicable guardian of optionee.

During
2000, the Company issued 1,240,000 restricted shares of the Company's stock pursuant to the Option Plan. The shares were issued with certain restrictions relating to each employee
remaining employed with the Company. The restrictions lapsed in April and July of 2001, with a remaining portion lapsing in July 2002. In connection with the issuance of the restricted stock,
945,000 previously issued stock options were cancelled. Total deferred compensation related to the restricted stock issuance was $378,000; of which, $97,000 and $221,000 was amortized as an operating
expense in 2002 and 2001, respectively.

During
2001, the Company issued 83,000 and 175,000 stock options and non-qualified stock options, respectively, pursuant to the Option Plan. These options were granted at
fair market value and thus, the Company did not record compensation expense as a result of these option grants.

During
2002, the Company issued 1,550,000 non-qualified stock options outside the Option Plan in connection with executive management and director changes. These options were
issued at the fair market value as of the date of the grant. The terms and conditions of these grants are similar to the terms and conditions of options granted under the Option Plan with the
exception that they provide for accelerated vesting upon a change in control of the Company. In addition to the non-qualified stock options issued outside of the Option Plan, the Company
issued 615,000 non-qualified stock options, pursuant to the Option Plan.

During
2003, the Company issued 731,500 stock options, pursuant to the Option Plan.

The
fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2003, 2002
and 2001, respectively: risk-free interest rates of 3.8%, 4.3%, and 4.6%; expected lives of 7, 7 and 4 years; expected volatility of 165%, 112% and 101%; and no dividends expected
to be paid.

Historically,
the following table included the impact of restricted shares issued in November 2000. The table excludes the impact of restricted shares.

52

---

Stock
option transactions for the years ended December 31, 2001, 2002 and 2003 are summarized as follows:

Shares

Weighted Average
Exercise Price(in thousands, except per share data)Balance at December 31, 2000

1,620

$
8.48Options granted

258


0.51Options cancelled

(457
)

2.22Options exercised




Balance at December 31, 2001

1,421


8.13Options granted

2,165


1.21Options cancelled

(1,044
)

7.67Options exercised




Balance at December 31, 2002

2,542


2.31Options granted

731


0.36Options cancelled

(769
)

2.03Options exercised




Balance at December 31, 2003

2,504

$
1.77


As of December 31, 2003, 2002 and 2001, there were 1.1 million, 0.4 million and 0.5 million options exercisable, with
weighted average exercise prices of $3.44, $7.71 and $9.81, respectively. As of December 31, 2003, there were 0.4 million stock options available for future grants under the Company's
Incentive Stock Option Plan.

The
following table summarizes information about stock options outstanding as of December 31, 2003:

Options Outstanding

Options ExercisableRange of Exercise Prices

Number
Outstanding

Weighted Average
Remaining
Contractual
Life (in years)

Weighted Average
Exercise Price

Number
Exercisable

Weighted
Average
Exercise
Price(shares in thousands)$0.28-$0.45

1,535

8.95

$
0.38

319

$
0.38$0.46-$0.90

270

8.46


0.56

163


0.57$0.91-$1.35

159

6.44


1.23

141


1.23$1.36-$2.50

301

8.50


2.41

194


2.37$2.51-$9.99

10

5.38


7.88

10


7.88$10.00-$20.00

214

4.53


10.83

214


10.83$20.01-$38.12

15

3.52


26.35

15


26.35$0.28-$38.12

2,504

8.26

$
1.77

1,056

$
3.44


9.     EMPLOYEE STOCK PURCHASE PLAN

In 1995, the stockholders of the Company approved the Alternative Resources Corporation Employee Stock Purchase Plan (the "Stock Purchase Plan"). An aggregate of
300,000 shares of the Company's common stock (subject to adjustment for any dividend, stock split or other relevant changes in the Company's capitalization) were originally authorized to be sold
pursuant to the Stock Purchase Plan. In 1999, an additional 300,000 shares of the Company's common stock were approved by the stockholders for sale through the Employee Stock Purchase Plan. The Stock
Purchase Plan covered each employee who had completed 1,000 hours of service during the last 12 calendar months preceding the enrollment date. The Stock Purchase Plan enabled employees to
purchase the Company's common stock at 85% of the market price. Employees were allowed to purchase the Company's common stock

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through
the Stock Purchase Plan only by payroll deduction. Payroll deductions could not exceed 20% of the employees' gross pay or $21,250 in any one-year. In 2001, the Company's matching
portion to the Stock Purchase Plan amounted to $0.1 million and was in the form of cash contributions and direct issuance of common stock. In 2002, the Company's matching portion to the Stock
Purchase Plan was in the form of direct issuance of common stock. The number of shares purchased was approximately 296,000, and 146,000 for the years ended December 31, 2001 and 2002,
respectively. Effective March 31, 2002, the Stock Purchase Plan was terminated.

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INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE

THE
BOARD OF DIRECTORS AND STOCKHOLDERS
ALTERNATIVE RESOURCES CORPORATION:

Under
date of March 30, 2004, we reported on the consolidated balance sheets of Alternative Resources Corporation and subsidiaries as of December 31, 2003 and 2002, and the
related consolidated statements of operations, comprehensive income (loss), stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended
December 31, 2003. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule of valuation and
qualifying accounts. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial
statement schedule based on our audits.

In
our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

|                                 | /s/ KPMG LLP
|-------------------------------- | ------------
|Chicago, Illinois
March 30, 2004 |             

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SCHEDULE II        VALUATION AND QUALIFYING ACCOUNTS  YEARS ENDED DECEMBER 31, 2003, 2002, and 2001        (in thousands)

|Description                     |  | Balance at Beginning of Year |       | Charged to Operations |   | Writeoffs |  | Balance at End of Year
|------------------------------- |  | ---------------------------- | ----- | --------------------- | - | --------- |  | ----------------------
|2003:                           |  |                              |       |                       |   |           |  |                       
|Allowance for doubtful accounts |  | $                            | 2,002 |                       | $ | 125       |  | $                     
|2002:                           |  |                              |       |                       |   |           |  |                       
|Allowance for doubtful accounts |  |                              | 1,179 |                       |   | 1,257     |  |                       
|2001:                           |  |                              |       |                       |   |           |  |                       
|Allowance for doubtful accounts |  |                              | 1,503 |                       |   | 324       |  |                       

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