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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, 2002

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 ý    No o

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,
2002 (based upon an estimate that 93.21% 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
$7,921,000. 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 28, 2003, 17,702,819 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 12, 2003 (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 management and staffing 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 19 field offices with over 80 personnel in field sales, supported by 40 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 2002

The Company's 2002 operating results continued to reflect the reduced level of IT spending on applications development, systems enhancements and hardware. Many
companies also significantly reduced their level of manpower devoted to the support of their IT infrastructure. This was evidenced by the Company's sharp drop in its staff augmentation business, a
decline of 42.5%, offset by a slight increase in its solutions product offerings.

As
previously disclosed in the 2001 Form 10-K, 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 new model has a primary goal of reducing costs while more effectively delivering the
Company's 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.

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 has resulted from the shift to a functional model and the efficiencies created by the Knowledge Center. In 2003, operating
expenses are expected to be reduced by approximately $4.7 million based on the restructuring actions described above.

ARC SERVICE OFFERINGS

During the past seven years, ARC has evolved from a pure IT staffing company into a solutions-based provider of IT services. The Company's IT staffing and
solutions services are now sold under the names ARC Staffing Management Solutions and ARC Technology Management Solutions, respectively. ARC's service offerings are designed to provide its clients
with flexibility and expertise to address 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.

2

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ARC
Staffing Management Solutions, 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
Technology Management Solutions provides management and delivery of infrastructure development and maintenance expertise, offering managed solutions and best practice methodologies.
ARC Technology Management Solutions assists clients in integrating the resources, processes and systems for the design, deployment, operation and support of the client's key IT assets. Technology
Management 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 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 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.

3

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The
Company maintains a Technology Management support staff which is primarily located at its headquarters in Barrington, Illinois to assist account managers in selling and delivering
ARC Technology Management Solutions.

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 were strengthened in 2001 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.

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 19 field offices utilized primarily to accommodate the field sales organization as well as to interview potential
candidates. The majority of the Company's

4

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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 2002, 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 2002, the Company's largest clients, Hewlett Packard and IBM, accounted for approximately 25% and 17%, 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 services, such as its Technology Management Solutions.

The
vast majority of the traditional Staffing Management Solutions business is invoiced on an hourly basis. Technology Management Solutions business is invoiced on an hourly basis, fixed
fee basis, or a per incident charge. 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, usually 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, 2002, the Company employed approximately 260 staff employees and approximately 1,600 technical employees.

5

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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:



6

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EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company are as follows:

|Name               |  | Age |  | Position                                                               
|------------------ |  | --- |  | -----------------------------------------------------------------------
|George W. Watts    |  | 50  |  | President and Chief Executive Officer                                  
|Steven Purcell     |  | 52  |  | Senior Vice President, Chief Financial Officer, Secretary and Treasurer
|Victor Fricas      |  | 52  |  | Executive Vice President and Chief Operating Officer                   
|Sharon A. McKinney |  | 56  |  | Senior Vice PresidentHuman Resources                                  
|Bill McLendon      |  | 43  |  | Senior Vice President and Chief Information Officer                    
|Marino Petropoulos |  | 36  |  | Vice President and Chief Accounting Officer                            

Mr. George
W. Watts has been a member of the Board, President and Chief Executive Officer of the Company since July 2002. Previously he was Chief Executive Officer of
Ranger Partners Group, an affiliate of Ranger Aerospace providing strategic consulting and business development services, from April 1998 until July 2001. From 1995 to 1998
Mr. Watts was Executive Vice President of PM Realty Group, one of the nation's largest business outsourcing companies in property management. From 1985 to 1995, Mr. Watts was President
of Executive Visions Consulting, a firm he founded.

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.

Mr. Victor
Fricas joined the Company in November 1999 as Vice President, Field Operations with responsibility for delivery in the solutions and staffing business. In April
2000, Mr. Fricas received additional responsibility for delivery in the consulting business and also became the Company's Chief Information Officer in November 2000 and was promoted to
Senior Vice President. In February 2002, Mr. Fricas was appointed to the position of President and General ManagerTechnology Solutions having
responsibility for the Company's solutions business. In September 2002, Mr. Fricas assumed the responsibility for all of the Company's operations and was named Executive Vice President
and Chief Operating Officer. Prior to joining ARC, Mr. Fricas held executive, operational and information technology management positions with Comdisco from 1987 to 1999, and Illinois Tool
Works from 1970 to 1987.

Ms. Sharon
A. McKinney was named Senior Vice President of Human Resources in January 1999. Ms. McKinney reports to ARC's chief executive officer and is responsible
for the human resources function within corporate headquarters and across the entire field organization. She brings to this position 18 years of domestic and international business and human
resources management experience. Ms. McKinney joined ARC from GE Capital Fleet Services where she held the position of Senior Vice President, Global Human Resources from 1997 to
January 1999. Previously, Ms. McKinney spent 1988 to 1997 with Square D Company, which today is known as Groupe Schneider, a French company. Following a series of increasingly
responsible human resources positions, Ms. McKinney spent her last three years at Groupe Schneider as Director of Human Resources based in Paris, France.

Mr. Bill
McLendon was named Senior Vice President and Chief Information Officer in September 2002. From 1998 to September 2002, Mr. McLendon was an executive
of Ranger Partners

7

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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. Mr. Petropoulos graduated from DePaul University with a bachelor of science degree and is also a certified public
accountant.

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 alleges that Bluecurrent breached its Master
Services Agreement with the Company by failing to pay approximately $5 million of invoices for services performed (the "Illinois lawsuit"). Bluecurrent has asked the court to either dismiss
that action based on improper venue or transfer it to the United States District Court in Texas based on venue and convenience grounds. That motion is currently pending.

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. The lawsuit seeks a credit in excess of $2 million dollars on the total balance due. The Company intends to vigorously defend that
lawsuit and has removed it to the United States District Court for the Western District of Texas. The parties have agreed to stay the Texas lawsuit pending resolution of Bluecurrent's motion to
dismiss or transfer the Illinois lawsuit.

Discovery
has not yet begun in either lawsuit. At this time, the Company is unable to opine regarding the likelihood of an unfavorable outcome or the range of any potential loss, if any,
from the above matters.

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 28, 2003, ARC had 213 stockholders of record and 17,702,819 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, 2002 and 2001:

2002

2001High

Low

High

LowFirst Quarter

$
0.83

$
0.46

$
1.44

$
0.31Second Quarter


0.67


0.33


1.25


0.30Third Quarter


0.58


0.35


0.75


0.32Fourth Quarter


0.48


0.28


0.61


0.30


During
2002, the Company issued an aggregate of approximately 146,000 unregistered shares of common stock pursuant to its employee stock purchase plan. The shares were issued at prices
ranging from $0.55 to $0.62 per share for aggregate consideration of $85,000.

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 are 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.

In
conjunction with the sale of these notes, the Company issued 10,000,000 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 1,000,000 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 1,000,000 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.

Equity Compensation Plans are as follows:

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 notes to the consolidated financial statements. The Incentive Stock Option Plan is approved by the Company's security holders.

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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.

|                                                           |  | Year ended December 31, 2002
|---------------------------------------------------------- |  | ----------------------------
|
|
|Equity Compensation Plans approved by Shareholders         |  | 2,102,345                   
|Equity Compensation Plans not approved by security holders |  | 1,550,000                   
|Total                                                      |  | 3,652,345                   

ITEM 6.    SELECTED FINANCIAL DATA.

|                                                                     |                                                   | Year ended December 31, |        
|-------------------------------------------------------------------- | ------------------------------------------------- | ----------------------- | -------
|
|
|SELECTED OPERATING DATA:                                             |                                                   |                         |        
|Revenue                                                              |                                                   | $                       | 158,693
|Cost of services                                                     |                                                   |                         | 115,955
|                                                                     |                                                   |                         |        
|                                                                     | Gross profit                                      |                         |        
|Selling, general and administrative expenses                         |                                                   |                         | 45,235 
|Restructuring and other charges                                      |                                                   |                         | 6,055  
|                                                                     |                                                   |                         |        
|                                                                     | Operating expenses                                |                         |        
|                                                                     |                                                   |                         |        
|                                                                     | Income (loss) from operations                     |                         |        
|Other expense, net                                                   |                                                   |                         | (3,677 
|                                                                     |                                                   |                         |        
|                                                                     | Income (loss) before income tax expense (benefit) |                         |        
|Income tax expense (benefit)                                         |                                                   |                         | (1,094 
|                                                                     |                                                   |                         |        
|                                                                     | Net income (loss)                                 |                         | $      
|                                                                     |                                                   |                         |        
|Basic and diluted earnings (loss) per share                          |                                                   | $                       | (0.65  
|                                                                     |                                                   |                         |        
|Shares used in computing basic and diluted earnings (loss) per share |                                                   |                         | 17,095 
|                                                                     |                                                   |                         |        
|SELECTED BALANCE SHEET DATA:                                         |                                                   |                         |        
|Total assets                                                         |                                                   | $                       | 52,730 
|Long-term debt                                                       |                                                   |                         | 27,107 
|Stockholders' equity (deficit)                                       |                                                   |                         | (3,381 

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

OVERVIEW

Alternative Resources Corporation ("ARC" or the "Company") is a leading provider of information technology management and staffing solutions. The Company serves
Fortune 1000 and mid-sized clients from a network of offices located throughout the United States and Canada.

The
Company's 2002 operating results continued to reflect the reduced level of IT spending on applications development, systems enhancements and hardware. Many companies also
significantly reduced their level of manpower devoted to the support of their IT infrastructure. This was evidenced by the Company's sharp drop in its staff augmentation business, a decline of 42.5%,
offset by a slight increase in its solutions product offerings.

As
previously disclosed in the 2001 Form 10-K, 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 new 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 third and fourth quarter, 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 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 has
resulted from the shift to a functional model and the efficiencies created by the Knowledge Center. In 2003, operating expenses are expected to be reduced by approximately $4.7 million based on
the restructuring actions described above.

During
the fourth quarter of 2000, the Company reviewed its intangibles and recorded an impairment charge of $34.9 million related to goodwill. A more detailed explanation is
described below in the "Impairment of Goodwill2000." The Company had no similar charges in 2001 or 2002.

RESTRUCTURING AND OTHER CHARGES2002

The Company recorded restructuring and other charges in the aggregate amount of $6.1 million charge during 2002. During the second quarter of 2002, the
Company recorded a charge of $1.1 million 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

11

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restructuring of the service delivery function. The primary components of the restructuring and other charges can be summarized as follows:

Restructuring chargeReal estate costs

$
4.4Severance


0.6Other charges


1.1$
6.1


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

Total
Initial
Reserve

2002
Cash
Payments

Balance at
December 31,
2002Real estate costs

$
4,328

$
(569
)
$
3,759Severance


627

$
(362
)

265Other charges


1,100


(202
)

898Total restructuring charge

$
6,055

$
(1,133
)
$
4,922


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, 2002 relates to employees with employment agreements. This amount will be paid out through July 2003.

RESTRUCTURING AND OTHER CHARGES2000

The Company recorded a $36.6 million charge during the fourth quarter of 2000, which consisted of the following components (in millions):

Impairment of goodwill

$
34.9Impairment of assets and other charges


1.2Restructuring charge


0.5$
36.6


Impairment of Goodwill2000

During the fourth quarter of 2000, the Company reviewed its remaining intangible assets relating to the 1997 acquisition of CGI Systems, Inc. ("CGI") for
any impairment based on a trend of declining operating margins. After giving effect to purchase price adjustments, escrow refunds, acquisition costs, amortization and the write-down of
goodwill in 1998, the remaining unamortized goodwill balance as of

12

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September 30, 2000 was $37.7 million, which consisted of goodwill allocated to the following three components of CGI's acquired business (in millions):

National Technical Service ("NTS")

$
2.8Programming Services


18.2Consulting


16.7$
37.7


The
Company allocated goodwill separately to each component of the acquired business due to each component having a different operating cash flow and business strategy. Thus, the Company
performed a recoverability analysis for each component of the business for purposes of impairment. The recoverability analysis compared the projected future undiscounted cash flows over the estimated
useful life for each component versus the carrying net book value of the goodwill allocated to each component. This analysis supported a goodwill valuation of zero for the Programming Services and
Consulting components of the acquired business, which resulted in a write off of impaired goodwill totaling $34.9 million. The recoverability analysis for the NTS component of the business
resulted in a positive future undiscounted cash flow in excess of the unamortized balance of goodwill allocated to the NTS business; as such, there was no impairment to the $2.8 million
goodwill allocated to NTS.

Impairment of Assets and Other Charges2000

The $1.2 million impairment of assets and other charges relates primarily to write-downs of fixed asset values due to the re-engineering of the
Company's field operations. The charge includes a write-down of office furniture, leasehold improvements and computers to their estimated fair value as a result of the reduction in staff
and office space.

Restructuring Charge2000

The restructuring charge of $0.5 million represents the severance costs associated with the restructuring of the Company's sales, recruiting, delivery and
administrative support models. A total of 29 positions were eliminated, with 20 of them being administrative positions. At December 31, 2000, the remaining accrued severance costs on the
balance sheet was $0.3 million, all of which was paid out during 2001.
The Company's savings resulting from the restructuring relating to selling, general and administrative expenses totaled approximately $8.0 million for the year ended December 31, 2000.

13

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RESULTS OF OPERATIONS

The following table sets forth the percentage of revenue represented by certain line items of ARC's consolidated statements of operations for the periods
indicated:

2002

2001

2000Revenue

100.0
%
100.0
%
100.0
%Cost of services

73.1

71.3

71.4Gross profit

26.9

28.7

28.6Selling, general and administrative expenses

28.5

28.4

30.7Restructuring and other charges

3.8



13.5Operating expenses

32.3

28.4

44.2Income (loss) from operations

(5.4
)
0.3

(15.6
)Other expense, net

(2.3
)
(1.8
)
(2.0
)Income (loss) before income tax expense (benefit)

(7.7
)
(1.5
)
(17.6
)Income tax expense (benefit)

(0.7
)


(1.6
)Net loss

(7.0
)%
(1.5
)%
(16.0
)%


FISCAL 2002 COMPARED TO FISCAL 2001

Revenue.Revenues consist of fees earned from ARC Staffing Management Solutions and ARC Technology Management Solutions.
Revenue decreased $50.3 million or 24.1% from $209.0 million in 2001 to $158.7 million in 2002, primarily from the slowdown in IT spending experienced industry-wide.
ARC Technology Management Solutions revenue increased by $8.9 million or 12.7% from $69.8 million in 2001 to $78.7 million in 2002. The Company's traditional Staffing Management
Solutions business decreased by $59.2 million or 42.5% from $139.2 million in 2001 to $80.0 million in 2002.

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 due to the very competitive IT staffing environment, which is causing some
margin pressures in all 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 $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.

Income (loss) from operations.Income (loss) from operations decreased by $9.1 million from income of
$0.5 million in 2001 to a loss of $8.6 million in 2002. Included in the 2002 loss was the

14

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restructuring charge of $6.1 million, as previously discussed. The decrease in 2002 is primarily attributable to the reduction in revenue caused by the overall slowdown in IT spending as well
as the margin pressure in all service offerings.

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.

FISCAL 2001 COMPARED TO FISCAL 2000

Revenue.Revenues consist of fees earned from ARC Staffing Management Solutions and ARC Technology Management Solutions.
Revenue decreased $62.3 million or 22.3% from $271.3 million in 2000 to $209.0 million in 2001, primarily from the slowdown in IT spending experienced industry-wide.
ARC Technology Management Solutions revenue decreased by $16.6 million or 19.2% from $86.4 million in 2000 to $69.8 million in 2001. The Company's traditional staffing business
decreased by $45.7 million or 24.7% from $184.9 million in 2000 to $139.2 million in 2001.

Gross profit.Gross profit decreased by $17.6 million or 22.7% from $77.5 million in 2000 to
$59.9 million in 2001. The decrease was primarily attributable to the reduction in revenue. As a percentage of revenues, gross profit increased by 0.1% from 28.6% in 2000 to 28.7% in 2001.

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 $23.9 million or 28.7%
from $83.3 million in 2000 to $59.4 million in 2001. The selling, general and administrative expense decrease was attributable to the restructuring actions taken 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 impact of these
actions was fully realized during 2001 resulting in a decrease of selling, general, and administrative expenses of $23.9 million. As a percentage of revenues, selling, general and
administrative expenses decreased by 2.3% from 30.7% in 2000 to 28.4% in 2001.

Restructuring and other charges.The Company did not incur any restructuring charges during 2001. As such, the restructuring
and other charges decreased by $36.6 million from $36.6 million in 2000 to $0.0 in 2001.

Income (loss) from operations.Income (loss) from operations increased by $42.9 million from a loss of
$42.4 million in 2000 to income of $0.5 million in 2001. Included in the 2000 loss was the restructuring charge of $36.6 million, as previously discussed. The increase in 2001 is
primarily attributable to the approximate $23.9 million in savings realized in selling, general, and administrative expenses as a result of the restructuring actions.

LIQUIDITY AND CAPITAL RESOURCES

On January 31, 2002, the Company replaced its existing bank line with a $30.0 million senior secured revolving credit facility with Fleet Capital, a
subsidiary of the FleetBoston Financial Corporation and $10.0 million principal amount of Senior Subordinated Convertible Notes sold to Wynnchurch Capital Partners, a private equity investor.
The $30.0 million dollar revolver is secured by the assets of the Company, principally consisting of accounts receivable. In August 2002, ARC and Fleet Capital executed an amendment to
the revolving credit agreement. The impact of this amendment was to reduce the borrowing limit subject to pledged accounts receivable as collateral to $28.0 million in consideration for the
waiver of existing financial loan covenants. Fleet Capital has previously given the Company waivers for certain covenant violations, however, there can be no

15

---

guarantee that such waivers can be obtained in the future should existing loan covenants not be met. The agreement has a three-year term expiring in January 2005 and bears interest at
LIBOR plus 325 basis points or the bank's base rate plus 100 basis points. As of March 21, 2003, the applicable rate is 5.25%, which represents the bank's base rate plus 100 basis points.

The
Senior Subordinated Convertible Notes bear interest at 15% and are due January 31, 2009. These notes are 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 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. In conjunction with the sale of these notes, the Company issued 10,000,000 warrants to purchase
shares of the Company's common stock at $0.55 per share. Additionally, 1,000,000 warrants to purchase the Company's 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 1,000,000 contingent warrants and these warrants will not expire.

Current
assets exceed current liabilities by $8.0 million at December 31, 2002. Net cash used in operations in 2002 was $1.1 million, a significant decrease from net
cash provided by operations of $19.4 million in 2001 and $8.8 million in 2000. The significant decrease in cash provided by (used in) operating activities was due to the large decrease
in accounts receivable in the prior years. Days Sales Outstanding ("DSO") decreased by 6 days during 2001 while DSO decreased by only 2 days during 2002. This slowdown in collections was
the direct result of the non-payment of certain invoices by a large customer. The Company has filed suit in an effort to obtain payment of the amounts owed. Further discussion is set forth
in Item 3. Legal Proceedings. Net cash flow from operations in 2001 was principally impacted by a decrease in accounts receivable of approximately $21.0 million and the collection of
$5.6 million in taxes receivable. Net cash flow from operations in 2000 was impacted by a decrease in accounts receivable of approximately $14.1 million due to reduced revenue, and
increases of payroll and related expenses and accrued expenses and liabilities of $3.8 million and $3.2 million, respectively.

Capital
spending was approximately $0.6 million in 2002 and $1.9 million in both 2001 and 2000, as the Company had completed all the necessary major capital spending
relative to the new business model in 1999. The Company does not anticipate that its capital requirements going forward will be significantly greater than $1.0 million to $2.0 million
per annum.

Throughout
2002, ARC and Fleet Capital executed certain amendments to the revolving credit agreement. The impact of these amendments was to reduce the borrowing limit subject to pledged
accounts receivable as collateral to $28.0 million in consideration for the waiver of existing financial loan covenants.

In
April 2003, ARC and Fleet Capital executed amendments to the revolving credit agreement. The impact of this amendment was to obtain a waiver of financial loan covenants existing as of
December 31, 2002. Additionally, financial loan covenant calculations were redefined for future periods.

In
April 2003, in connection with an amendment to the Company's credit agreement with Fleet Capital, the Company's senior lender, to allow overadvances of up to $2,000,000 through
December 31, 2003, Wynnchurch Capital Partners executed a guaranty to Fleet Capital of the overadvance amounts. In consideration, Wynnchurch Capital Partners and the Company amended their
agreements, 15% Senior Subordinated Convertible Notes and warrants to reduce the conversion price of the notes to common stock to $1.50 per share, reduce the exercise price of all outstanding
warrants to $0.26 per share, provide that any draw on the guaranties could be satisfied by a purchase by Wynnchurch Capital Parters of additional 15% Senior Subordinated Convertible Notes having a
principal amount equal to Fleet Capital's draw and having terms equal to the outstanding 15% Senior Subordinated Convertible Notes and provide for a $250,000 fee to the Wynnchurch Capital Partners in
the event of a draw upon their guaranty, payable through the issuance of additional 15% Senior Subordinated Convertible Notes.

16

---



The Company believes its cash balances and funds from operations together with funds available under its new credit facility will be sufficient to meet all of its anticipated cash
requirements for at least the next 12 months. However, 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.

The
following summarizes the Company's contractual obligations at December 31, 2002, 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 |  | $                     
|                                   |  |                       

17

---

QUARTERLY FINANCIAL RESULTS

The following tables set forth certain unaudited quarterly results of operations of the Company for 2002 and 2001. The quarterly operating results are not
necessarily indicative of future results of operations.

|                                             |                   | 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 |                                |       
|                                             |                   |                                |       

|                                             |                   | Three Months Ended (unaudited) |       
|-------------------------------------------- | ----------------- | ------------------------------ | ------
|
|
|Statement of Operations Data:                |                   |                                |       
|Revenue                                      |                   | $                              | 59,601
|Cost of services                             |                   |                                | 42,750
|                                             |                   |                                |       
|                                             | Gross profit      |                                |       
|Selling, general and administrative expenses |                   |                                | 16,148
|                                             |                   |                                |       
|Income (loss) from operations                |                   |                                | 703   
|Other expense, net                           |                   |                                | 742   
|                                             |                   |                                |       
|Loss before income taxes                     |                   |                                | (39   
|Income tax expense (benefit)                 |                   |                                | 32    
|                                             |                   |                                |       
|Net loss                                     |                   | $                              | (71   
|                                             |                   |                                |       
|Loss per share:                              |                   |                                |       
|                                             | Basic and diluted |                                | $     
|                                             |                   |                                |       
|Weighted-average common shares outstanding:  |                   |                                |       
|                                             | Basic and diluted |                                |       
|                                             |                   |                                |       

18

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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; (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.

The
Company adopted the Securities and Exchange Commission's Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," in the fourth quarter of
2000. This Bulletin provides guidance on applying generally accepted accounting principles to revenue recognition in financial statements. The implementation of SAB 101 did not have a material effect
on the financial position or results of operations of the Company.

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 debt expense 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 requires that
goodwill and intangible assets with indefinite useful lives should be tested and written down 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 will perform an annual analysis of goodwill impairment, using a discounted future cash flows methodology. Since the Company wrote
off the significant majority of its goodwill balance in 2000 due to impairment, it anticipates that the adoption of this standard will not have a significant impact on its financial statements.

Valuation Allowance for Deferred Tax Asset

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

19

---

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.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued SFAS No. 142, which supersedes APB Opinion No. 17, "Intangible Assets." SFAS 142 addresses how
intangible assets that are acquired individually or with a group of other assets should be accounted for in financial statements upon their acquisition. SFAS 142 also addresses how goodwill and
other intangible assets should be accounted for after they have been initially recognized in the financial statements. The provisions of SFAS 142 are required to be applied starting with fiscal
years beginning after December 15, 2001. SFAS 142 is required to be applied at the beginning of an entity's fiscal year and to be applied to all goodwill and other intangible assets
recognized in its financial statements at that date. As of the date of adoption, the Company had unamortized goodwill in the amount of approximately $2.7 million, which was subject to the
transition provisions of SFAS 142 and will not be amortized going forward. In 2001, amortization expense was approximately $76,000. As such, management has deemed that the implementation of
this change was not material.

In
July 2001, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS 141"), which supersedes APB Opinion No. 16, "Business Combinations," and SFAS
No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." SFAS 141 addresses financial accounting and reporting for business combinations and requires that all
business combinations within the scope of SFAS 141 be accounted for using only the purchase method. SFAS 141 is required to be adopted for all business combinations initiated after
June 30, 2001. As the Company has not had any business combinations subsequent to June 30, 2001, management has assessed that there is no impact to date of the adoption of
SFAS 141 on its consolidated financial statements.

In
October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supercedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," it retains many of the fundamental provisions of that Statement. SFAS 144 also supersedes the accounting
and reporting provisions of APB Opinion No. 30, "Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occuring Events and Transactions," for the disposal of a segment of a business. However, it retains the requirement in APB Opinion No. 30 to report separately discontinued
operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale.
SFAS 144 is effective for the fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. Management has assessed the impact of the adoption of
SFAS 144 on its consolidated financial statements and the impact was not material.

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,

20

---

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 $6.6 million, $7.3 million and $9.6 million of expenses to revenue with a corresponding decrease of approximately 1.2%, 1.0% and 1.0% in gross margin for the
years ended December 31, 2002, 2001 and 2000, respectively. Cost of services were increased by an equal amount with no impact on gross profit dollars.

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 will adopt this statement in the year beginning January 1, 2003 and it is not anticipated to
have a material effect on the Company's consolidated financial position or results of operations for any restructuring activity initiated after December 31, 2002.

In
November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness to
Others." This interpretation expands the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees and requires the guarantor to recognize a
liability for the fair value of an obligation assumed under guarantee. In general, FIN 45 applies to contracts or indemnification agreements that contingently require that the guarantor make payments
to the guaranteed party. The disclosure requirements of FIN 45 are effective as of December 31, 2002, and require disclosure of the nature of the guarantee, the maximum potential amount of
future payments that the guarantor could be required to make under the guarantee, and the current amount of the liability, if any, for the guarantor's obligations under the guarantee. The recognition
requirements of FIN 45 are to be applied prospectively to guarantees issued or modified after December 31, 2002. The Company does not have any guarantees and does not believe that the
requirements of FIN 45 will have a material impact on its consolidated financial statements.

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. As of December 31, 2002, we have
elected not to change to the fair value based method of accounting for
stock-based employee compensation. We account for employee stock options under Accounting Principles Board (APB) No. 25, Accounting for Stock Issued to Employees, under which no compensation
cost was recognized by us.

In
January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" to provide new guidance with respect to the consolidation of certain
previously unconsolidated entities, including special purpose entities. We believe that the adoption of this interpretation, required

21

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in 2003, will not have a material impact on the Company's consolidated financial position 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, 2002, the Company had
$18.5 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 $0.2 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.

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

None.

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 12, 2003,
under the captions "Executive Compensation" and "Board of Directors," which information is hereby incorporated herein by reference.

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 12, 2003, under the caption "Securities Beneficially Owned by Principal Stockholders and Management," which information is hereby incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

On January 31, 2002, the Company issued to Wynnchurch Capital Partners, L.P. and Wynnchurch Capital Partners Canada L.P. (the "Wynnchurch Companies")
$10.0 million principal amount of 15% Senior Subordinated Convertible Notes due January 31, 2009. These notes are convertible into common

22

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stock of the Company at a conversion price of $2.50 per share. In conjunction with the sale of these notes, the Company issued 10,000,000 warrants (immediately exercisable) to purchase shares of the
Company's common stock at $0.55 per share. Additionally, the Company issued 1,000,000 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 1,000,000 warrants and, accordingly, these warrants have become exercisable. The Company paid Wynnchurch Capital Ltd., an
affiliate of the Wynnchurch Companies, a $250,000 commitment fee and a $50,000 closing fee in connection with these transactions. Wynnchurch was granted the right to have two designees appointed to
the Company's seven person board, with a right, upon request, to have the board increased by up to two members, and to appoint those additional directors. The Wynnchurch Companies designated
Messrs. John A. Hatherly and Frank G. Hayes, who were elected to the Company's board on February 4, 2002. Messrs. Michael J. Hering and Richard J. Renaud were elected to the
Company's board as a matter of vote at the Company's annual meeting held on June 13, 2002. Mr. Hatherly is the president of the general partner of each of the Wynnchurch Companies and
has a financial interest in the Wynnchurch Companies.

On
April 14, 2003, in connection with an amendment to the Company's credit agreement with Fleet Capital, the Company's senior lender, to allow overadvances of up to $2,000,000
through December 31, 2003, the Wynnchurch Companies executed a guaranty to Fleet Capital, of the overadvance amounts. In consideration, the Wynnchurch Companies and the Company amended their
agreements, 15% Senior Subordinated Convertible Notes and warrants to reduce the conversion price per share of the notes to $1.50, reduce the exercise price of all outstanding warrants to an average
price of the Company's stock for the 10-day period preceding the execution of the agreement plus $0.02, provide that any draw on the guaranties could be satisfied by a purchase by the Wynnchurch
Companies of additional 15% Senior Subordinated Convertible Notes having a principal amount equal to Fleet Capital's draw and having terms equal to the outstanding 15% Senior Subordinated Convertible
Notes and provide for a $250,000 fee to the Wynnchurch Companies in the event of a draw upon their guaranty, payable through the issue of additional 15% Senior Subordinated Convertible Notes.

ITEM 14.    CONTROLS AND PROCEDURES.

Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation within 90 days of the filing date of this report, that
our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information we are required to disclose in our reports filed under the Securities and Exchange Act of
1934. There have been no significant changes in our internal
controls or in other factors that could significantly affect these controls subsequent to the date of the previously mentioned evaluation.

23

---

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, 2002 and 2001

35Consolidated Statements of Operationsyears ended December 31, 2002, 2001 and 2000

36Consolidated Statements of Comprehensive Incomeyears ended December 31, 2002, 2001 and 2000

37Consolidated Statements of Changes in Stockholders' Equityyears ended December 31, 2002, 2001 and 2000

38Consolidated Statements of Cash Flowsyears ended December 31, 2002, 2001 and 2000

39Notes to Consolidated Financial Statements

40(ii)

FINANCIAL STATEMENT SCHEDULESSchedule IIValuation and Qualifying Accounts

53(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

29(b)



REPORTS ON FORM 8-KThere were no reports on Form 8-K required to be filed during the three months ended December 31, 2002.


24

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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 April 15, 2003.

| |  | 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 April 15, 2003.

|Signature                               |  | Title                                                                                                                         
|--------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------
|                                        |  |                                                                                                                               
|/s/ROBERT P. STANOJEVRobert P. Stanojev |  | Chairman of the Board                                                                                                         
|/s/GEORGE W. WATTSGeorge W. Watts       |  | President and Chief Executive Officer (Principle Executive Officer)                                                           
|/s/STEVEN PURCELLSteven Purcell         |  | Senior Vice President, Chief Financial Officer, Secretary, Treasurer and Director (Principal Financial and Accounting 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                                                                                                                      
|                                        |  |                                                                                                                               

25

---

|/s/RICHARD J. RENAUDRichard J. Renaud |  | Director
|------------------------------------- |  | --------
|/s/MICHAEL J. HERINGMichael J. Hering |  | Director

26

---



CERTIFICATIONS

I,
George W. Watts, certify that:

1.    I
have reviewed this annual report on Form 10-K of Alternative Resources Corporation;

2.    Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):



6.    The
registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

|Date: April 15, 2003 |  | /s/GEORGE W. WATTSGeorge W. Watts Chief Executive
Officer
|-------------------- |  | ---------------------------------------------------------

27

---

CERTIFICATIONS

I,
Steven Purcell, certify that:

1.    I
have reviewed this annual report on Form 10-K of Alternative Resources Corporation;

2.    Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):



6.    The
registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

|Date: April 15, 2003 |  | /s/STEVEN PURCELLSteven Purcell Chief Financial
Officer
|-------------------- |  | -------------------------------------------------------

28

---



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            |  | Rights Agreement dated October 15, 1998 between the Company and Harris Trust and Savings Bank, incorporated herein by reference to Exhibit 1 to the Company's Form 8-A dated October 20, 1998. (File No. 0-23940)
|4.2            |  | Credit agreement dated November 7, 1997, incorporated herein by reference to Exhibit 4 to the Company's Form 8-K dated November 7, 1997. (File No. 0-23940)                                                      
|4.3            |  | Third amendment to credit agreement dated September 30, 1998 incorporated herein by reference to Exhibit 4.1 to the Company's Form 10-Q for the period ended March 31, 2000. (File No. 0-23940)                  
|4.4            |  | Fourth amendment to credit agreement dated December 27, 1999, incorporated herein by reference to Exhibit 4.2 to the Company's Form 10-Q for the period ended March 31, 2000. (File No. 0-23940)                 
|4.5            |  | Fifth amendment to credit agreement dated March 24, 2000 incorporated herein by reference to Exhibit 4.3 to the Company's Form 10-Q for the period ended March 31, 2000. (File No. 0-23940)                      
|4.6            |  | Sixth amendment to credit agreement dated August 31, 2000 incorporated herein by reference to Exhibit 4.3 to the Company's Form 10-K for the period ended December 31, 2000. (File No. 0-23940)                  
|4.7            |  | Seventh amendment to credit agreement dated December 4, 2000 incorporated herein by reference to Exhibit 4.4 to the Company's Form 10-K for the period ended December 31, 2000. (File No. 0-23940)               
|4.8            |  | Eighth amendment to credit agreement dated December 29, 2000 incorporated herein by reference to Exhibit 4.5 to the Company's Form 10-K for the period ended December 31, 2000. (File No. 0-23940)               
|4.9            |  | Ninth amendment to credit agreement dated April 30, 2001 incorporated herein by reference to Exhibit 4.1 to the Company's Form 10-Q for the period ended March 31, 2001. (File No. 0-23940)                      
|4.10           |  | Tenth amendment to credit agreement dated May 4, 2001 incorporated herein by reference to Exhibit 4.2 to the Company's Form 10-Q for the period ended March 31, 2001. (File No. 0-23940)                         
|4.11           |  | Eleventh amendment to credit agreement dated May 18, 2001 incorporated herein by reference to Exhibit 4.1 to the Company's Form 10-Q for the period ended June 30, 2001. (File No. 0-23940)                      
|4.12           |  | Twelth amendment to credit agreement dated June 30, 2001 incorporated herein by reference to Exhibit 4.2 to the Company's Form 10-Q for the period ended June 30, 2001. (File No. 0-23940)                       
|               |  |                                                                                                                                                                                                                  

29

---

|4.13 |  | Thirteenth amendment to credit agreement dated July 2, 2001 incorporated herein by reference to Exhibit 4.3 to the Company's Form 10-Q for the period ended June 30, 2001. (File No. 0-23940)                                                                                                                                                                                 
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.14 |  | Fourteenth amendment to credit agreement dated November 30, 2001 incorporated herein by reference to Exhibit 4.14 to the Company's Form 10-K for the period ended December 31, 2001. (File No. 0-23940)                                                                                                                                                                       
|4.15 |  | 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).
|4.16 |  | $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).                                                                                                                                                                             
|4.17 |  | 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).                                                                          
|4.18 |  | 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).                                                                  
|4.19 |  | 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).                                                           
|4.20 |  | 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).                                                                                  
|4.21 |  | 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).                                                                           
|4.22 |  | 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).                                                                         
|4.23 |  | 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).                                                                  
|     |  |                                                                                                                                                                                                                                                                                                                                                                               

30

---

|4.24 |  | 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).                                                                                                                            
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.25 |  | 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).
|4.26 |  | 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).                                                                                                              
|4.27 |  | 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).                                                                                                                                        
|4.28 |  | 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).                                                                                                                               
|4.29 |  | 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).                                                                                    
|4.30 |  | 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).                                                                                
|4.31 |  | 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)                                                                                                                                                                                                                         
|4.32 |  | 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)                                                                                                                                                                                                                  
|4.33 |  | 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)                                                                                                                                                                                                                 
|4.34 |  | 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)                                                                                                                                                                                                                     
|4.35 |  | Fourth amendment to credit and security agreement dated December 27, 2002.                                                                                                                                                                                                                                                                                                                                                       
|4.36 |  | Second amendment to securities purchase agreement dated August 30, 2002.                                                                                                                                                                                                                                                                                                                                                         
|4.37 |  | Third amendment to securities purchase agreement dated November 14, 2002.                                                                                                                                                                                                                                                                                                                                                        
|4.38 |  | Fourth amendment to securities purchase agreement dated December 27, 2002.                                                                                                                                                                                                                                                                                                                                                       

31

---

Exhibits
10.1 through 10.10 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

---

|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)      
|21    |  | Subsidiaries of Alternative Resources Corporation                                                                                                                                                                                                                
|23    |  | Consent of KPMG LLP                                                                                                                                                                                                                                              
|99.1  |  | 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, 2002 and 2001, and the
related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2002.
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, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2002, 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.



Chicago,
Illinois
April 15, 2003

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, $2,002 in 2002 and $1,179 in 2001                                                |              |       
|                                                     | Prepaid expenses                                                                                                                                    |              |       
|                                                     | Income taxes receivable                                                                                                                             |              |       
|                                                     | Other receivables                                                                                                                                   |              |       
|                                                     |                                                                                                                                                     |              |       
|Total current assets                                 |                                                                                                                                                     |              | 36,610
|                                                     |                                                                                                                                                     |              |       
|Property and Equipment:                              |                                                                                                                                                     |              |       
|                                                     | Office equipment                                                                                                                                    |              |       
|                                                     | Furniture and fixtures                                                                                                                              |              |       
|                                                     | Software                                                                                                                                            |              |       
|                                                     | Leasehold improvements                                                                                                                              |              |       
|                                                     |                                                                                                                                                     |              |       
|                                                     |                                                                                                                                                     |              | 32,446
|                                                     | Less accumulated depreciation and amortization                                                                                                      |              |       
|                                                     |                                                                                                                                                     |              |       
|Net property and equipment                           |                                                                                                                                                     |              | 10,998
|                                                     |                                                                                                                                                     |              |       
|Other Assets:                                        |                                                                                                                                                     |              |       
|                                                     | Goodwill, net of amortization, of $2,727 in 2002 and 2001                                                                                           |              |       
|                                                     | Other assets                                                                                                                                        |              |       
|                                                     |                                                                                                                                                     |              |       
|Total other assets                                   |                                                                                                                                                     |              | 5,122 
|                                                     |                                                                                                                                                     |              |       
|Total assets                                         |                                                                                                                                                     | $            | 52,730
|                                                     |                                                                                                                                                     |              |       
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)       |                                                                                                                                                     |              |       
|Current Liabilities:                                 |                                                                                                                                                     |              |       
|                                                     | Cash overdraft                                                                                                                                      |              | $     
|                                                     | Accounts payable                                                                                                                                    |              |       
|                                                     | Payroll and related expenses                                                                                                                        |              |       
|                                                     | Accrued expenses                                                                                                                                    |              |       
|                                                     | Accrued restructuring and other charges                                                                                                             |              |       
|                                                     |                                                                                                                                                     |              |       
|Total current liabilities                            |                                                                                                                                                     |              | 28,620
|                                                     |                                                                                                                                                     |              |       
|                                                     | Long-term debt                                                                                                                                      |              |       
|                                                     | Other liabilities                                                                                                                                   |              |       
|                                                     |                                                                                                                                                     |              |       
|Total liabilities                                    |                                                                                                                                                     |              | 56,111
|                                                     |                                                                                                                                                     |              |       
|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; 17,702,819 and 17,556,569 shares issued and outstanding in 2002 and 2001, respectively) |              |       
|                                                     | Additional paid-in capital                                                                                                                          |              |       
|                                                     | Deferred compensation                                                                                                                               |              |       
|                                                     | Accumulated other comprehensive income                                                                                                              |              |       
|                                                     | Accumulated deficit                                                                                                                                 |              |       
|                                                     |                                                                                                                                                     |              |       
|                                                     |                                                                                                                                                     |              | 1,416 
|                                                     | Treasury shares, at cost (585,800 shares in 2002 and 2001, respectively)                                                                            |              |       
|                                                     |                                                                                                                                                     |              |       
|Total stockholders' equity (deficit)                 |                                                                                                                                                     |              | (3,381
|                                                     |                                                                                                                                                     |              |       
|Total liabilities and stockholders' equity (deficit) |                                                                                                                                                     | $            | 52,730
|                                                     |                                                                                                                                                     |              |       

See accompanying notes to consolidated financial statements.

35

---

ALTERNATIVE RESOURCES CORPORATION        CONSOLIDATED STATEMENTS OF OPERATIONS

|                                             |                                                   | Year Ended December 31, |        
|-------------------------------------------- | ------------------------------------------------- | ----------------------- | -------
|
|
|Revenue                                      |                                                   | $                       | 158,693
|Cost of services                             |                                                   |                         | 115,955
|                                             |                                                   |                         |        
|                                             | Gross profit                                      |                         |        
|                                             |                                                   |                         |        
|Selling, general and administrative expenses |                                                   |                         | 45,235 
|Restructuring and other charges              |                                                   |                         | 6,055  
|                                             |                                                   |                         |        
|                                             | Operating expenses                                |                         |        
|                                             |                                                   |                         |        
|                                             | Income (loss) from operations                     |                         |        
|Other expense, net                           |                                                   |                         | (3,677 
|                                             |                                                   |                         |        
|                                             | Income (loss) before income tax expense (benefit) |                         |        
|Income tax expense (benefit)                 |                                                   |                         | (1,094 
|                                             |                                                   |                         |        
|                                             | 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

|                                                 |                                                                   | Year Ended December 31, |        
|------------------------------------------------ | ----------------------------------------------------------------- | ----------------------- | -------
|
|
|Net loss                                         |                                                                   | $                       | (11,135
|Other comprehensive income (loss):               |                                                                   |                         |        
|                                                 | Foreign currency translation adjustment, net of tax               |                         |        
|Unrealized holding gain on security, net of tax: |                                                                   |                         |        
|                                                 | Unrealized holding gains arising during the period                |                         |        
|                                                 | Reclassification adjustment for gain included in loss, net of tax |                         |        
|                                                 |                                                                   |                         |        
|Other comprehensive income (loss)                |                                                                   |                         | 20     
|                                                 |                                                                   |                         |        
|Comprehensive loss                               |                                                                   | $                       | (11,115
|                                                 |                                                                   |                         |        

See
accompanying notes to consolidated financial statements.

37

---

ALTERNATIVE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

|                                                             |  |   |  |   |   |  |        |   |   |     |   |      |   |   |        |   |   |        |   | Accumulated Other
Comprehensive Income |      |   |  
|------------------------------------------------------------ |  | - |  | - | - |  | ------ | - | - | --- | - | ---- | - | - | ------ | - | - | ------ | - | -------------------------------------- | ---- | - | -
|
|
|
|Balance at December 31, 1999                                 |  |  |  | $ |  |  | 16,016 |   | $ | 160 |   | (500 | ) | $ | (4,703 | ) | $ | 27,000 |   | $                                      |     |   | $
|Exercise of stock options                                    |  |  |  |   |  |  | 21     |   |   |    |   |     |   |   |       |   |   | 52     |   |                                        |     |   |  
|Repurchase of common stock                                   |  |  |  |   |  |  |       |   |   |    |   | (86  | ) |   | (94    | ) |   |       |   |                                        |     |   |  
|Issuance of restricted common stock                          |  |  |  |   |  |  | 1,240  |   |   | 12  |   |     |   |   |       |   |   | 366    |   |                                        | (378 | ) |  
|Amortization of restricted stock deferred compensation       |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   |       |   |                                        | 60   |   |  
|Issuance of common stock to employee stock purchase plan     |  |  |  |   |  |  | 114    |   |   | 2   |   |     |   |   |       |   |   | 198    |   |                                        |     |   |  
|Payments to employee stock purchase plan                     |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   | (123   | ) |                                        |     |   |  
|Translation adjustment, net of tax                           |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   |       |   |                                        |     |   |  
|Tax effect recognized on stock options excercised            |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   | (68    | ) |                                        |     |   |  
|Unrealized gain on available-for-sale securities, net of tax |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   |       |   |                                        |     |   |  
|Net loss                                                     |  |  |  |   |  |  |       |   |   |    |   |     |   |   |       |   |   |       |   |                                        |     |   |  
|                                                             |  |   |  |   |   |  |        |   |   |     |   |      |   |   |        |   |   |        |   |                                        |      |   |  
|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 |   | $                                      |     |   | $
|                                                             |  |   |  |   |   |  |        |   |   |     |   |      |   |   |        |   |   |        |   |                                        |      |   |  

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                                      |                                   |                                       
|                                                                                          | Impairment of goodwill                                               |                                   |                                       
|                                                                                          | Deferred compensation on restricted shares                           |                                   |                                       
|                                                                                          | Non-cash interest expense from deferred financing costs              |                                   |                                       
|                                                                                          | Non-cash interest expense from accretion of warrants                 |                                   |                                       
|                                                                                          | Impairment of fixed assets                                           |                                   |                                       
|                                                                                          | Receipt of investment                                                |                                   |                                       
|                                                                                          |                                                                      | Change 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                                       |                                                                      |                                   | (1,117                                
|                                                                                          |                                                                      |                                   |                                       
|Cash flows from investing activities:                                                     |                                                                      |                                   |                                       
|                                                                                          | Purchases of property and equipment                                  |                                   |                                       
|                                                                                          | Proceeds from sale of investment                                     |                                   |                                       
|                                                                                          |                                                                      |                                   |                                       
|Net cash used in investing activities                                                     |                                                                      |                                   | (572                                  
|                                                                                          |                                                                      |                                   |                                       
|Cash flows from financing activities:                                                     |                                                                      |                                   |                                       
|                                                                                          | Proceeds from long-term debt                                         |                                   |                                       
|                                                                                          | Payments on long-term debt                                           |                                   |                                       
|                                                                                          | Proceeds from issuance of debt and warrants                          |                                   |                                       
|                                                                                          | Cash paid for cancellation of stockholder rights plan                |                                   |                                       
|                                                                                          | Payments received on stock options exercised                         |                                   |                                       
|                                                                                          | Repurchase of common stock                                           |                                   |                                       
|                                                                                          | 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                                       |                                                                      |                                   | 1,637                                 
|                                                                                          |                                                                      |                                   |                                       
|Effect of exchange rate changes on cash and cash equivalents                              |                                                                      |                                   | (21                                   
|                                                                                          |                                                                      |                                   |                                       
|Net increase (decrease) in cash and cash equivalents                                      |                                                                      |                                   | (73                                   
|Cash and cash equivalents at beginning of year                                            |                                                                      |                                   | 127                                   
|                                                                                          |                                                                      |                                   |                                       
|Cash and cash equivalents at end of year                                                  |                                                                      | $                                 | 54                                    
|                                                                                          |                                                                      |                                   |                                       
|Supplemental disclosures of cash flow information:                                        |                                                                      |                                   |                                       
|                                                                                          | Cash paid for interest                                               |                                   | $                                     
|                                                                                          | Cash paid for income taxes                                           |                                   | $                                     
|                                                                                          | Cash refunds received for income taxes                               |                                   | $                                     
|Supplemental disclosures of noncash activities:                                           |                                                                      |                                   |                                       
|                                                                                          | Tax effect on stock options exercised                                |                                   | $                                     

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 management and staffing 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, which supports those service offerings. The Company operates through 19 field offices with over 80
personnel in field sales, supported by 40 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 and three operating subsidiaries. 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 Management Solutions and ARC
Technology Management Solutions. 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
following table illustrates the pro-forma impact of the goodwill amortization on the Company's 2001 and 2000 net loss:

2001

2000Reported net loss

$
(3,074
)
$
(43,394
)Add: goodwill amortized (net of tax)


76


781Adjusted net loss

$
(2,998
)
$
(42,613
)Reported loss per share

$
(0.18
)
$
(2.76
)Impact on loss per share

$
0.00

$
0.05Adjusted loss per share

$
(0.18
)
$
(2.71
)


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 three to seven years. Software includes development costs for internal IT projects currently in progress and will be amortized upon completion over three 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 are 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 long-term debt. These financing costs are being amortized using a
straight-line method over the lives of the respective agreements.

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

41

---

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 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." This bulletin
provides guidance from the staff on applying generally accepted accounting principles to revenue recognition in financial statements. The Company adopted SAB 101 in the fourth quarter of 2000. The
implementation of SAB 101 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 $6.6 million,
$7.3 million and $9.6 million of expenses to revenue with a corresponding decrease of approximately 1.2%, 1.0% and 1.0% in gross margin for the years ended December 31, 2002, 2001
and 2000, respectively.

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 2002, 2001 and 2000, the largest client accounted for approximately 25%, 20% and 18%, the second largest client
accounted for approximately 17%, 17% and 15% and the third largest client accounted for 5%, 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 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 liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date.

42

---

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.

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:

2002

2001

2000(in thousands, except per share data)Net loss, as reported

$
(11,135
)
$
(3,074
)
$
(43,394
)Pro forma compensation expense


(3,485
)

(10,693
)

(3,970
)Pro forma net loss

$
(14,620
)
$
(13,767
)
$
(47,364
)Diluted loss per share:As reported

$
(0.65
)
$
(0.18
)
$
(2.76
)Pro forma


(0.86
)

(0.82
)

(3.01
)


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 2002, 2001
and 2000, respectively: risk-free interest rates of 4.3%, 4.6%, and 5.0%; expected lives of 7, 4 and 4 years; expected volatility of 112%, 101% and 134%; and no dividends expected to be paid.

Fair Value of Financial Instruments

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

Computation of Earnings Per Share

Basic earnings per share is based on the weighted average number of common shares outstanding for the year. Diluted earnings per share is based on the weighted
average number of common shares outstanding and includes the dilutive effect of unexercised vested stock options 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, 2002,
potentially dilutive securities consisted of options to purchase 3.3 million 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, 2002.

Reclassification

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

43

---

2.    RESTRUCTURING AND OTHER CHARGES

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 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:

Restructuring chargeReal estate costs

$
4.4Severance


0.6Other charges


1.1$
6.1


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

Total
Initial
Reserve

2002
Cash
Payments

Balance at
December 31,
2002Real estate costs

$
4,328

$
(569
)
$
3,759Severance


627

$
(362
)

265Other charges


1,100


(202
)

898Total restructuring charge

$
6,055

$
(1,133
)
$
4,922


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, 2002 relates to employees with employment agreements. This amount will be paid out through July 2003.

Restructuring and Other Charges2000

The Company recorded a $36.6 million charge during the fourth quarter of 2000, which consisted of the following components (in millions):

Impairment of goodwill

$
34.9Impairment of assets and other charges


1.2Restructuring charge


0.5$
36.6


44

---

Impairment of Goodwill2000

During the fourth quarter of 2000, the Company reviewed its intangibles relating to the 1997 acquisition of CGI Systems, Inc. ("CGI") for any impairment
based on current factors. After giving effect to purchase price adjustments, escrow refunds, acquisition costs, amortization and the write-down of goodwill in 1998, the remaining
unamortized goodwill balance as of September 30, 2000 was $37.7 million, which consisted of goodwill allocated to the following three components of CGI's acquired business (in millions):

National Technical Service ("NTS")

$
2.8Programming Services


18.2Consulting


16.7$
37.7


The
Company allocated goodwill separately to each component of the acquired business due to each component having a different operating cash flow and business strategy. Thus, the Company
performed a recoverability analysis for each component of the business for purposes of impairment. The recoverability analysis compared the projected future undiscounted cash flows over the estimated
useful life for each component versus the carrying net book value of the goodwill allocated to each component. This analysis supported a goodwill valuation of zero for the Programming Services and
Consulting components of the acquired business, which resulted in a write off of impaired goodwill totaling $34.9 million. The recoverability analysis for the NTS component of the business
resulted in a positive future undiscounted cash flow in excess of the unamortized balance of goodwill allocated to the NTS business; as such, there was no impairment to the $2.8 million
goodwill allocated to NTS.

Impairment of Assets and Other Charges2000

The $1.2 million impairment of assets and other charges relates primarily to write-downs of fixed asset values due to the re-engineering of the
Company's field operations. The charge also includes a write-down of office furniture, leasehold improvements and computers to their estimated fair value as a result of the reduction in
staff and office space.

Restructuring Charge2000

The restructuring charge of $0.5 million represents the severance costs associated with the restructuring of the Company's sales, recruiting, delivery and
administrative support models. A total of 29 positions were eliminated, with 20 of them being administrative positions. This charge was a continuation of the 1998 restructuring, which was designed to
optimize the branch field model. At December 31, 2000, the remaining accrued severance costs on the balance sheet was $0.3 million, all of which was paid out during 2001.

45

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3.    LONG-TERM BORROWINGS

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

Year ending December 31,

(in thousands)2003

$
2004


2005


18,5002006


2007


2008 and thereafter


10,000Total

$
28,500


During
1997, the Company entered into a $53.5 million revolving credit facility. As of December 31, 2001, borrowings under the revolving credit facility were
$26.9 million. As part of this agreement, cash receipts into the Company's bank accounts were directly applied against the outstanding bank line of credit balance. Advances from the line of
credit were determined on a daily basis to minimize the Company's average debt balance. The revolving credit facility expired on January 31, 2002. The Company did not extend this credit
facility and successfully refinanced the debt on a long-term basis as described below.

On
January 31, 2002, the Company entered into a Senior Secured Revolving Credit facility with a lending institution, that provides for up to $30.0 million of revolving
credit based on the Company's available collateral base. This facility was reduced to $28.0 million in August 2002 as discussed below. The credit facility has a three-year
term and bears interest at LIBOR plus 3.25% or the lenders' base rate plus 1.00%. As of December 31, 2002, the applicable rates are as follows: $17.0 million at 4.67%, which represents
LIBOR plus 3.25%, and $1.5 million at 5.25%, which represents the bank's base rate plus 100 basis points. The initial proceeds of this facility together with the net proceeds from the sale of
convertible subordinated notes described below were used to repay the Company's existing credit facility. Advances from the revolving credit facility are determined on a daily basis to minimize the
Company's average debt balance. As of December 31, 2002, the Company has $3.1 million in excess availability and $18.5 million outstanding.

On
January 31, 2002, the Company also entered into a Securities Purchase Agreement with a private equity investor, pursuant to which the Company sold $10 million principal
amount of 15% Senior Subordinated Convertible Notes due January 31, 2009. These notes are 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.

At
December 31, 2002, the Company has long-term debt of $27.1 million. This is comprised of $18.5 in Senior Secured Revolving Credit with Fleet Capital and
$8.6 million of long-term debt related to the Securities Purchase Agreement with Wynnchurch Capital Partners, L.P.

At
December 31, 2002, the total contractual obligation to Wynnchurch Capital Partners, L.P. is $11.3 million. This is comprised of $10.0 million in original
principal and $1.3 million in accrued interest. $6.9 million of the principal is included in long-term debt while the remaining $3.1 million is

46

---

classified as equity, representing the value assigned to the warrants. The $8.6 million of this obligation recorded as long-term debt is comprised of the following:

(in thousands)Original principal

$
6,865Accrued interest


1,333Accretion of warrants


409Total long-term debt

$
8,607


In
conjunction with the sale of these notes, the Company issued 10,000,000 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 1,000,000 warrants to purchase its common stock at $0.73 per share. These warrants 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 1,000,000 contingent warrants and these warrants will not expire. A fair value was required to be ascribed to these warrants and recorded as a decrease in the debt
and an increase to additional-paid-in-capital. This value is then amortized over the seven-year life of the debt by a non-cash interest
charge. The fair value of these warrants was determined to be approximately $3.1 million and resulted in a non-cash interest charge of approximately $409,000 in 2002. The valuation
of the warrants was determined based on advice from third-party valuation specialists who utilized a valuation model with the following inputs: measurement date of Janaury 31, 2002; fair value of
$0.80; exercise price of $0.55 ($0.73 for contingent warrants); contractual term of 10 years; dividend rate of zero; volatility rate of 101%; risk-free interest rate of 5.49%; and
probability of 100% (for contingent warrants only).

In
conjunction with the Securities Purchase Agreement on January 31, 2002, the Company's Board of Directors redeemed all of the rights issued under its stockholder rights plan.
Each share of the Company's common stock carried with it one right to purchase a fraction of a share of the Company's preferred stock in certain circumstances described in the Stockholder Rights Plan.
The rights were attached to, and could not be separated from, shares of the Company's common stock. 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.

Throughout
2002, ARC Fleet Capital executed certain amendments to the revolving credit agreement. The impact of these amendments was to reduce the borrowing limit subject to pledged
accounts receivable as collateral to $28.0 million in consideration for the waiver of existing financial loan covenants.

In
April 2003, ARC and Fleet Capital executed amendments to the revolving credit agreement. The impact of this amendment was to obtain a waiver of financial loan covenants existing as of
December 31, 2002. Additionally, financial loan covenant calculations were redefined for future periods.

In
April 2003, in connection with an amendment to the Company's credit agreement with Fleet Capital, the Company's senior lender, to allow overadvances of up to $2,000,000 through
December 31, 2003, Wynnchurch Capital Partners executed a guaranty to Fleet Capital of the overadvance amounts. In consideration, Wynnchurch Capital Partners and the Company amended their
agreements, 15% Senior Subordinated Convertible Notes and warrants to reduce the conversion price of the notes to common stock to $1.50 per share, reduce the exercise price of all outstanding
warrants to $0.26 per share, provide that any draw on the guaranties could be satisfied by a purchase by Wynnchurch Capital Partners of additional 15% Senior Subordinated Convertible Notes
having a principal amount equal to Fleet Capital's draw and having terms equal to the outstanding 15% Senior Subordinated Convertible

47

---

Notes and provide for a $250,000 fee to Wynnchurch Capital Partners in the event of a draw upon their guaranty, payable through the issuance of additional 15% Senior Subordinated Convertible Notes.

As
of December 31, 2002, the Company has two irrevocable standby letters of credit for $1,625,000, which expire on December 31, 2003.

4.    LEASES

The Company leases its office facilities under noncancelable operating leases. Rental expense for operating leases during 2002, 2001 and 2000 was
$2.5 million, $2.8 million and $3.5 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, 2002, are:

Year ending December 31,

Operating Lease
Payments

Operating Sublease
Income(in thousands)2003

$
4,266

$
(1,629
)2004


3,674


(677
)2005


2,363


(144
)2006


1,623


2007


1,186


Thereafter


2,157


Total

$
15,269

$
(2,450
)


5.    OTHER INCOME (EXPENSE), NET

Other income (expense), net, for the years ended December 31, 2002, 2001 and 2000 is comprised of the following:

2002

2001

2000(in thousands)Interest income

$
72

$
373

$
91Interest expense


(3,749
)

(4,319
)

(6,680
)Gain on sale of security





349


Gain on swap agreement








1,100$
(3,677
)
$
(3,597
)
$
(5,489
)


48

---

6.    INCOME TAXES

Income tax expense (benefit) is summarized as follows for the years ended December 31, 2002, 2001 and 2000:

2002

2001

2000(in thousands)Current:Federal

$
(1,068
)
$
120

$
(3,382
)State


(26
)

98


125Foreign








203Total current


(1,094
)

218


(3,054
)Deferred:Federal





(728
)

(830
)State





510


(595
)Total deferred





(218
)

(1,425
)$
(1,094
)
$


$
(4,479
)


The
reasons for the difference between the effective tax rate and the corporate federal income tax rate for the years ended December 31, 2002, 2001 and 2000 are as follows:

2002

2001

2000(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

(3.3
)%
5.0
%
(1.1
)%Valuation allowance

14.1
%
28.8
%

%Nondeductible amortization and impairment charges


%
0.9
%
26.1
%Nondeductible original issue discount interest expense

1.2
%

%

%Nondeductible accretion of warrants

1.1
%

%

%Reduction of prior year net operating loss

6.2
%

%

%Other permanent differences

6.7
%
0.3
%
0.6
%Effective income tax rate

(9.0
)%

%
(9.4
)%


49

---

The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2002 and 2001 are as
follows:

2002

2001(in thousands)Deferred tax assets:Property and equipmentdepreciation

$
37

$
181Net operating loss


1,938


2,594Lease cancellation accrual


1,903


450Receivable reserves


801


507Prepaid assets





455Deferred rent payable


141


32Accrued liabilities


797


996Gross deferred tax assets


5,617


5,215Valuation allowance


(2,623
)

(895
)Net deferred tax assets


2,994


4,320Deferred tax liabilities:Software development costs


(2,723
)

(3,520
)Employee savings plan costs





(800
)Prepaid assets


(271
)

Gross deferred tax liabilities


(2,994
)

(4,320
)Net deferred tax liability

$


$



The
income tax benefit for tax deductions relating to the exercise of nonqualified stock options in excess of the tax benefits on the amount reflected as amortization of deferred stock
compensation has been recorded as additional paid-in-capital.

At
December 31, 2002, the Company had gross federal and state net operating losses of $3.3 million and $15.6 million, respectively, which are available to offset
taxable income through 2022.

Prior
to 2001, no valuation allowance for deferred tax assets had been recorded as the Company believed it was more likely than not 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 (except for a portion thereof in 2002 as a result of a change in income tax law) and the lack of ability
to accurately forecast taxable income over the 20 years net operating loss carryforward period.

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. 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
$0.2 million, $0.6 million and $0.5 million during 2002, 2001 and 2000, respectively. Effective March 31, 2002 the Company discontinued the employer matching contribution.

50

---

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 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, $221,000 and $60,000 was amortized as an
operating expense in 2002, 2001 and 2000, 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 time 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.

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 2002, 2001
and 2000, respectively: risk-free interest rates of 4.3%, 4.6%, and 5.0%; expected lives of 7, 4 and 4 years; expected volatility of 112%, 101% and 134%; and no dividends expected
to be paid.

51

---

Stock
option transactions for the years ended December 31, 2000, 2001 and 2002 are summarized as follows:

Shares

Weighted Average
Exercise Price(in thousands, except per share data)Balance at December 31, 1999

2,900

9.97Options granted

1,808

0.73Options cancelled

(1,827
)
8.64Options exercised

(21
)
2.53Balance at December 31, 2000

2,860

4.94Options granted

258

0.51Options cancelled

(587
)
1.80Options exercised



Balance at December 31, 2001

2,531

4.70Options granted

2,165

1.21Options cancelled

(1,044
)
7.67Options exercised



Balance at December 31, 2002

3,652

1.70


As
of December 31, 2002, 2001 and 2000, there were 1.4 million, 1.7 million and 1.1 million options exercisable, respectively. As of
December 31, 2002, there were 0.9 million stock options available for future grants under the Company's Incentive Stock Option Plan. The weighted-average grant-date fair
values of options granted during 2002, 2001 and 2000 were $0.45, $0.51 and $1.34 per share, respectively.

The
following table summarizes information about stock options outstanding as of December 31, 2002:

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-$5.99

3,360

8.6

$
0.87

1,071

$
0.44$6.00-$9.99

10

6.4


7.87

10


7.88$10.00-$10.99

244

3.7


10.00

244


10.00$11.00-$38.12

38

4.2


21.11

38


21.11$0.28-$38.12

3,652

8.5

$
1.70

1,363

$
2.78


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 covers each employee who has completed 1,000 hours of service during the last 12 calendar months preceding the enrollment date. The Stock Purchase Plan enables employees to
purchase the Company's common stock at 85% of the market price. Employees may purchase the Company's common stock through the Stock Purchase Plan only by payroll deduction. Payroll deductions may not
exceed 20% of the

52

---

employees' gross pay or $21,250 in any one-year. In 2001 and 2000, the Company's matching portion to the Stock Purchase Plan amounted to $0.1 million from both years 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 114,000, 296,000, and 146,000 for the years ended December 31, 2000, 2001 and 2002, respectively. Effective March 31, 2002, the Stock Purchase Plan was
terminated.

10.  SUBSEQUENT EVENTS

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 alleges that Bluecurrent
breached its Master Services Agreement with the Company by failing to pay approximately $5 million worth of invoices for services performed (the "Illinois lawsuit"). Bluecurrent has asked the
court to either dismiss that action based on improper venue or transfer it to the United States District Court in Texas based on venue and convenience grounds. That motion is currently pending.

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. The lawsuit seeks a credit in excess of $2 million dollars. The Company intends to vigorously defend that lawsuit and has removed it to
the United States District Court for the Western District of Texas. The parties have agreed to stay the Texas lawsuit pending resolution of Bluecurrent's motion to dismiss or transfer the Illinois
lawsuit.

Discovery
has not yet begun in either lawsuit. At this time, the Company is unable to opine regarding the likelihood of an unfavorable outcome or the range of any potential loss, if any,
from the above matters.

53

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SCHEDULE II        VALUATION AND QUALIFYING ACCOUNTS  YEARS ENDED DECEMBER 31, 2002, 2001, and 2000        (in thousands)

|Description                     |  | Balance at Beginning of Year |       | Charged to Operations |   | Writeoffs |  | Balance at End of Year
|------------------------------- |  | ---------------------------- | ----- | --------------------- | - | --------- |  | ----------------------
|2002:                           |  |                              |       |                       |   |           |  |                       
|Allowance for doubtful accounts |  | $                            | 1,179 |                       | $ | 1,257     |  | $                     
|2001:                           |  |                              |       |                       |   |           |  |                       
|Allowance for doubtful accounts |  |                              | 1,503 |                       |   | 324       |  |                       
|2000:                           |  |                              |       |                       |   |           |  |                       
|Allowance for doubtful accounts |  |                              | 1,522 |                       |   | 550       |  |                       

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