Exhibit 13

ANALYSTS INTERNATIONAL Annual Report

2 0 0 2

[
New realities] > New Strategies

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Traditional
Values

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Forward Looking Statements

The statements contained in the letter from the CEO and the President and in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" that are not strictly historical fact, including without limitation, statements relating to the need of current and prospective customers for our services and our ability to retain and/or
win that business, the effects of competition and our ability to respond to competitive and market conditions, our success in retaining and placing qualified professional staff, our ability to balance
changes in billing and labor rates and to control other employee-related and operating costs (our ability to maintain gross margin levels), our ability to comply
with the terms of our credit agreement and our working capital requirements and our ability to achieve and maintain profitability are forward looking statements made under the safe harbor provision of
the Private Securities Litigation Reform Act. Words such as "believes," "intends," "possible," "expects," "estimates," "anticipates," or "plans" and similar expressions are intended to identify
forward-looking statements. Such statements are based on management's current expectations as of the date of this document but involve risks, uncertainties and other factors which could cause actual
results to differ materially from those contemplated by such forward looking statements. Investors are cautioned to consider these forward looking statements in light of important factors including,
but not limited to, the risk factors discussed below, which may result in variations from results contemplated by such forward looking statements.

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Financial Highlights

|                                                                                  |                               | Year Ended December 28,
2002 |         | Year Ended December 31,
2001 |        
|--------------------------------------------------------------------------------- | ----------------------------- | ---------------------------- | ------- | ---------------------------- | -------
|
|Professional services revenues:                                                   |                               |                              |         |                              |        
|                                                                                  | Provided directly             |                              | $       | 327,582                      |        
|                                                                                  | Provided through subsuppliers |                              |         | 98,578                       |        
|                                                                                  |                               |                              |         |                              |        
|                                                                                  |                               | Total revenues               |         |                              | 426,160
|Loss before income taxes and cumulative effect of change in accounting principles |                               |                              | (5,748  | )                            |        
|Net loss                                                                          |                               |                              | (21,031 | )                            |        
|Per share of common stock:                                                        |                               |                              |         |                              |        
|                                                                                  | Net loss (diluted)            |                              |         | (.87                         | )      
|                                                                                  | Shareholders equity           |                              |         | 2.90                         |        
|                                                                                  | Dividends declared            |                              |         | .00                          |        
|Average common and common equivalent shares outstanding                           |                               |                              | 24,198  |                              |        
|Number of personnel                                                               |                               |                              | 3,200   |                              |        
|Current ratio                                                                     |                               |                              | 2.08    |                              |        
|Working capital                                                                   |                               | $                            | 35,705  |                              | $      

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To Our Shareholders

Analysts International ended 2002 poised and positioned to capitalize on the opportunities that continue to exist
in the markets we serve. We significantly strengthened our financial position, reduced expense and staffing levels to respond to the continued sluggish demand for IT services, achieved increasing
balance between staffing services and business solutions revenue, and embarked on a strategy to capture the market share that will drive our future growth.

We
ended the year in a much stronger financial position than we had at the beginning. The completionduring the first half of the yearof the sale of our
headquarters building, the retirement of most of our long-term debt and the successful restructuring of our credit facility, gave us not only a much stronger balance sheet, but also
allowed us to focus senior management's attention on improving operating performance and executing a strategy for long-term profitable growth.

Revenue
for the year was $426 million, down from $552 million in fiscal year 2001, and included a decline of 20% in revenue from services we supply directly to customers
and a revenue decline of 30% in services provided by sub-suppliers. On a fully diluted per share basis, the net loss for the year ended December 28, 2002, was 87 cents per share,
compared with a loss of 12 cents per share last year.

During
the year, we also completed numerous programs to realign expenses and lower our fixed costs and made good progress in achieving a more balanced business mix. During the second
half of 2002 our business mix was nearly equal between business solutions/infrastructure services and staffing.

In
April of 2002, our Chairman and founder, Fred Lang retired as CEO. From the inception of Analysts International in 1966, Fred Lang provided the leadership that fueled and sustained
the growth of the company and we are enormously grateful for his vision, values, wisdom and continuing contributions as Chairman of the Board. Following Fred's retirement, I was appointed to succeed
him as CEO and John D. Bamberger was elected Executive Vice President and Chief Operating Officer. John Bamberger is providing the quality leadership we anticipated and has revitalized our
entrepreneurial spirit. During the year we added John T. Paprocki to our management team as Chief Financial Officer. He is a highly experienced financial executive and has made important contributions
to the effectiveness of our finance and administrative areas and has added his talent and perspective to the formulation of our business strategies for 2003 and beyond. Along with the continuing
important contributions of Penny Quist, our Senior Vice President of Strategy and Business Development, and Colleen Davenport, our Secretary and General Counsel, Analysts International has a strong,
experienced and talented senior management team.

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[PHOTO]
Michael J. LaVelle President and Chief Executive Officer

This
team, coupled with our solid financial position and top quality work force form three important pillars upon which to base our strategy for future growth. While it has been a
popular exercise over the past three years to forecast economic recovery, or a return to the robust levels of IT spending that we witnessed in the late 1990's, we believe it is imperative to build
Analysts International's future business based on an assumption of no significant increases in demand within the IT industry through 2006. Therefore, to improve our performance, restore profitability
and provide for long-term growth, we are focusing our considerable management resourcesthroughout the organizationon increasing market share. We have already
implemented plans to tighten and refine our operating model, drive increased long-term sales growth in the services we provide directly through improved sales management programs, and
achieve improved recruiting productivity.

With
a committed and focused management team, financial strength, and a thoroughly studied vision of the opportunities that already, or will, exist in our industry, we believe that we
can achieve profitability in 2003, even with a reduction in revenue from the 2002 total. This lower revenue expectation results primarily from the continued reduction in service provided by
sub-suppliersthe least profitable of our revenue sources.

In
striving to achieve our long-term vision of profitable growth, we will continue to rely on the dedicated contributions of our employees and management, and their
commitment to excellence, integrity and innovation. With this strong and highly experienced organization, we are confident in our
ability to provide the service and solutions excellence that our customers deserve and believe we will produce results that will reward our shareholders over the long term.

Sincerely,

/s/MICHAEL J. LAVELLE

Michael
J. LaVelle President and Chief Executive Officer

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A Tribute

In 2002, Fred Lang, founder of Analysts International, announced that he would step down as the Company's Chief Executive Officer, a role
that he had filled for 36 years. His decision to retire as CEO, but remain the Chairman of our Board of Directors, not only signaled a significant change for Analysts International but also
marked the end of an era in the IT industry.

Fred
Lang is a true pioneer. In an industry known for change and for visionary thinking, he managed change, technological advances and a growing, dynamic company for nearly four
decadesmore than a dozen lifetimes in the accelerated time frame that characterizes our volatile industry.

When
he founded the Company in his Minnetonka Beach carriage house, he did so with three values as the bedrock for the way we would build the business: excellence, integrity and
innovation. Those three values remain the foundation of Analysts International today.

Today
Analysts International is an established leader in the network infrastructure marketplace, a formidable player in e-solutions and a pioneer in full service staffing,
with clients ranging from global Fortune 50 companies to mid-tier industry leaders. We are a leading company because of the vision and
values of our founding leader. We wish Fred the very best. We sincerely appreciate and treasure the leadership he has given and we are excited about the role he will continue to play.

[PHOTO]
Frederick W. Lang Founder

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After a prolific 33-year career with Analysts International, Sarah Spiess retired as Executive Vice President in December of
2002. Throughout her tenure, Sarah was an integral part of an ever-changing technology services company and marketplace. As the need for hardware, software and consulting services grew
into the major industry that we call Information Technology, Sarah helped to shape the people and processes that allowed many companies to discover how computers could do more for their business than
just keep the books.

Sarah
began her career at Analysts as a program analyst and project manager. She continued to take on greater roles of responsibility, managing branches and entire regions, and
eventually took a place in executive management, guiding the company's overall business strategy and implementation. Sarah's unique contribution as a mentor of up-and-coming
technology consultants was both meaningful to her and important to the prosperity of Analysts. She touched many professional lives during her career and contributed to their individual achievements as
well as the overall success of the company.

Analysts
International has become a significant leader in a competitive IT marketplace due in part to Sarah's commitment and leadership. Though we were sad to see her go, we are grateful
for Sarah's valuable contributions to Analysts and the IT industry, and wish her well.

[PHOTO]
Sarah P. Spiess Leader, Mentor, Friend

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The Company

Analysts International is a leading diversified IT services and staffing company. Building on more than
35 years of industry experience, Analysts is an established leader in what is now a rapidly evolving industry. Analysts International is deeply rooted in the IT community, and its expertise is
sought and utilized by companies across all industries. Working from a long-established base of organizational and financial strength, the Company has rebalanced its business mix to fit
the changing shape of the IT marketplace.

PROVEN INDUSTRY EXPERTISE

Analysts' expertise and experience is in assisting businesses with the application of IT products, services and talent. The Company helps its clients look ahead
to their own tomorrows by bringing them the technology they can use in real and functional ways: giving doctors mobile, handheld access to patient information; developing and implementing network and
infrastructure systems applications that connect law enforcement officials to respond faster and be more informed; and working with the latest in security software to help avert the threat of
terrorism.

Lines
of business include the Sequoia Services Group, which provides business solutions and network infrastructure services, the Managed Services Group, which provides a comprehensive
range of outsourced business functions; and IT Supplemental Resources, which provides highly skilled resources for supporting a client's IT staffing needs.

Analysts
International has a proven record of performance and has received numerous awards for its work.ComputerWorldhas named the
Company one of the best 100 places for IT professionals to work. Microsoft Corporation has named Analysts International its worldwide winner of the top IT Infrastructure Solution. This past year, an
Analysts project director was recognized by Microsoft as one of only 13 worldwide Most Valuable Professionals (MVP) for Microsoft's ASP.NET product.

FORWARD-LOOKING BUSINESS STRATEGY

The Business Has Changed

The way customers purchase and deploy IT services and solutions has irrevocably changed. The future of IT Services is not just what is being offered, but how it
is being offered and to whom. Analysts International has responded by restructuring the way its services are bundled, marketed, delivered and evaluated.

The
Company's management has identified significant shifts in the marketplace that will require change throughout the IT industry, but will also present significant opportunity

[New
realities]

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>
New Strategies

for
future growth, especially for those companies who embrace and understand the forces of change.

These
marketplace shifts exist in large part because the Internet has enabled consumers to reach a huge supplier and service base, effectively driving down prices and making global
commerce not only practical, but desirable. Procurement management has emerged as a priority and as a powerful function for most major customers. These capabilities, coupled with a great deal of
disenchantment with the results of customer IT investments in the late 1990's have brought pricing pressure throughout the industry and commoditized much of the business.

In
conducting its market analysis, the Company used available industry research, internal resources and outside consultants to analyze the middle marketplace, the competition and overall
trends in globalization and pricing. As a part of the process the Company's management also reviewed each line
of its business, products and performance to identify strengths and weaknesses. In each of the lines of business the Company will continue to focus on the more efficient delivery of services.

The Need to Gain Market Share

Analysts International expects to implement tactical plans for 2003 that continue to tighten and refine its operating model, focus on driving increased sales
through improved sales management and drive higher recruiting productivity using the improved reporting now available from the new resource management system, installed and deployed in 2002. The
Company believes these initiatives focus on gaining market share and are expected to help the it meet its business forecasts for 2003. Strategic plans focusing on implementing fundamental changes in
the business model to incorporate advanced technology, new business concepts and global capabilities have also been initiated.

The Objectives for 2003

The Company's objectives for 2003 are directed toward successfully responding to the new business realities within the IT industry, targeting and seizing new
business opportunities through innovative adaptation of technology and gaining industry leadership. Specifically, management will focus on four key objectives:



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Traditional Values

Objectives One and Two

Developing a low cost staffing delivery model in the industry and becoming the service provider, agent and employer of choice to the IT consulting community

The
relationship between staffing firms and contractors has changed. Staffing resources are now acquired as a commodity and therefore the sale is price driven. Current industry business
models do not adequately reflect this new relationship.

In
2003 Analysts International intends to implement business models that support the contracting community and reflect its role as service provider. The model will be designed to provide
a lower cost delivery to the customer, more benefits to the consultant, more profitability to Analysts, and will foster relationships with the consultant that are open and lasting.

Objective Three

Targeting the delivery of our services internationally to expand Analysts' reach within its existing customer base

Most
major companies are now seeking vendors who have offshore capabilities. In order to meet this requirement and improve its competitiveness in staffing, solutions and outsourcing, in
2003 Analysts International will select an offshore partner. With this partner, Analysts International believes it will be able to provide its customers all of the benefits of the offshore
relationship: highly skilled, cost effective services.

Objective Four

Developing channel sales partners to drive new business opportunities

Many
small to mid-sized staffing companies have a need to supply expanded service offerings to their clients and to find a way to meet the needs of clients with a national
presence. This is the case since most of these small to mid-sized firms have geographical limitations. The potential for Analysts International to allow these companies to sell its
services is great. In 2003 the Company intends to develop plans to pilot this concept with selected partners.

*
* * *

Analysts
International's management believes that its 2003 objectives are focused on adapting to the new business realities outlined above, targeted at seizing new opportunities through
innovative adaptation of technology and designed to sustain industry leadership and enhance shareholder value.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the
reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from
these estimates under different assumptions or conditions.

Critical
accounting policies are defined as those that involve significant judgments and uncertainties and potentially result in materially different outcomes under different assumptions
and conditions. Application of these policies is particularly important to the portrayal of our financial condition and results of operations. We believe the accounting policies described below meet
these characteristics.

Revenue Recognition

We recognize revenue for our staffing business and the majority of our business solutions and infrastructure business as services are performed or products are
delivered. Certain of our outsourcing and help desk engagements provide for a specific level of service each month for which we bill a standard monthly fee. Revenue for these engagements is recognized
in monthly installments over the period of the contract. In some such contracts we invoice in advance for two or more months of service. When we do this, the revenue is deferred and recognized over
the term of the invoicing agreement.

In
certain client situations, where the nature of the engagement requires it, we utilize the services of other companies in our industry. If these services are provided under an
arrangement where by we agree to retain only a fixed portion of the amount billed to the client, to cover our management and administrative costs, the amount billed to the client is classified as
subsupplier revenue. All revenue derived from services provided by our employees or other independent contractors working directly for us is recorded as direct revenue.

We
generally do not enter into fixed price engagements.

In
all of our services, risk associated with client satisfaction exists. Although management feels these risks are adequately addressed by our adherence to proven project management
methodologies and other procedures, the potential exists for future revenue charges relating to unresolved issues.

Bad Debt

Each accounting period, we determine an amount to be set aside to cover potentially uncollectable accounts. Our determination is based upon an evaluation of
accounts receivable for risk associated with a client's ability to make contractually required payments. These determinations require considerable judgment in assessing the ultimate potential for
collection of these receivables and include reviewing the financial stability of the client, the client's willingness to pay, and current market conditions. If our evaluation of a client's ability to
pay is incorrect, we may incur future charges.

Goodwill and Intangible Impairment

We evaluate goodwill and other intangible assets on a periodic basis. This evaluation relies on assumptions regarding estimated future cash flows and other
factors to determine the fair value of the respective assets. If these estimates or related assumptions change, we may be required to recognize impairment charges.

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In
June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets." In
accordance with the provisions of SFAS No. 142, effective January 1, 2002 we ceased amortization of certain intangible assets including goodwill. Intangible assets with definite useful
lives will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets." Also in conjunction with the adoption of the provisions of SFAS No. 142, we recorded a goodwill impairment charge during the second quarter of $16.389 million. This impairment
was recorded as a cumulative effect of a change in accounting principle as of January 1, 2002, and therefore did not impact operating income.

Deferred Taxes

We account for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes," which requires that deferred tax assets and liabilities be
recognized for the effect of temporary differences between reported income and income considered taxable by the taxing authorities. SFAS No. 109 also requires the resulting deferred tax assets
to be reduced by a valuation allowance if some portion or all of the deferred tax asset is not expected to be realized. Based upon taxable income during the three years ended December 28, 2002,
and estimates of future taxable income, we expect our deferred tax assets, net of the established valuation allowance, will be fully realized in the future. If actual future taxable income is less
than we anticipate from our estimates, we may be required to record a valuation allowance against our deferred tax assets resulting in additional income tax expense which will be recorded in our
consolidated statement of operations.

Benefit Accruals

Each accounting period we estimate an amount to accrue for medical costs incurred but not yet reported (IBNR) under our self-funded employee medical
insurance plans. We base our determination on an evaluation of past rates of claim payouts and trends in the amount of payouts. This determination requires significant judgment and assumes past
patterns are representative of future payment patterns. A significant shift in usage and payment patterns within our medical plans could necessitate significant adjustments to these accruals in future
accounting periods.

Restructuring

We recorded a restructuring charge and reserves associated with restructuring plans approved by management in December 2000. The remaining reserve consists
of an estimate pertaining to real estate lease obligations. Factors such as the ability to obtain subleases, the creditworthiness of sublessees, and the ability to negotiate early termination
agreements with lessors could materially affect this real estate reserve. At December 28, 2002 we had successfully sub-leased or terminated all but one of the spaces included in our
restructuring accrual. While we believe our current estimates regarding lease obligations are adequate, our inability to sublet the remaining space, or obtain payments from sublessees could
necessitate significant adjustments to these estimates in the future.

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Results of Operations, Year Ended December 28, 2002 vs. Year Ended December 31, 2001

The following table illustrates the relationship between revenue and expense categories along with a count of employees and technical consultants for the fiscal
years ended December 28, 2002 and December 31, 2001. The table provides guidance in our explanation of our operations and results.

|                                                       |                               | Year Ended
December 28, 2002 |         | Year Ended
December 31, 2001 |       | Increase (Decrease) |  
|------------------------------------------------------ | ----------------------------- | ---------------------------- | ------- | ---------------------------- | ----- | ------------------- | -
|
|
|Professional services revenue:                         |                               |                              |         |                              |       |                     |  
|                                                       | Provided directly             |                              | $       | 327,582                      |       | 76.9                | %
|                                                       | Provided through subsuppliers |                              |         | 98,578                       |       | 23.1                |  
|                                                       |                               |                              |         |                              |       |                     |  
|Total revenue                                          |                               |                              | 426,160 |                              | 100.0 |                     |  
|Salaries, contracted services and direct charges       |                               |                              | 353,715 |                              | 83.0  |                     |  
|Selling, administrative and other operating costs      |                               |                              | 73,694  |                              | 17.3  |                     |  
|Amortization of goodwill and other intangible assets   |                               |                              | 785     |                              | .2    |                     |  
|Loss on sale of corporate headquarters building        |                               |                              | 1,860   |                              | .4    |                     |  
|Non-operating income                                   |                               |                              | (122    | )                            | .0    |                     |  
|Loss on Investment                                     |                               |                              | 190     |                              | .0    |                     |  
|Interest Expense                                       |                               |                              | 1,042   |                              | .2    |                     |  
|Loss on debt extinguishment                            |                               |                              | 744     |                              | .2    |                     |  
|Cumulative effect of change in accounting for goodwill |                               |                              | 16,389  |                              | 3.9   |                     |  
|                                                       |                               |                              |         |                              |       |                     |  
|Loss before income taxes                               |                               |                              | (22,137 | )                            | (5.2  | )                   |  
|Income taxes (benefit) and minority interest           |                               |                              | (1,106  | )                            | (.3   | )                   |  
|                                                       |                               |                              |         |                              |       |                     |  
|Net loss                                               |                               | $                            | (21,031 | )                            | (4.9  | )%                  | $
|                                                       |                               |                              |         |                              |       |                     |  
|Personnel:                                             |                               |                              |         |                              |       |                     |  
|                                                       | Management and Administrative |                              |         | 450                          |       |                     |  
|                                                       | Technical Consultants         |                              |         | 2,750                        |       |                     |  
|                                                       |                               |                              |         |                              |       |                     |  

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During
fiscal year 2002, as compared to 2001, a greater percentage of our revenue was derived from direct billings. This was due principally to a $59 million decrease in revenue
from Qwest, most of which had been provided through subsuppliers. The large decrease with this single client was partially offset by the addition of a new managed services client. Our subsupplier
revenue is mainly pass-through revenue with associated fees providing minimal profit.

Direct
revenue decreased in 2002 compared to 2001 primarily as a result of a 14.1% decrease in technical consultants. This decrease is reflective of the overall slowness in the economy
which has resulted in an overall reduction in spending for the IT services we provide. Additionally, we experienced a 7% decrease in our average bill rate due to pricing pressures imposed by our
clients. As demand for the services our industry provides has declined, certain clients have taken the opportunity to demand pricing concessions and we have had to concede lower prices to retain our
relationship with these clients.

Salaries,
contracted services and direct charges primarily represent our payroll and benefit costs associated with billable consultants. Comparing fiscal year 2002 to 2001, these
expenses did not change as a percentage of revenue. We have been successful at managing our direct labor rates downward in response to decreasing bill rates. We have been able to do this by passing
billing rate decreases through to our consultants in the form of labor rate decreases where possible and increasing productivity levels of our billable technical staff. The shifting of our revenue mix
to include more direct revenue, with better margins, and less low margin subsupplier revenue also played a role in keeping this category of expense, as a percentage of revenue, constant. Excluding the
revenue and cost associated with subsupplier revenue, this category of expense as a percentage of revenue increased from 77.1% in 2001 to 77.9% in 2002. Although we continuously attempt to control the
factors which affect this category of expense, there can be no assurance we will be able to maintain or improve this level.

Selling,
administrative and other operating (SG&A) costs include commissions paid to sales representatives and recruiters, location costs, and other administrative costs. This category
of costs represented 22.6% of direct revenue for fiscal year ended 2002, up from 21.4% for the comparable period in 2001. Although SG&A costs increased as a percentage of direct revenue, these costs
were reduced by $14 million in 2002 over the prior fiscal year. This decrease is the result of our ongoing efforts to manage costs downward as demand for our services decline. We have managed
these costs downward primarily by reducing discretionary spending for non-billable travel, imposing wage freezes on administrative and management personnel, eliminating office space where
possible, and by reducing the number of non-technical personnel we employ. We are committed to continuing to manage this category of expense to the right level for our company, however,
there can be no assurance this category of cost will not increase as a percentage of income if our headcount continues to decline.

Amortization
of goodwill and intangible assets decreased in the twelve months ended December 28, 2002 as a result of the adoption of SFAS No 142, "Accounting for Goodwill and
Other Intangibles," at the beginning of 2002. SFAS No. 142 requires companies to no longer amortize purchased goodwill and indefinite lived intangible assets but instead to test such assets for
impairment at least annually.

In
2002 we sold our corporate headquarters building, incurring a loss of $1.9 million. Net proceeds of $16.4 million were used to reduce the balance on our line of credit.
The Company remains a major tenant in the building following the sale.

Non-operating
income, consisting primarily of interest income, declined during the twelve months ended December 28, 2002 due to carrying minimal cash reserves as
required by our new line of credit.

A
$3.0 million loss was recorded during 2001 relating to a 1999 equity investment in a privately held Minneapolis-based software company specializing in the storage and
transmission of high volume data.

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During
2002 we wrote off a $190,000 equity investment we had made during 2000. The market value of this security had declined significantly and we deemed the decline in value to be other
than temporary. We disposed of this security prior to December 28, 2002.

The
decrease in interest expense resulted primarily from lower debt levels during 2002. Debt levels declined during 2002 primarily as a result of using proceeds from the sale of our
corporate headquarters building to reduce debt and a decreased need to borrow to support accounts receivable. As our revenue, and accordingly, our receivable balance declined throughout the year, the
cash collected from accounts receivable was used to reduce debt. Also effecting interest expense for the year
was the reduction of the interest rate we pay from 9% on the old debt instruments to prime plus .75% on the current line of credit.

We
completed the restructuring of our credit facility with GE Capital in 2002. Upon the refinancing of our debt, we recorded a loss on extinguishment of debt of $744,000 primarily
related to make-whole payments associated with our 1998 Note Purchase Agreement and the write-off of costs associated with previous financings.

We
adopted the full provisions of SFAS No. 142 in 2002 and recorded an impairment charge of approximately $16.4 million. SFAS No. 142 requires companies to no longer
amortize purchased goodwill but instead to test such assets for impairment at least annually. Based on the impairment tests, we reduced the carrying value of goodwill for our infrastructure reporting
unit to its implied fair value. The impairment was required because economic conditions at the time of testing reduced the estimated future expected performance for this reporting unit. Following the
initial adoption of SFAS No. 142, at least annually, we are required to test our remaining goodwill for impairment. We will perform these tests as of January 1, 2003. While we do not
expect to record any impairment as a result of these tests, we expect the fair values of the infrastructure and the solutions reporting units to approximate the carrying value of these reporting
units. Any significant deterioration in the outlook for these reporting units could result in future impairment of the associated goodwill. See footnote "K" to the consolidated financial statements
for further discussion of our adoption of SFAS No. 142.

We
recorded an income tax benefit of $1.1 million during the twelve months ended December 28, 2002. This is reflective of an overall tax benefit rate of only 5.0%. As a
result of our continuing losses and our estimates of future taxable income, during 2002, we deemed it appropriate to establish reserves against the significant deferred tax assets created by the
write-off of goodwill and our continuing net operating losses. Accordingly, we established reserves of $7.1 million during 2002. The establishment of these reserves has the effect
of reducing our recorded tax benefit. We recorded an income tax expense of $216,000 during the twelve months ended December 31, 2001 in spite of the $2.8 million pre-tax
loss. The 2001 pre-tax loss included the loss of the investment of $3.0 million which represented a capital loss for tax purposes. We do not expect to generate capital gains to
enable us to utilize this capital loss during the carry-forward period, and accordingly, no tax benefit was recorded for that loss.

As
a result of the factors discussed above, we reported a net loss in the twelve months ended December 28, 2002 of $21.0 million compared with a net loss of
$3.0 million for the comparable period of 2001.

The
decrease in technical consultants is reflective of the overall slowness in the economy which has resulted in an overall reduction in spending for the IT services we provide.
Administrative and management personnel decreased as a result of our continuing efforts to contain our operating costs.

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Results of Operations, Year Ended December 31, 2001 vs. Year Ended December 31, 2000

The following table illustrates the relationship between revenue and expense categories along with a count of employees and technical consultants for the two
years ended December 31, 2001 and 2000. The data in the table are explained in detail in the discussion of our operations and results which follows.

|                                                        |                               | Year Ended
December 31, 2001 |         | Year Ended
December 31, 2000 |       | Increase (Decrease) |  
|------------------------------------------------------- | ----------------------------- | ---------------------------- | ------- | ---------------------------- | ----- | ------------------- | -
|
|
|Professional services revenue:                          |                               |                              |         |                              |       |                     |  
|                                                        | Provided directly             |                              | $       | 411,387                      |       | 74.6                | %
|                                                        | Provided through subsuppliers |                              |         | 140,340                      |       | 25.4                |  
|                                                        |                               |                              |         |                              |       |                     |  
|Total revenue                                           |                               |                              | 551,727 |                              | 100.0 |                     |  
|Salaries, contracted services and direct charges        |                               |                              | 457,706 |                              | 83.0  |                     |  
|Selling, administrative and other operating costs       |                               |                              | 87,909  |                              | 15.9  |                     |  
|Amortization of goodwill and other intangible assets    |                               |                              | 3,212   |                              | .6    |                     |  
|Restructuring charges                                   |                               |                              |        |                              |      |                     |  
|Non-operating income                                    |                               |                              | (247    | )                            | .0    |                     |  
|Loss on investment                                      |                               |                              | 3,012   |                              | .5    |                     |  
|Interest Expense                                        |                               |                              | 2,899   |                              | .5    |                     |  
|                                                        |                               |                              |         |                              |       |                     |  
|(Loss) income before income taxes and minority interest |                               |                              | (2,764  | )                            | (.5   | )                   |  
|Income taxes (benefit) and minority interest            |                               |                              | 216     |                              | .0    |                     |  
|                                                        |                               |                              |         |                              |       |                     |  
|Net (loss) income                                       |                               | $                            | (2,980  | )                            | (.5   | )%                  | $
|                                                        |                               |                              |         |                              |       |                     |  
|Personnel:                                              |                               |                              |         |                              |       |                     |  
|                                                        | Management and Administrative |                              |         | 600                          |       |                     |  
|                                                        | Technical Consultants         |                              |         | 3,200                        |       |                     |  
|                                                        |                               |                              |         |                              |       |                     |  

During
2001, the make up of our revenue shifted so that a greater percentage of our revenue was derived from our use of subsuppliers. This shift resulted from increased levels of
activity with our largest managed services accounts, Qwest and Chevron, and increased usage of subsupplier partners on other large accounts. Our subsupplier revenue is mainly pass-through
revenue with associated fees providing minimal profit.

Direct
revenue decreased in 2001 compared to 2000 primarily due to a 15% decrease in billable hours. This decrease in billable hours was the result of increased competition in the area
of supplemental staffing, an industry-wide slowdown and the general state of the economy. Our average bill rate increased from 2000 to 2001, partially offsetting the decrease in billable
hours.

Salaries,
contracted services and direct charges primarily represent our direct labor costs. This category of expense as a percentage of revenue increased considerably from 2000 to 2001
primarily as a result of normal increases in direct labor rates which could not be passed on in the form of increased billing rates. Salaries, contracted services and direct

14

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charges
for the period ended December 31, 2001 included approximately $1.8 million of increased benefit costs, while this category of expense during the period ended December 31,
2000 included approximately $3.0 million of unusual costs. These unusual costs consisted of compensation for terminations deemed not to be a part of the restructuring plan and costs of the
change in our fiscal year. Excluding both revenue and labor costs associated with subsupplier contracts, this category of expense was 76.7% of revenue in the twelve-month period of 2001, and 75.4% in
the comparable period of 2000.

Selling,
administrative and other operating (SG&A) costs include commissions paid to sales representatives and recruiters, location costs, and other administrative costs. This category
of costs represented 21.4% and 22.4% of direct revenue during 2001 and 2000, respectively. The decrease in this category of costs resulted directly from our efforts to reduce costs through
reorganization and through reduced labor costs for non-technical personnel, primarily by reducing personnel through our restructuring efforts. The $8.3 million decrease in SG&A is
in part due to the fact that SG&A costs during the year ended December 31, 2000 included $4.9 million of unusual bad debt costs and consulting and travel costs associated with our
restructuring initiatives.

The
increase in amortization of goodwill and intangible assets was a result of the purchase of Sequoia in April of 2000 and the amortization of the associated assets for a full year in
2001 versus eight months in 2000.

We
recorded a restructuring expense of $7.0 million in 2000, but had no such expense during 2001. During 2001, we paid $2.2 million of severance costs and
$1.5 million associated with office closures and consolidations resulting from the restructuring. The remaining accrual at December 31, 2001 for office closures and consolidations was
$2.6 million.

Non-operating
income, consisting primarily of interest income, decreased in 2001 due to a lower level of invested funds as compared to 2000.

We
recorded a $3.0 million loss during 2001 relating to an equity investment in a privately held Minneapolis-based software company specializing in the storage and transmission of
high volume data.

Interest
expense increased during 2001 as a result of higher debt levels during 2001, primarily resulting from the use of cash to purchase Sequoia on April 25, 2000.

We
recorded an income tax expense of $216,000 during the twelve months ended December 31, 2001 in spite of the $2.8 million pre-tax loss, primarily due to the
effect of items deducted to arrive at book income that are not deductible for tax purposes. This figure includes the loss of the investment of $3.0 million, which represents a capital loss for
tax purposes. We do not expect to generate capital gains to enable us to utilize this capital loss during the carry-forward period. The effective tax benefit rate in the comparable period of 2000 was
38%.

As
a result of the factors discussed above, we reported a net loss in the twelve months ended December 31, 2001 of $3.0 million compared with a net loss of
$2.6 million for the same period of 2000.

Much
of the overall decrease in personnel from 2000 to 2001 consisted of billable technical consultants; however, our administrative and management personnel decreased by 200 as a result
of our reorganization and restructuring efforts.

15

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Liquidity and Capital Resources

The following table provides information relative to the liquidity of our business.

|                          |                           | 12/28/02 |        | 12/31/01 |   | Increase
(Decrease) |         | Percentage
Increase
(Decrease) |        
|------------------------- | ------------------------- | -------- | ------ | -------- | - | ------------------- | ------- | ------------------------------ | -------
|
|Cash and Cash Equivalents |                           | $        | 54     |          | $ | 18,204              |         | $                              | (18,150
|Accounts Receivable       |                           |          | 59,776 |          |   | 83,322              |         |                                | (23,546
|Other Current Assets      |                           |          | 8,848  |          |   | 9,309               |         |                                | (461   
|                          |                           |          |        |          |   |                     |         |                                |        
|                          | Total Current Assets      |          | $      | 68,678   |   | $                   | 110,835 |                                | $      
|Accounts Payable          |                           | $        | 18,966 |          | $ | 37,778              |         | $                              | (18,812
|Current Debt              |                           |          | 324    |          |   | 41,000              |         |                                | (40,676
|Other Current Liabilities |                           |          | 13,683 |          |   | 15,435              |         |                                | (1,752 
|                          |                           |          |        |          |   |                     |         |                                |        
|                          | Total Current Liabilities |          | $      | 32,973   |   | $                   | 94,213  |                                | $      
|Working Capital           |                           | $        | 35,705 |          | $ | 16,622              |         | $                              | 19,083 
|Current Ratio             |                           |          | 2.08   |          |   | 1.18                |         |                                | .90    
|Total Shareholders Equity |                           | $        | 70,166 |          | $ | 91,083              |         | $                              | (20,917
|Ratio of Debt to Equity   |                           |          | .00    |          |   | 0.45                |         |                                | (.45   

Subsequent
to refinancing our debt in April of 2002, we applied all available cash and cash equivalents to pay down our line of credit. In May 2002, we sold our corporate
headquarters building and applied the net proceeds of approximately $16.4 million to pay down our line of credit. The remaining $6.0 million reduction in our borrowings during 2002 is
reflective of our commitment to tightly control our financial resources during these tough economic times. While our 2002 operations generated a loss of $4.6 million before the effect of
adopting SFAS No. 142, we were able to generate cash earnings (earnings before depreciation, amortization and the loss on the sale of our corporate headquarters building) of $2.7 million
in 2002. At the same time, we very tightly controlled capital spending, spending $3.2 million less in 2002 than in 2001. Finally, during 2002, as our business continued to slow, we devoted
additional resources to ensure the timely collection of our receivables. This effort resulted in reducing our receivable days outstanding considerably, providing additional cash which we used to
reduce our debt levels to near zero at December 28, 2002.

The
significant reduction in our accounts receivable balance during 2002 was partially offset by the significant decline in accounts payable which is reflective of the lower usage of
subsuppliers. The current year increase in working capital is primarily the result of the proceeds received from the sale of our corporate headquarters building.

Historically,
we have been able to support internal growth in our business with internally generated funds. Our primary need for working capital is to support accounts receivable
resulting from our business and to fund the time lag between payroll disbursement and receipt of fees billed to clients. Most recently, during fiscal year 2002 as revenues and payroll have declined,
our need for working capital to support accounts receivable has also declined, resulting in a reduction in

16

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our
need to borrow. When our revenue and payroll begin to grow again, we would expect our need for working capital to once again increase.

During
2002, reduction of debt and associated borrowing costs was one of our top priorities. In pursuit of this priority, effective April 11, 2002, we consummated an asset-based
revolving credit agreement with up to $55.0 million of availability. This borrowing facility reduced our cost of borrowing from 9% at the beginning of the year to prime plus .75%, or 5.00% at
December 28, 2002. To reduce our cost of financing even further, we reduced the level of availability under this credit agreement to $45.0 million following the sale of our corporate
headquarters building on May 15, 2002. Borrowings under the credit agreement are secured by all of our assets. We used an initial advance under the line of credit of $29.8 million to pay
the outstanding balance of the senior notes ($19.1 million including make whole obligations), the outstanding balance on our previous line of credit ($10.3 million) and certain
transaction expenses. Repayment of our senior notes resulted in a loss on the early extinguishment of debt of $744,000.

The
new revolving credit agreement requires us to take advances or pay down the outstanding balance on the line of credit daily. However, we can request fixed-term advances
of one, two, or three months for a portion of the outstanding balance on the line of credit. The daily advances on the line of credit bear interest at the Wall Street Journal's "Prime Rate" plus .75%
while the fixed-term advances bear interest at the LIBOR rate plus 3.0%. The credit agreement requires the payment of a commitment fee of .50% of the unused portion of the line plus an
annual administration fee of $50,000. The agreement restricts, among other things, the payment of dividends, establishes limits on capital expenditures and requires us to maintain a minimum accounts
payable turnover ratio. We believe we will be able to continue to meet the requirements of the new agreement. The new credit agreement matures on April 10, 2005.

During
the twelve-month period ended December 28, 2002, we made capital expenditures totaling only $1.7 million compared to $4.9 million in the twelve month period
ended December 31, 2001. These capital expenditures were funded with internally generated funds. We continue to tightly control capital expenditures to preserve working capital.

Commitments and Contingencies

Office facilities are leased under non-cancelable operating leases. Minimum future obligations on these operating leases and amounts owing under the
revolving credit facility, at December 28, 2002, are as follows (in thousands):

|                                           |  | 1 Year |       | 2-3 Years |   | 4-5 Years |  | Over 5 Years |       | Total
|------------------------------------------ |  | ------ | ----- | --------- | - | --------- |  | ------------ | ----- | -----
|Operating Leases                           |  | $      | 6,774 |           | $ | 11,077    |  | $            | 7,461 |      
|Revolving credit facility (Line of Credit) |  |        | 324   |           |   |           |  |              |       |      
|                                           |  |        |       |           |   |           |  |              |       |      
|Total                                      |  | $      | 7,098 |           | $ | 11,077    |  | $            | 7,461 |      
|                                           |  |        |       |           |   |           |  |              |       |      

17

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New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) Nos. 141, "Business Combinations"
and 142, "Goodwill and Other Intangible Assets." SFAS No. 141 was effective for all business combinations initiated after June 30, 2001, and has had no impact on our financial
statements. SFAS No. 142 addresses how intangible assets should be accounted for. We initially adopted the full provisions of SFAS No. 142 in 2002 and recorded an impairment charge of
$16.4 million. SFAS No. 142 requires companies to no longer amortize purchased goodwill but instead to test such assets for impairment at least annually. Based on the impairment tests,
we reduced the carrying value of goodwill for our infrastructure reporting unit to its implied fair value. The impairment was required because economic conditions at the time of testing reduced the
estimated future expected performance for this reporting unit.

In
August 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("FAS 144"), which supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("FAS 121") and amends Accounting Principles Board Opinion No. 30, "Reporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." FAS 144 requires that long-lived assets that are to be disposed of by sale be measured
at the lower of book value or fair value less costs to sell. FAS 144 retains the fundamental provisions of FAS 121 for (a) recognition and measurement of the impairment of
long-lived assets to be held and used, and (b) measurement of long-lived assets to be disposed of by sale. We were required to adopt FAS 144 on January 1,
2002. The adoption of FAS 144 did not have a material impact on our consolidated balance sheet or results of operations.

In
April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections" ("FAS 145"). FAS 145 rescinds Statement of Financial Accounting Standards No. 4, "Reporting Gains and Losses from Extinguishment of
Debt," which required all gains and losses from extinguishment of debt to be classified as an extraordinary item. FAS 145 is effective for fiscal years beginning after May 15, 2002, with
early adoption encouraged. We adopted FAS 145 as of December 28, 2002, at which time we reclassified the loss resulting from the extinguishment of debt as a separate component in income
from continuing operations. The adoption of FAS 145 did not have a material impact on our consolidated balance sheet or results of operations.

In
June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("FAS 146").
FAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3.
We will be required to adopt FAS 146 effective for any exit or disposal activities initiated after December 28, 2002. The adoption of FAS 146 is not expected to have a material
impact on our consolidated balance sheet or results of operations.

In
December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure"
("FAS 148"), which amends Statement of Financial Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). FAS 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, FAS 148 amends the disclosure requirements of FAS 123
to require more prominent and more frequent disclosures in financial statements of the effects of stock-based compensation. The transition guidance and annual disclosure provisions of FAS 148
are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing condensed financial statements for interim
periods beginning after

18

---

December 15,
2002. The adoption of FAS 148 is not expected to have a material impact on our consolidated balance sheet or results of operations. We will provide the interim disclosures
required by FAS 148 beginning in the first quarter of 2003.

On
April 25, 2000, we purchased an 80.1% interest in SequoiaNET.com, Inc. for $43.5 million. Effective December 29, 2000, we acquired the remaining 19.9% of
SequoiaNET.com in exchange for common shares valued at $6.1 million and notes payable totaling $3.3 million. SequoiaNET.com, which provided network installation and support services and
other eBusiness services, was merged into and now makes up a significant portion of our Infrastructure and Business Solutions practices of our Sequoia Services Group.

We
believe funds generated from our business and credit available under the new credit facility will be adequate to meet demands placed upon our resources by our operations and capital
investments.

Market Conditions, Business Outlook and Risks to Our Business

For the past three years, several market conditions have affected our industry. Increased price competition in the area of technical staff augmentation has
created pressure on billable hourly rates, and clients have begun to request increasingly lower cost models for staff augmentation services. As a result, we encountered lower billing rates over the
prior year. Management expects that clients will continue for the foreseeable future to request lower cost offerings for staff augmentation services through e-procurement systems,
extremely competitive bidding processes, the granting of various types of discounts and the use of off-shore resources. We are considering various low-cost staffing model
alternatives, including relationships with e-procurement software vendors and offshore service providers, at least in partial response to these developments in the industry. We have also
implemented new software and internet capabilities in our recruiting function.

Our
ability to respond to customer requests for lower pricing or to provide other low cost solutions in this area of our business will have a direct effect on our performance. Management
expects competitive conditions in the area of technical staff augmentation to continue for the foreseeable future, although it expects that demand for these services will increase as the general
economy begins to recover.

Staff
augmentation continues to represent more than half of total revenues (revenue from services provided directly to client (direct revenue) plus revenue from services provided to our
clients by subsuppliers (subsupplier revenue)) and over half of our direct revenue. While we expect the industry slowdown to begin to reverse in 2003, there can be no assurance as to when, or if,
revenue will return to previous levels. Our ability to respond to the conditions outlined above will bear directly on our performance.

As
a result of the pricing and other competitive pressures affecting the technical staff augmentation area of our business, management has sought and plans to continue to seek new
customers for our other service offerings. Management plans to continue adding new customers or obtaining contracts with existing customers in the areas of software and web site development and
maintenance (solutions), network infrastructure services, computer security and criminal justice. Management plans to concentrate on small and medium size companies with these other service offerings.
While we believe these areas of our business present opportunities to grow our business, growth in these areas will
depend on improvement in the economy and spending in the overall IT services market, our ability to compete with other vendors and how successful we are at obtaining new clients.

Our
ability to quickly identify, attract and retain qualified technical personnel, especially when recovery begins, will affect our results of operations and ability to grow in the
future. Competition for qualified personnel is intense, and if we are unable to hire the talent required by our client in a cost-effective manner, it will affect our ability to grow our
business.

19

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In
addition to our ability to control labor costs, our ability to control employee benefit costs and other employee-related costs will affect our future performance. In an effort to
contain our benefits costs, we implemented substantial changes to our benefits plans for fiscal year 2002 and may implement additional changes in 2003. While we believe the changes we implemented will
be effective, the effectiveness of these changes may vary due to factors we cannot control such as rising medical costs, the amount of medical services used by our employees and similar factors.

Controlling
operating costs while attempting not to impact our ability to respond to our clients also is a factor in our future success. We have streamlined our operations by
consolidating offices, reducing administrative and management personnel and continuing to review our company structure for more efficient methods of operating our business and delivering our services.
We may not be able to continue to reduce costs without affecting our ability to deliver service to our clients and therefore may choose to forego particular cost reductions if we believe it would be
prudent to do so for the future business of the Company.

Terms
and conditions standard to computer consulting services contracts also present a risk to our business. In general, our clients can cancel or reduce their contracts on short notice.
Loss of a significant client relationship or a significant portion thereof, a significant number of relationships or a major contract could have a material adverse effect on our business.

While
we believe our working capital will be sufficient for the foreseeable needs of our business, significant rapid growth in our business could create a need for additional working
capital. An inability to obtain additional working capital, should it be required, could have an adverse material effect on our business. We expect to be able to comply with the requirements of our
credit agreement; however, failure to do so could have a material adverse effect on our business.

Our
financing agreement with GE Capital Corporation carries a variable interest rate, which exposes us to certain market risks. Market risk is the potential loss arising from the adverse
changes in market rates and prices, such as interest rates. Market risk is estimated as the potential increase in fair value
resulting from a hypothetical one percent increase in interest rates which, assuming an average outstanding debt balance of $5.0 million, would result in an annual interest expense increase of
approximately $50,000.

20

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Consolidated Balance Sheet

|                                                                                      |                                                                                                                                            | December 28,
2002          |         | December 31,
2001 |       
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------- | ----------------- | ------
|
|Assets                                                                                |                                                                                                                                            |                            |         |                   |       
|Current assets:                                                                       |                                                                                                                                            |                            |         |                   |       
|                                                                                      | Cash and cash equivalents                                                                                                                  |                            | $       | 54                |       
|                                                                                      | Accounts receivable, less allowance for doubtful accounts of $1,283 and $1,170, respectively                                               |                            |         | 59,776            |       
|                                                                                      | Prepaid expenses and other current assets                                                                                                  |                            |         | 4,004             |       
|                                                                                      | Income tax refund receivable                                                                                                               |                            |         | 4,844             |       
|                                                                                      |                                                                                                                                            |                            |         |                   |       
|                                                                                      |                                                                                                                                            | Total current assets       |         |                   | 68,678
|Property and equipment                                                                |                                                                                                                                            |                            | 7,071   |                   |       
|Intangible assets, net of accumulated amortization of $1,968 and $1,445, respectively |                                                                                                                                            |                            | 12,022  |                   |       
|Goodwill                                                                              |                                                                                                                                            |                            | 16,460  |                   |       
|Other assets                                                                          |                                                                                                                                            |                            | 2,513   |                   |       
|                                                                                      |                                                                                                                                            |                            |         |                   |       
|                                                                                      |                                                                                                                                            | $                          | 106,744 |                   | $     
|                                                                                      |                                                                                                                                            |                            |         |                   |       
|Liabilities and Shareholders' Equity                                                  |                                                                                                                                            |                            |         |                   |       
|Current liabilities:                                                                  |                                                                                                                                            |                            |         |                   |       
|                                                                                      | Accounts payable                                                                                                                           |                            | $       | 18,966            |       
|                                                                                      | Salaries and vacations                                                                                                                     |                            |         | 6,036             |       
|                                                                                      | Deferred revenue                                                                                                                           |                            |         | 4,340             |       
|                                                                                      | Health care reserves                                                                                                                       |                            |         | 1,873             |       
|                                                                                      | Other current liabilities                                                                                                                  |                            |         | 786               |       
|Line of Credit                                                                        |                                                                                                                                            |                            | 324     |                   |       
|Long-term debt, current                                                               |                                                                                                                                            |                            |        |                   |       
|Restructuring accruals, current portion                                               |                                                                                                                                            |                            | 648     |                   |       
|                                                                                      |                                                                                                                                            |                            |         |                   |       
|                                                                                      |                                                                                                                                            | Total current liabilities  |         |                   | 32,973
|Restructuring accruals, non-current portion                                           |                                                                                                                                            |                            | 550     |                   |       
|Other non-current liabilities, primarily deferred compensation                        |                                                                                                                                            |                            | 3,055   |                   |       
|Commitments (Note H)                                                                  |                                                                                                                                            |                            |         |                   |       
|Shareholders' equity:                                                                 |                                                                                                                                            |                            |         |                   |       
|                                                                                      | Common stock, par value $.10 a share; authorized 120,000,000 shares; issued and outstanding 24,199,307 and 24,196,622 shares, respectively |                            |         | 2,420             |       
|                                                                                      | Additional capital                                                                                                                         |                            |         | 20,129            |       
|                                                                                      | Accumulated other comprehensive loss                                                                                                       |                            |         |                  |       
|                                                                                      | Retained earnings                                                                                                                          |                            |         | 47,617            |       
|                                                                                      |                                                                                                                                            |                            |         |                   |       
|                                                                                      |                                                                                                                                            | Total shareholders' equity |         |                   | 70,166
|                                                                                      |                                                                                                                                            |                            |         |                   |       
|                                                                                      |                                                                                                                                            | $                          | 106,744 |                   | $     
|                                                                                      |                                                                                                                                            |                            |         |                   |       

See
notes to consolidated financial statements.

21

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Consolidated Statement of Operations

|                                                                                                             |                                                         | Fiscal Year                                                              |         | Six Months
Ended
December 31,
2000 |         |       
|------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------- | ------------------------------------------------------------------------ | ------- | ---------------------------------- | ------- | ------
|
|
|
|Professional services revenue:                                                                               |                                                         |                                                                          |         |                                    |         |       
|                                                                                                             | Provided directly                                       |                                                                          | $       | 327,582                            |         | $     
|                                                                                                             | Provided through subsuppliers                           |                                                                          |         | 98,578                             |         |       
|                                                                                                             |                                                         |                                                                          |         |                                    |         |       
|                                                                                                             |                                                         | Total revenue                                                            |         |                                    | 426,160 |       
|Expenses:                                                                                                    |                                                         |                                                                          |         |                                    |         |       
|                                                                                                             | Salaries, contracted services and direct charges        |                                                                          |         | 353,715                            |         |       
|                                                                                                             | Selling, administrative and other operating costs       |                                                                          |         | 73,694                             |         |       
|                                                                                                             | Amortization of goodwill and other intangible assets    |                                                                          |         | 785                                |         |       
|                                                                                                             | Loss on sale of corporate headquarters building         |                                                                          |         | 1,860                              |         |       
|Restructuring charges                                                                                        |                                                         |                                                                          |        |                                    |         |      
|                                                                                                             |                                                         |                                                                          |         |                                    |         |       
|Operating income (loss)                                                                                      |                                                         |                                                                          | (3,894  | )                                  |         | 2,900 
|Non-operating income                                                                                         |                                                         |                                                                          | 122     |                                    |         | 247   
|Loss on investments                                                                                          |                                                         |                                                                          | 190     |                                    |         | 3,012 
|Interest expense                                                                                             |                                                         |                                                                          | 1,042   |                                    |         | 2,899 
|Loss on debt extinguishment                                                                                  |                                                         |                                                                          | 744     |                                    |         |      
|                                                                                                             |                                                         |                                                                          |         |                                    |         |       
|(Loss) income before income taxes, minority interest and cumulative effect of change in accounting principle |                                                         |                                                                          | (5,748  | )                                  |         | (2,764
|Income tax expense (benefit)                                                                                 |                                                         |                                                                          | (1,106  | )                                  |         | 216   
|Minority interest                                                                                            |                                                         |                                                                          |        |                                    |         |      
|                                                                                                             |                                                         |                                                                          |         |                                    |         |       
|Net (loss) income before cumulative effect of change in accounting principle                                 |                                                         |                                                                          | (4,642  | )                                  |         | (2,980
|Cumulative effect of change in accounting for goodwill                                                       |                                                         |                                                                          | 16,389  |                                    |         |      
|                                                                                                             |                                                         |                                                                          |         |                                    |         |       
|Net (loss) income                                                                                            |                                                         | $                                                                        | (21,031 | )                                  | $       | (2,980
|                                                                                                             |                                                         |                                                                          |         |                                    |         |       
|Per common share:                                                                                            |                                                         |                                                                          |         |                                    |         |       
|                                                                                                             | Basic and diluted (loss) income:                        |                                                                          |         |                                    |         |       
|                                                                                                             |                                                         | (Loss) income before cumulative effect of change in accounting principle |         | $                                  | (.19    | )     
|                                                                                                             |                                                         | Cumulative effect of change in accounting for goodwill                   |         |                                    | (.68    | )     
|                                                                                                             |                                                         |                                                                          |         |                                    |         |       
|                                                                                                             |                                                         | Loss (income):                                                           |         | $                                  | (.87    | )     
|                                                                                                             |                                                         |                                                                          |         |                                    |         |       
|                                                                                                             | Average common shares outstanding                       |                                                                          |         | 24,198,000                         |         |       
|                                                                                                             | Average common and common equivalent shares outstanding |                                                                          |         | 24,198,000                         |         |       

See notes to consolidated financial statements.

22

---

Consolidated Statement of Cash Flows

|                                                                                         |                                                            | Fiscal Year |         |         |   |        |        
|---------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ----------- | ------- | ------- | - | ------ | -------
|
|
|
|Cash flows from operating activities:                                                    |                                                            |             |         |         |   |        |        
|Net (loss) income                                                                        |                                                            | $           | (21,031 | )       | $ | (2,980 | )      
|Cumulative effect of change in accounting for goodwill                                   |                                                            |             | 16,389  |         |   |       |        
|Adjustments to reconcile net (loss) income to net cash provided by operating activities: |                                                            |             |         |         |   |        |        
|                                                                                         | Depreciation                                               |             |         | 4,704   |   |        | 5,124  
|                                                                                         | Amortization of goodwill and other intangible assets       |             |         | 785     |   |        | 3,212  
|                                                                                         | Loss on disposal of building                               |             |         | 1,860   |   |        |       
|                                                                                         | Loss (gain) on disposal of other assets                    |             |         | 296     |   |        | 96     
|                                                                                         | Loss on investments                                        |             |         | 190     |   |        | 3,012  
|                                                                                         | Decrease (increase) in deferred income tax assets          |             |         | 3,712   |   |        | 2,405  
|                                                                                         | Tax effect of stock transactions                           |             |         |        |   |        |       
|Change in:                                                                               |                                                            |             |         |         |   |        |        
|                                                                                         | Accounts receivable                                        |             |         | 23,546  |   |        | 15,173 
|                                                                                         | Prepaid expenses                                           |             |         | (815    | ) |        | (2,251 
|                                                                                         | Other assets                                               |             |         | (268    | ) |        | 2,775  
|                                                                                         | Accounts payable                                           |             |         | (18,812 | ) |        | 3,528  
|                                                                                         | Salaries and vacations                                     |             |         | (363    | ) |        | (2,116 
|                                                                                         | Other accrued expenses                                     |             |         | 1,609   |   |        | 5,484  
|                                                                                         | Income taxes                                               |             |         | (2,103  | ) |        | (248   
|                                                                                         | Restructuring accrual                                      |             |         | (1,456  | ) |        | (3,894 
|                                                                                         | Long-term liabilities, primarily deferred compensation     |             |         | (5,525  | ) |        | (3,027 
|                                                                                         |                                                            |             |         |         |   |        |        
|Net cash provided by (used in) operating activities                                      |                                                            |             | 2,718   |         |   | 26,293 |        
|Cash flows from investing activities:                                                    |                                                            |             |         |         |   |        |        
|                                                                                         | Property and equipment additions                           |             |         | (1,664  | ) |        | (4,910 
|                                                                                         | Investment purchases                                       |             |         |        |   |        |       
|                                                                                         | Payments for acquisitions, net of cash acquired            |             |         |        |   |        | (2,993 
|                                                                                         | Investment in alliance partners                            |             |         |        |   |        |       
|                                                                                         | Proceeds from liquidation of annuities and other contracts |             |         | 5,016   |   |        |       
|                                                                                         | Proceeds from property and equipment sales                 |             |         | 16,448  |   |        | 36     
|                                                                                         |                                                            |             |         |         |   |        |        
|Net cash provided by (used in) investing activities                                      |                                                            |             | 19,800  |         |   | (7,867 | )      
|Cash flows from financing activities:                                                    |                                                            |             |         |         |   |        |        
|                                                                                         | Cash dividends                                             |             |         |        |   |        | (2,420 
|                                                                                         | Net change in Line of Credit                               |             |         | 324     |   |        |       
|                                                                                         | Proceeds from borrowings                                   |             |         | 29,525  |   |        | 52,895 
|                                                                                         | Repayment of borrowings                                    |             |         | (70,525 | ) |        | (52,895
|                                                                                         | Proceeds from exercise of stock options                    |             |         | 8       |   |        | 6      
|                                                                                         |                                                            |             |         |         |   |        |        
|Net cash (used in) provided by financing activities                                      |                                                            |             | (40,668 | )       |   | (2,414 | )      
|                                                                                         |                                                            |             |         |         |   |        |        
|Net increase (decrease) in cash and equivalents                                          |                                                            |             | (18,150 | )       |   | 16,012 |        
|Cash and equivalents at beginning of year                                                |                                                            |             | 18,204  |         |   | 2,192  |        
|                                                                                         |                                                            |             |         |         |   |        |        
|Cash and equivalents at end of year                                                      |                                                            | $           | 54      |         | $ | 18,204 |        
|                                                                                         |                                                            |             |         |         |   |        |        
|Supplemental cash flow information:                                                      |                                                            |             |         |         |   |        |        
|Cash paid (refunded) during the year for:                                                |                                                            |             |         |         |   |        |        
|Income taxes                                                                             |                                                            | $           | (2,715  | )       | $ | (1,846 | )      
|Interest                                                                                 |                                                            |             | 1,073   |         |   | 3,811  |        
|Non-cash investing and financing activities:                                             |                                                            |             |         |         |   |        |        
|Common stock issued to acquire 19.9% of SequoiaNET.com                                   |                                                            |             |        |         |   |       |        
|Payable issued to acquire 19.9% of SequoiaNET.com                                        |                                                            |             |        |         |   |       |        

See notes to consolidated financial statements.

23

---

Consolidated Statement of Shareholders' Equity

|                              |                                                                  | Common
Stock         |       | Additional
Capital |   | Accumulated
Other
Comprehensive
Loss |       | Retained
Earnings |      | Total
Shareholders'
Equity |  
|----------------------------- | ---------------------------------------------------------------- | -------------------- | ----- | ------------------ | - | ------------------------------------ | ----- | ----------------- | ---- | -------------------------- | -
|
|Balances at June 30, 1999     |                                                                  | $                    | 2,255 |                    | $ | 13,900                               |       |                   |      |                            | $
|                              | Common stock issued54,385 shares upon exercise of stock options |                      |       | 6                  |   |                                      | 260   |                   |      |                            |  
|                              | Income tax benefit from stock option plans                       |                      |       |                    |   |                                      | 45    |                   |      |                            |  
|                              | Cash dividends ($.40 per share)                                  |                      |       |                    |   |                                      |       |                   |      |                            |  
|                              | Unrealized loss on available for sale securities                 |                      |       |                    |   |                                      |       |                   | $    | (23                        | )
|                              | Net income                                                       |                      |       |                    |   |                                      |       |                   |      |                            |  
|                              |                                                                  |                      |       |                    |   |                                      |       |                   |      |                            |  
|                              |                                                                  | Comprehensive income |       |                    |   |                                      |       |                   |      |                            |  
|                              |                                                                  |                      |       |                    |   |                                      |       |                   |      |                            |  
|Balances at June 30, 2000     |                                                                  |                      | 2,261 |                    |   | 14,205                               |       |                   | (23  | )                          |  
|                              | Shares issued for purchase of SequoiaNET.com                     |                      |       | 158                |   |                                      | 5,911 |                   |      |                            |  
|                              | Cash dividends ($.16 per share)                                  |                      |       |                    |   |                                      |       |                   |      |                            |  
|                              | Unrealized loss on available for sale securities                 |                      |       |                    |   |                                      |       |                   |      | (25                        | )
|                              | Net loss                                                         |                      |       |                    |   |                                      |       |                   |      |                            |  
|                              |                                                                  |                      |       |                    |   |                                      |       |                   |      |                            |  
|                              |                                                                  | Comprehensive loss   |       |                    |   |                                      |       |                   |      |                            |  
|                              |                                                                  |                      |       |                    |   |                                      |       |                   |      |                            |  
|Balances at December 31, 2000 |                                                                  |                      | 2,419 |                    |   | 20,116                               |       |                   | (48  | )                          |  
|                              | Common stock issued1,719 shares upon exercise of stock options  |                      |       | 1                  |   |                                      | 5     |                   |      |                            |  
|                              | Cash dividends ($.04 per share)                                  |                      |       |                    |   |                                      |       |                   |      |                            |  
|                              | Unrealized loss on available for sale securities                 |                      |       |                    |   |                                      |       |                   |      | (58                        | )
|                              | Net loss                                                         |                      |       |                    |   |                                      |       |                   |      |                            |  
|                              |                                                                  |                      |       |                    |   |                                      |       |                   |      |                            |  
|                              |                                                                  | Comprehensive loss   |       |                    |   |                                      |       |                   |      |                            |  
|                              |                                                                  |                      |       |                    |   |                                      |       |                   |      |                            |  
|Balances at December 31, 2001 |                                                                  |                      | 2,420 |                    |   | 20,121                               |       |                   | (106 | )                          |  
|                              | Common stock issued2,828 shares upon exercise of stock options  |                      |       |                    |   |                                      | 8     |                   |      |                            |  
|                              | Realized loss on available for sale securities                   |                      |       |                    |   |                                      |       |                   |      | 106                        |  
|                              | Net loss                                                         |                      |       |                    |   |                                      |       |                   |      |                            |  
|                              |                                                                  |                      |       |                    |   |                                      |       |                   |      |                            |  
|                              | Comprehensive loss                                               |                      |       |                    |   |                                      |       |                   |      |                            |  
|                              |                                                                  |                      |       |                    |   |                                      |       |                   |      |                            |  
|Balances at December 28, 2002 |                                                                  | $                    | 2,420 |                    | $ | 20,129                               |       | $                 | 0    |                            | $
|                              |                                                                  |                      |       |                    |   |                                      |       |                   |      |                            |  

See
notes to consolidated financial statements.

24

---

Notes to Consolidated Financial Statements

A. Summary of Significant Accounting Policies

Description of business.Analysts International Corporation (the Company) is a diversified IT services company. Services are
provided through the Sequoia Services Group, which provides business solutions and network infrastructure services; the Managed Services Group, which provides a comprehensive range of outsourced
business functions; and IT supplemental resources (also referred to as technical staff augmentation), which provides resources for supporting clients' IT staffing needs.

Basis of presentation.The consolidated financial statements include the accounts of Analysts International and our
subsidiaries. All intercompany accounts and transactions have been eliminated.

As
described in Note I, on April 25, 2000, we completed the acquisition of 80.1% of SequoiaNET.com. The acquisition was accounted for as a purchase. The accompanying
financial statements include 100% of SequoiaNET.com's operating results for the period from April 25, 2000 to December 31, 2000, offset by the minority shareholders' interest in
Sequoia's net earnings. Effective December 29, 2000, we acquired the remaining 19.9% of Sequoia.

Change in fiscal year.We changed our fiscal year end to December 31 from June 30, effective
December 31, 2000. References to fiscal 2000 relate to the year ended June 30, 2000. Effective December 28, 2002, we again changed our fiscal year to end on the Saturday closest
to December 31. This change in year end did not have a material impact on our operations. References to fiscal 2002 refer to the fiscal period beginning January 1, 2002 and ending
December 28, 2002.

Unaudited
consolidated statements of operations and cash flows for the twelve months ended December 31, 2000 have been included in the accompanying consolidated financial
statements for comparative purposes.

Depreciation.Property and equipment is being depreciated using the straight-line method over the estimated
useful lives (1 to 10 years for leasehold improvements and 2 to 7 years for office furniture and equipment) of the assets for financial statement purposes and accelerated methods for
income tax purposes.

Financial instruments.In accordance with the requirements of Statement of Financial Accounting Standards (SFAS)
No. 107, "Disclosures about Fair Value of Financial Instruments," management estimates the carrying value of debt approximated the fair value at December 28, 2002 and December 31,
2001. All other financial instruments, including the variable rate short term debt balance at December 28, 2002, approximate fair value because of the short-term nature of these
instruments.

Revenue recognition.We recognize revenue for our staffing business and the majority of our business solutions and
infrastructure business as services are performed or products are delivered. Certain of our outsourcing and help desk engagements provide for a specific level of service each month for which we bill a
standard monthly fee. Revenue for these engagements is recognized in monthly installments over the period of the contract. In some such contracts we invoice in advance for two or more months of
service. When we do this, the revenue is deferred and recognized over the term of the invoicing agreement.

In
certain client situations, where the nature of the engagement requires it, we utilize the services of other companies in our industry. If these services are provided under an
arrangement where we agree to retain only a fixed portion of the billing to the client to cover our management and administrative costs, the amount billed to the client is classified as subsupplier
revenue. All revenue derived from services provided by our employees or other independent contractors working directly for us is recorded as direct revenue.

25

---

One
customer and its various divisions and operating units accounted for approximately 6%, 15%, 13%, and 22% of revenue in fiscal 2002 and 2001, the six month period ending
December 31, 2000 and fiscal 2000, respectively. Another customer accounted for 13%, 15%, 14%, and 17% of revenue in fiscal 2002 and 2001, the six month period ending December 31, 2000
and fiscal 2000, respectively.

Comprehensive income/loss.Other comprehensive income/loss consists of realized and unrealized losses on
available-for-sale securities.

Net income (loss) per share.Basic and diluted earnings per share (EPS) are presented in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share." Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of
common shares outstanding for the period. The difference between weighted-average common shares and average common and common equivalent shares used in computing diluted EPS is the result of
outstanding stock options. Options to purchase 2,067,000, 1,819,000, 1,792,000 and 908,000 shares of common stock were outstanding at the end of fiscal 2002 and 2001, the six months ended
December 31, 2000 and the fiscal year ended June 30, 2000, respectively, but were excluded from the computation of common stock equivalents because they were anti-dilutive.

Cash equivalents.Temporary cash investments in money market accounts are considered to be cash equivalents.

Shares reserved.At December 28, 2002, there were approximately 29,241,000 shares reserved for issuance under the
stock option plans and the shareholders' rights plan.

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

Intangible assetsIntangible assets consist of tradenames and customer lists. Intangibles are amortized on a
straight-line basis over periods of 2 to 18 years. At December 28, 2002, management assessed whether there has been a permanent impairment in the value of intangible assets
by comparing anticipated undiscounted future operating income from the applicable business unit with the carrying value of the related intangible assets. The factors considered by management in
performing this assessment include current operating results, trends and prospects, as well as the effects of demand, competition and other economic factors. No impairment was indicated at
December 28, 2002.

Goodwill assetsEffective January 1, 2002, we adopted the provisions of SFAS No. 142. SFAS No. 142
prohibits companies from amortizing purchased goodwill. Instead, we examine our goodwill at least annually to determine if an impairment has occurred. See Note K for discussion of the impact of
this adoption. We have selected January 1 as the date upon which we will perform our annual examination for impairment.

DerivativesThe Company's policy is not to use freestanding derivatives and not to enter into contracts with terms that cannot
be designated as normal purchases or sales.

26

---

Stock Option PlansAnalysts International has five stock-based compensation plans, which are described below. We have adopted
the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," and have continued to apply APB Opinion No. 25 and related interpretations in accounting for these
plans. Accordingly, no compensation cost has been recognized for these stock option plans. Had compensation cost for our stock-based compensation plans been determined based on the fair value at the
grant dates as calculated in accordance with SFAS No. 123, our pro forma net (loss) income and (loss) earnings per share for the year ended December 28, 2002, year ended
December 31, 2001, the six months ended December 31, 2000 and the year ended June 30, 2000 would have been the amounts indicated below:

|                                       |             | Year Ended |   |         |   |  
|-------------------------------------- | ----------- | ---------- | - | ------- | - | -
|
|Net (loss) income (in thousands):      |             |            |   |         |   |  
|                                       | As reported |            | $ | (21,031 | ) | $
|                                       | Pro forma   |            |   | (22,173 | ) |  
|Net (loss) income per share (basic):   |             |            |   |         |   |  
|                                       | As reported |            | $ | (.87    | ) | $
|                                       | Pro forma   |            |   | (.92    | ) |  
|Net (loss) income per share (diluted): |             |            |   |         |   |  
|                                       | As reported |            | $ | (.87    | ) | $
|                                       | Pro forma   |            |   | (.92    | ) |  

The
fair market value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

|                        |  | Year Ended |   |         |   |         |  
|----------------------- |  | ---------- | - | ------- | - | ------- | -
|
|Expected life           |  | 5 years    |   | 5 years |   | 5 years |  
|Expected volatility     |  | 111        | % | 74      | % | 59      | %
|Expected dividend yield |  | 0.0        | % | 0.0     | % | 3.0     | %
|Risk-free interest rate |  | 5.0        | % | 6.0     | % | 8.0     | %

The
weighted average fair value of options granted during the year ended December 28, 2002, year ended December 31, 2001, the six-month period ended
December 31, 2000 and the year ended June 30, 2000 was $2.50, $2.23, $1.91, and $4.42, respectively.

Analysts
International has options outstanding under five option plans, four of which remain active. Under the 1994 Incentive Stock Option Plan, the Company may grant options to its
employees for up to 1,200,000 shares of common stock. Under the 1996 Stock Option Plan for Non-Employee Directors, the Company may grant options to its non-employee directors
for up to 240,000 shares of common stock.

Under
the 1996 Non-Employee Directors Plan, options to purchase 6,000 shares are automatically granted on January 3 of each year to each eligible
non-employee director. Under the 1999 Stock Option Plan, the Company may grant options to its employees for up to 1,000,000 shares of common stock. Under the 2000 Stock Option Plan, the
Company may grant non-qualified options to its employees for up to 225,000 shares of common stock. Under all plans, the exercise price of each option equals the market price of the
Company's stock on the date of grant and an option's maximum term is generally 10 years. Options are generally exercisable 25% annually beginning one year after date of grant.

27

---

A
summary of the status of the Company's stock option plans as of December 28, 2002, December 31, 2001 and 2000, and June 30, 2000 and changes during the periods
ending on those dates is presented below:

Shares

Weighted-Average
Exercise PriceOutstanding at June 30, 1999

1,005,659

$
15.58Granted

721,532


10.71Exercised

(87,932
)

7.48Expired

(80,110
)

11.69Outstanding at June 30, 2000

1,559,149


14.09Granted

304,330


3.53Exercised




Expired

(71,382
)

13.15Outstanding at December 31, 2000

1,792,097


12.34Granted

520,250


4.37Exercised

(1,719
)

3.19Expired

(491,574
)

12.55Outstanding at December 31, 2001

1,819,054


10.01Granted

536,500


3.27Exercised

(2,828
)

3.19Expired

(285,314
)

10.65Outstanding at December 28, 2002

2,067,412

$
8.18


Shares
available for future grant at December 28, 2002 and December 31, 2001 were 453,506 and 704,692, respectively.

The
following table summarizes information about stock options outstanding at December 28, 2002:

|Range of
Exercise Prices |  | Number
Outstanding
at 12/28/02 |  | Weighted-Average
Remaining
Contractual Life |  | Options Outstanding
Weighted-Average
Exercise Price |       | Number
Exercisable
At 12/28/02 |         | Options Exercisable
Weighted-Average
Exercise Price
|------------------------ |  | ------------------------------ |  | ------------------------------------------- |  | --------------------------------------------------- | ----- | ------------------------------ | ------- | ---------------------------------------------------
|$1.68 - $3.19            |  | 585,203                        |  | 9.13                                        |  | $                                                   | 2.98  |                                | 178,203 |                                                    
|$3.71 - $5.01            |  | 580,000                        |  | 8.42                                        |  | $                                                   | 4.40  |                                | 122,762 |                                                    
|$5.69 - $12.06           |  | 541,493                        |  | 7.21                                        |  | $                                                   | 10.07 |                                | 290,684 |                                                    
|$13.06 - $34.94          |  | 360,716                        |  | 5.53                                        |  | $                                                   | 19.87 |                                | 319,884 |                                                    
|                         |  |                                |  |                                             |  |                                                     |       |                                |         |                                                    
|$1.68 - $34.94           |  | 2,067,412                      |  | 7.80                                        |  | $                                                   | 8.18  |                                | 911,533 |                                                    
|                         |  |                                |  |                                             |  |                                                     |       |                                |         |                                                    

Accounting PronouncementsIn August 2001, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144"), which supersedes Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121") and amends Accounting Principles
Board Opinion No. 30, "Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." FAS 144 requires that
long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less

28

---

costs
to sell. FAS 144 retains the fundamental provisions of FAS 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used,
and (b) measurement of long-lived assets to be disposed of by sale. We were required to adopt FAS 144 on January 1, 2002. The adoption of FAS 144 did not have a
material impact on our consolidated balance sheet or results of operations.

In
April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections" ("FAS 145"). FAS 145 rescinds Statement of Financial Accounting Standards No. 4, "Reporting Gains and Losses from Extinguishment of
Debt," which required all gains and losses from extinguishment of debt to be classified as an extraordinary item. FAS 145 is effective for fiscal years beginning after May 15, 2002, with
early adoption encouraged. We adopted FAS 145 as of December 28, 2002, at which time we reclassified the loss resulting from the extinguishment of debt as a separate component in income
from continuing operations.

In
June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("FAS 146").
FAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3.
We are required to adopt FAS 146 effective for any exit or disposal
activities initiated after December 28, 2002. The adoption of FAS 146 is not expected to have a material impact on our consolidated balance sheet or results of operations.

In
December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure"
("FAS 148"), which amends Statement of Financial Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). FAS 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, FAS 148 amends the disclosure requirements of FAS 123
to require more prominent and more frequent disclosures in financial statements of the effects of stock-based compensation. The transition guidance and annual disclosure provisions of FAS 148
are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing condensed financial statements for interim
periods beginning after December 15, 2002. The adoption of FAS 148 is not expected to have a material impact on our consolidated balance sheet or results of operations. We will provide
the interim disclosures required by FAS 148 beginning in the first quarter of 2003.

ReclassificationsCertain balances in prior fiscal years have been reclassified to conform to the presentation adopted in the
current fiscal year. These reclassifications had no impact on our operations or shareholders' equity as previously reported.

B. Property and Equipment

December 28,
2002

December 31,
2001(In thousands)Land

$


$
1,917Building and leasehold improvements


3,113


20,522Office furniture & equipment


29,778


30,71632,891


53,155Accumulated depreciation


25,820


24,749$
7,071

$
28,406


On
May 15, 2002, we completed the sale of our corporate headquarters building. The net proceeds of the sale were $16,380,000. The Company recorded a $1,860,000 loss on the sale.
The Company remains a major tenant in the building following the sale. Following the sale of this building, the remaining balance in building and leasehold improvements includes improvements in leased
office spaces throughout the Company.

29

---

C. Intangible Assets

For the year ended December 28, 2002, we did not acquire or dispose of any intangible assets. Other intangibles consisted of the following:

|              |  | December 28, 2002 |        | December 31, 2001
|------------- |  | ----------------- | ------ | -----------------
|
|
|Customer list |  | $                 | 12,270 |                  
|Tradename     |  |                   | 1,720  |                  
|Workforce     |  |                   | 0      |                  
|              |  |                   |        |                  
|              |  | $                 | 13,990 |                  
|              |  |                   |        |                  

The
customer list is scheduled to be fully amortized by 2018 with corresponding amortization estimated to be approximately $700,000 per year.

D. Deferred Compensation

Analysts International has a Deferred Compensation Plan for key management employees as determined by the Compensation Committee. Included in liabilities at
December 28, 2002 and December 31, 2001 is $2,845,000 and $8,580,000, respectively, representing the Company's liability under the Plan. This liability is being partially funded by the
purchase of life insurance and annuity contracts. Included in assets at December 28, 2002 and December 31, 2001 is $981,000 and $5,679,000, respectively, representing the carrying value,
which approximates market value, of the annuities and insurance cash value. During 2002, under the terms of our agreements with three former executives, we made lump sum payments totaling $5,986,000.
These payments were partially funded by the liquidation of annuities and loans against the cash value of insurance policies totaling $5,016,000. The remainder of the payments were funded using our
line of credit. Deferred compensation expense for the year ended December 28, 2002, year ended December 31, 2001, the six months ended December 31, 2000 and for fiscal year 2000
was approximately $162,000, $299,000, $1,218,000 and $292,000, respectively.

E. Long-term Debt

Effective April 11, 2002, we consummated an asset-based revolving credit facility with up to $55,000,000 of availability.

We
reduced the level of availability to $45,000,000 following the sale of our corporate headquarters building on May 15, 2002. Borrowings under this credit agreement are secured
by all of the Company's assets. We used an initial advance under the line of credit of $29,800,000 to pay the outstanding balance of the senior notes ($19,100,000, including make-whole
obligations), the outstanding balance on an existing line of credit ($10,300,000), and certain transaction expenses. Under the new revolving credit agreement, which matures on April 10, 2005,
the Company must take advances or pay down the outstanding balance daily. We can, however, choose to request fixed-term advances of one, two, or three months for a portion of the
outstanding balance on the line of credit. Daily advances on the line of credit bear interest at the Wall Street Journal's "Prime Rate" plus .75% (5.00% on December 28, 2002) while the
fixed-term advances bear interest at the LIBOR rate plus 3.0%. The credit agreement requires the payment of a commitment fee of .50% of the unused portion of

30

---

the
line plus an annual administration fee of $50,000. The agreement restricts, among other things, the payment of dividends, establishes limits on capital expenditures and requires us to maintain a
minimum accounts payable turnover ratio. We believe we will be able to continue to meet the requirements of the new agreement for the foreseeable future. Repayment of the senior notes resulted in a
loss on the early extinguishment of debt of $744,000 in the quarter ending June 30, 2002.

F. Shareholders' Rights Plan

On June 15, 1989, the Board of Directors adopted a common stock shareholders' rights plan. Under this plan, the Board of Directors declared a dividend of
one common share purchase right for each outstanding share of common stock and stock options granted and available for grant. The Board of Directors amended the plan on April 29, 1996 and
April 16, 1998. The rights, which expire on April 16, 2006, are exercisable only under certain conditions, and when exercisable the holder will be entitled to purchase from the Company
one share of common stock at a price of $160.00, subject to certain adjustments. The rights will become exercisable after a person or group acquires beneficial ownership of 15% or more (or as low as
10% as the Board of Directors may determine) of the Company's common stock or after a person or group announces an offer, the consummation of which would result in such person or group owning 15% or
more of the common stock.

If
the Company is acquired at any time after the rights become exercisable, the rights will be adjusted so as to entitle a holder to purchase a number of shares of common stock of the
acquiring company at one-half of their market value. If any person or group acquires beneficial ownership of 15% or more of the Company's shares, the rights will be adjusted so as to
entitle a holder (other than such person or group whose rights become void) to purchase a number of shares of common stock of Analysts International Corporation at one-half of their market
value or the Board of Directors may exchange the rights, in whole or in part, at an exchange ratio of one common share per right (subject to adjustment).

At
any time prior to an acquisition by a person or group of beneficial ownership of 15% or more of the Company's shares, the Board of Directors may redeem the rights at $.01 per right.

G. Income Taxes

The provision for income tax expense (benefit) was as follows:

|                                           |         | Fiscal Year |        |        |   |       
|------------------------------------------ | ------- | ----------- | ------ | ------ | - | ------
|
|
|
|Currently (receivable) payable:            |         |             |        |        |   |       
|                                           | Federal |             | $      | (4,818 | ) | $     
|                                           | State   |             |        |       |   |       
|                                           |         |             |        |        |   |       
|                                           |         |             | (4,818 | )      |   | (2,468
|Deferred:                                  |         |             |        |        |   |       
|                                           | Federal |             |        | (2,220 | ) |       
|                                           | State   |             |        | (1,185 | ) |       
|                                           |         |             |        |        |   |       
|                                           |         |             | (3,405 | )      |   | 1,541 
|Valuation allowance for deferred tax asset |         |             | 7,117  |        |   | 1,143 
|                                           |         |             |        |        |   |       
|                                           |         |             | 3,712  |        |   | 2,684 
|                                           |         |             |        |        |   |       
|Total:                                     |         | $           | (1,106 | )      | $ | 216   
|                                           |         |             |        |        |   |       

31

---

Net
deferred tax assets (liabilities) are comprised of the following:

December 28, 2002

December 31, 2001(In thousands)Deferred compensation

$
1,191

$
3,346Accrued vacation and compensatory time


720


888Accrued reorganization costs


467


1,042Self-insured health care reserves


47


702Investment market valuation allowance





64Allowance for doubtful accounts


501


456Depreciation


203


(86
)Capital Loss Carryforward


1,174


1,143Goodwill and other intangibles


5,108


(223
)State net operating losses


944


400Other


112


(491
)Valuation allowance


(8,292
)

(1,143
)Net deferred tax assets

$
2,175

$
6,098Whereof:Current

$
1,179

$
2,392Noncurrent


996


3,706$
2,175

$
6,098


The
provision for income taxes differs from the amount of income tax determined by applying the federal statutory income tax rates to pretax (loss) income as a result of the following
differences:

|                                               |  | Fiscal Year |        |   |   |       |  
|---------------------------------------------- |  | ----------- | ------ | - | - | ----- | -
|
|
|
|Income tax (benefit) at statutory federal rate |  | $           | (7,748 | ) | $ | (965  | )
|State and local taxes, net of federal benefit  |  |             | (863   | ) |   | (107  | )
|Valuation allowance for deferred tax asset     |  |             | 7,117  |   |   | 1,143 |  
|Other                                          |  |             | 388    |   |   | 145   |  
|                                               |  |             |        |   |   |       |  
|Total tax provision                            |  | $           | (1,106 | ) | $ | 216   |  
|                                               |  |             |        |   |   |       |  

H. Commitments

At December 28, 2002 aggregate net minimum rental commitments under noncancelable operating leases having an initial or remaining term of more than one
year are payable as follows:

(In thousands)Year ending December 31,

2003

$
6,7742004


5,6002005


5,4772006


4,7182007


2,743Later


991Total minimum obligation



$
26,303


32

---

Rent
expense, primarily for office facilities, for the years ended December 28, 2002 and December 31, 2001, the six months ended December 31, 2000 and the year ended
June 30, 2000 was $6,327,000, $5,570,000, $2,928,000, and $5,761,000, respectively.

Analysts
International has compensation arrangements with its corporate officers and certain other employees which provide for certain payments in the event of a change of control of the
Company.

We
also sponsor a 401(k) plan. Substantially all employees are eligible to participate and may contribute up to 50% of their pretax earnings, subject to IRS maximum contribution amounts.
After
one year of employment, we make matching contributions in the form of Company stock of 18% of a participant's pre-tax contribution. The Company's contributions fully vest after the employee has
completed five years of service and for the years ended December 28, 2002 and December 31, 2001, the six months ended December 31, 2000 and the year ended June 30, 2000
amounted to approximately $852,000, $1,208,000, $492,000, and $1,389,000, respectively.

I. Business Acquisitions

On April 25, 2000, we purchased an 80.1% interest in SequoiaNET.com for $43.5 million. To complete the transaction we utilized $30.5 million
of our cash balances and drew down $13.0 million on our line of credit. Effective December 29, 2000, we purchased the remaining 19.9% of SequoiaNET.com in exchange for common stock
valued at $6,069,000 and $3,323,000 of notes payable. SequoiaNET.com provided network installation and support services and other eBusiness services. The purchase of SequoiaNET.com has been accounted
for under the purchase method of accounting. Accordingly, the assets acquired, including customer-based intangibles, are recorded at their fair values at the date of acquisition and amortized on a
straight-line basis over periods ranging from 3 to 18 years.

The
following represents our pro forma operating results assuming the acquisition of 100% of Sequoia NET.com had occurred on July 1, 1999:

|                                  |  | Six Months Ended
December 31,
2000 |         | Year Ended June 30,
2000
|--------------------------------- |  | ---------------------------------- | ------- | ------------------------
|
|
|Total revenues                    |  | $                                  | 226,706 |                         
|Net (loss) income                 |  |                                    | (6,302  | )                       
|(Loss) income per share (diluted) |  |                                    | (.28    | )                       

33

---

J. Restructuring Charge

In December 2000, we recorded a restructuring charge of $7.0 million. Of this charge, $2.6 million related to workforce reductions of
approximately 120 employees (primarily non-billable staff). In addition, we have consolidated our six regional operations into three regions and a national business group, and our previous
branch structure, under which we maintained as many as 45 fully functioning branch offices, has been consolidated to 15 district sales offices. While the Company maintains a presence in most of the 30
locations which were not converted to district sales offices, the need for office space in these locations has declined. As a result, we established a reserve of $4.4 million to cover lease
termination and abandonment costs (net of sublease income) including an amount for assets to be disposed of in conjunction with this consolidation.

A
summary of the restructuring charge is as follows:

Workforce
Reduction

Office Closure/
Consolidation

Total(In thousands)Restructuring charge

$
2,600

$
4,400

$
7,000Cash expenditures


396





396Non-cash charges





56


56Balance at December 31, 2000

$
2,204

$
4,344

$
6,548Cash expenditures


2,180


1,517


3,697Non-cash charges





197


197Balance at December 31, 2001

$
24

$
2,630

$
2,654Cash expenditures


24


1,511


1,535Non-cash charges





96


96Additional accrual





175


175Balance at December 28, 2002

$


$
1,198

$
1,198


During
the second quarter of fiscal 2001, in response to a weakening real estate market, and to better manage our resources, we chose not to pay substantial lump sum fees to terminate
many of our leases. Instead, we vacated and attempted to sublease these spaces. During fiscal 2002, we were less successful than anticipated in subleasing certain of the vacated spaces. As a result it
became necessary to add $175,000 to the reserve. While we believe the reserve is currently adequate, negative sublease activity in the future, including any defaults of existing subleases could create
the need for future adjustments to this reserve.

K. Adoption of SFAS No.141 and SFAS No.142

In preparation for the adoption of SFAS No. 141 and SFAS No. 142 we evaluated our goodwill and intangible assets acquired prior to June 30,
2001, the effective date of SFAS No. 141, using the criteria of SFAS No. 141. This evaluation resulted in $1,080,000 of other intangibles (comprised entirely of assembled workforce
intangibles) being subsumed into goodwill at January 1, 2002.

SFAS
No. 142 prohibits companies from continuing to amortize purchased goodwill and certain indefinite-lived intangible assets. Instead companies must test such assets for
impairment at least annually. We evaluated our intangible assets as of January 1, 2002 and determined that the customer list had a determinable life while the tradename did not. Effective
January 1, 2002 we ceased amortization of the tradename asset.

SFAS
No. 142 prescribes a two-phase process for impairment testing of goodwill. The first phase screens for impairment, while the second phase measures the impairment.
We completed our first phase impairment analysis during the first quarter and found an indication of impairment of our recorded goodwill; accordingly, we completed the second testing phase in
June 2002.

Based
on the impairment tests, we recognized a transitional impairment loss of $16,389,000 in the first quarter of 2002 to reduce the carrying value of goodwill at our infrastructure
reporting unit to its implied fair value. We have not recorded a tax benefit for this adjustment, as our current operating performance requires the establishment of a reserve against the deferred tax
asset created by this impairment.

34

---

The
impairment was required because economic conditions at the time of testing (including declining operating margins and lower demand for our services) reduced the estimated future
expected performance for this operating unit. Under SFAS 142, the impairment adjustment recognized at adoption of the new rules was reflected as a cumulative effect of accounting change in our
first quarter 2002 statement of operations. Impairment adjustments recognized after adoption, if any, generally are required to be recognized as operating expenses.

Following
the initial adoption of SFAS No. 142, at least annually, we are required to test our remaining goodwill for impairment. We will perform these tests each year, as of the
first day of our fiscal year. The fair value of the infrastructure and the solutions reporting units are expected to approximate the carrying values of these reporting units as of January 1,
2003.

Under
SFAS No. 142, we have prospectively ceased amortization of goodwill effective January 1, 2002. Supplemental comparative disclosure as if the change had been
retroactively applied to prior periods is as follows:

|                                               |                       | Year Ended |   |         |   |  
|---------------------------------------------- | --------------------- | ---------- | - | ------- | - | -
|
|
|Net (loss) income:                             |                       |            |   |         |   |  
|                                               | As reported           |            | $ | (21,031 | ) | $
|                                               | Goodwill amortization |            |   |        |   |  
|                                               |                       |            |   |         |   |  
|                                               | As adjusted           |            | $ | (21,031 | ) | $
|                                               |                       |            |   |         |   |  
|Basic and diluted net (loss) income per share: |                       |            |   |         |   |  
|                                               | As reported           |            | $ | (.87    | ) | $
|                                               | Goodwill amortization |            |   |        |   |  
|                                               |                       |            |   |         |   |  
|                                               | As adjusted           |            | $ | (.87    | ) | $
|                                               |                       |            |   |         |   |  

The
following represents the activity affecting the goodwill balances during the year ended December 28, 2002 (in thousands):

|Balance at December 31, 2001            |  | $ | 31,769  |   |  |  |  |  | 
|--------------------------------------- |  | - | ------- | - |  |  |  |  | 
|SFAS No. 142 impairment charge          |  |   | (16,389 | ) |  |  |  |  | 
|Work force asset subsumed into goodwill |  |   | 1,080   |   |  |  |  |  | 
|                                        |  |   |         |   |  |  |  | 
|Balance at December 28, 2002            |  | $ | 16,460  |   |  |  |  |  | 
|                                        |  |   |         |   |  |  |  | 

35

---

Independent Auditors' Report

Shareholders
and Board of Directors
Analysts International Corporation
Minneapolis, Minnesota

We
have audited the accompanying consolidated balance sheets of Analysts International Corporation and its subsidiaries (the Company) as of December 28, 2002 and
December 31, 2001 and the related consolidated statements of operations, shareholders' equity and cash flows for the year ended December 28, 2002, the year ended December 31,
2001, the six-month period ended December 31, 2000 and the year ended June 30, 2000. 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 28, 2002 and
December 31, 2001, and the results of their operations and their cash flows for the year ended December 28, 2002, the year ended December 31, 2001, the six-month
period ended December 31, 2000 and the year ended June 30, 2000, in conformity with accounting principles generally accepted in the United States of America.

As
discussed in Note A to the consolidated financial statements, the Company changed its method of accounting for goodwill and certain intangibles in 2002.

/s/
Deloitte & Touche LLP

Minneapolis,
Minnesota
February 13, 2003

36

---

Report of Management

The consolidated financial statements of Analysts International Corporation published in this report were prepared by company management, which is responsible for
their integrity and objectivity. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America applying certain estimates and judgments
as required. The financial information elsewhere in this report is consistent with the statements.

Analysts
International maintains internal controls adequate to provide reasonable assurance its transactions are appropriately recorded and reported, its assets are protected and its
established policies are followed. The structure is enforced by written policies and procedures, internal audit activities and a qualified financial staff.

Our
independent auditors, Deloitte & Touche LLP, provide an objective independent review by audit of Analysts International's consolidated financial statements and issuance of a
report thereon. Their audit is conducted in accordance with auditing standards generally accepted in the United States of America.

The
Audit Committee of the Board of Directors, comprised solely of outside directors, meets with the independent auditors and representatives from management to appraise the adequacy and
effectiveness of the audit functions, internal controls and quality of our financial accounting and reporting.

|/s/MICHAEL J. LAVELLE                                    |  | /s/JOHN T. PAPROCKI                                                  
|-------------------------------------------------------- |  | ---------------------------------------------------------------------
|Michael J. LaVelle
President and Chief Executive Officer |  | John T. Paprocki
Executive Vice President and Chief Financial Officer

37

---

Stock Data

|                                    |  | Market Range
|----------------------------------- |  | ------------
|
|Fiscal Year Ended December 28, 2002 |  |             
|Fourth Quarter                      |  | $           
|Third Quarter                       |  |             
|Second Quarter                      |  |             
|First Quarter                       |  |             
|Fiscal Year Ended December 31, 2001 |  |             
|Fourth Quarter                      |  | $           
|Third Quarter                       |  |             
|Second Quarter                      |  |             
|First Quarter                       |  |             

The
Company's common shares are traded on The Nasdaq Stock Market® under the symbol ANLY. As of March 5, 2003, there were approximately 1,200 shareholders of record.
The above table sets forth for the periods indicated the market prices for the Company's Common Stock as reported by Nasdaq and dividends declared for each quarterly period.

During
the quarters ended March 31 and June 30, 2001, Analysts International paid quarterly dividends of $.03 and .01 per share, respectively. During the quarter ended
September 30, 2001, the Board elected to suspend the quarterly dividend to retain capital. The Company's current debt arrangement prohibits the payment of dividends. There can be no assurance
the Company will be able to reinstate a dividend paying policy in the future.

Sales of Unregistered Securities

On December 29, 2000, the Company acquired the 19.9% of SequoiaNET.com it previously did not own in a business combination accounted for as a purchase. The
Company issued 1,588,000 shares of its common stock, having an aggregate value of $6.1 million, to the former shareholders of SequoiaNET.com. In addition, the Company exchanged 386,216 options
to purchase common stock of SequoiaNET.com for 193,108 non-qualified options to purchase common stock of the Company. These shares were not registered under the Securities Act of 1933. The
unregistered shares were issued in reliance upon Section 4(2) of the Securities Act of 1933, as amended, as a sale by the Company not involving a public offering. No underwriters were involved
with such issuance of common stock.

38

---

Five Year Financial Summary

|                                                                                |                                                                                           | Fiscal Year    |            |         |         | Fiscal Year
|------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | -------------- | ---------- | ------- | ------- | -----------
|
|
|
|Professional services revenues:                                                 |                                                                                           |                |            |         |         |            
|                                                                                | Provided directly                                                                         |                | $          | 327,582 |         | $          
|                                                                                | Provided through subsuppliers                                                             |                |            | 98,578  |         |            
|                                                                                |                                                                                           |                |            |         |         |            
|                                                                                |                                                                                           | Total revenues |            |         | 426,160 |            
|Salaries, contracted services and direct charges                                |                                                                                           |                | 353,715    |         |         | 457,706    
|Amortization of goodwill and other intangible assets                            |                                                                                           |                | 785        |         |         | 3,212      
|Loss on sale of corporate headquarters                                          |                                                                                           |                | 1,860      |         |         |           
|Restructuring charges                                                           |                                                                                           |                |           |         |         |           
|Non-operating income                                                            |                                                                                           |                | 122        |         |         | 247        
|Loss on investment                                                              |                                                                                           |                | 190        |         |         | 3,012      
|Interest expense                                                                |                                                                                           |                | 1,042      |         |         | 2,899      
|Loss on debt extinguishment                                                     |                                                                                           |                | 744        |         |         |           
|Income taxes (benefit) and minority interest                                    |                                                                                           |                | (1,106     | )       |         | 216        
|                                                                                |                                                                                           |                |            |         |         |            
|Net (loss) income before cumulative effect of change in accounting for goodwill |                                                                                           |                | (4,642     | )       |         | (2,980     
|Cumulative effect of change in accounting for goodwill                          |                                                                                           |                | 16,389     |         |         |           
|Total assets                                                                    |                                                                                           |                | 106,744    |         |         | 192,884    
|Long-term liabilities                                                           |                                                                                           |                | 3,605      |         |         | 7,588      
|Shareholders' equity                                                            |                                                                                           |                | 70,166     |         |         | 91,083     
|Per share data:                                                                 |                                                                                           |                |            |         |         |            
|                                                                                | Net (loss) income before cumulative effect of change in accounting for goodwill (basic)   |                |            | (.19    | )       |            
|                                                                                | Net (loss) income before cumulative effect of change in accounting for goodwill (diluted) |                |            | (.19    | )       |            
|Cash dividends                                                                  |                                                                                           |                | .00        |         |         | .10        
|Shareholders' equity                                                            |                                                                                           |                | 2.90       |         |         | 3.76       
|Average common shares outstanding                                               |                                                                                           |                | 24,198,000 |         |         | 24,196,000 
|Average common and common equivalent shares outstanding                         |                                                                                           |                | 24,198,000 |         |         | 24,196,000 
|Number of personnel                                                             |                                                                                           |                | 3,200      |         |         | 3,800      

We
changed our fiscal year end to December 31 from June 30, effective December 31, 2000. Accordingly, we have presented financial information for the six months
ended December 31, 2000 (the transition period). Effective December 28, 2002, we changed our fiscal year to end on the Saturday closest to December 31. Accordingly, references
herein to our fiscal year 2002 refer to the fiscal period from January 1, 2002 to December 28, 2002.

39

---

Quarterly Revenues and Income

The following table sets forth certain statements of operations data for each of the quarters indicated below, and in the opinion of management, contains all
adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation thereof.

|                                                                                         |  | Quarter Ended
March 31 |         | Quarter Ended
June 30 |   | Quarter Ended
September 30 |   | Quarter Ended
December 28 |         | Total |  
|---------------------------------------------------------------------------------------- |  | ---------------------- | ------- | --------------------- | - | -------------------------- | - | ------------------------- | ------- | ----- | -
|
|Fiscal 2002                                                                              |  |                        |         |                       |   |                            |   |                           |         |       |  
|Total revenue                                                                            |  | $                      | 114,684 |                       | $ | 110,744                    |   | $                         | 107,414 |       | $
|Income (loss) before income taxes and change in accounting for goodwill                  |  |                        | (913    | )                     |   | (3,800                     | ) |                           | (907    | )     |  
|Income taxes (benefit)                                                                   |  |                        | (212    | )                     |   | (623                       | ) |                           | (224    | )     |  
|Net income (loss) before change in accounting for goodwill                               |  |                        | (701    | )                     |   | (3,177                     | ) |                           | (683    | )     |  
|Cumulative effect of change in accounting for goodwill                                   |  |                        | (16,389 | )                     |   |                           |   |                           |        |       |  
|Net income (loss)                                                                        |  |                        | (17,090 | )                     |   | (3,177                     | ) |                           | (683    | )     |  
|Net income (loss) before change in accounting for goodwill per share (basic and diluted) |  |                        | (.03    | )                     |   | (.13                       | ) |                           | (.03    | )     |  
|Net income (loss) per share (basic and diluted)                                          |  |                        | (.71    | )                     |   | (.13                       | ) |                           | (.03    | )     |  

|                                      |  | Quarter Ended
March 31 |         | Quarter Ended
June 30 |   | Quarter Ended
September 30 |  | Quarter Ended
December 31 |         | Total |  
|------------------------------------- |  | ---------------------- | ------- | --------------------- | - | -------------------------- |  | ------------------------- | ------- | ----- | -
|Fiscal 2001                           |  |                        |         |                       |   |                            |  |                           |         |       |  
|Total revenues                        |  | $                      | 144,440 |                       | $ | 145,793                    |  | $                         | 136,996 |       | $
|Income (loss) before income taxes     |  |                        | 1,243   |                       |   | 606                        |  |                           | 52      |       |  
|Income taxes (benefit)                |  |                        | 472     |                       |   | 233                        |  |                           | 20      |       |  
|Net income (loss)                     |  |                        | 771     |                       |   | 373                        |  |                           | 32      |       |  
|Net income (loss) per share (basic)   |  |                        | .03     |                       |   | .02                        |  |                           | .00     |       |  
|Net income (loss) per share (diluted) |  |                        | .03     |                       |   | .02                        |  |                           | .00     |       |  

|                                                        |  | Quarter Ended
September 30 |         | Quarter Ended
December 31 |   | Quarter Ended
March 31 |   | Quarter Ended
June 30 |         | Total |  
|------------------------------------------------------- |  | -------------------------- | ------- | ------------------------- | - | ---------------------- | - | --------------------- | ------- | ----- | -
|Six Months Ended December 31, 2000                      |  |                            |         |                           |   |                        |   |                       |         |       |  
|Total revenues                                          |  | $                          | 148,571 |                           | $ | 139,769                |   |                       | N/A     |       |  
|Income (loss) before income taxes and minority interest |  |                            | 3,064   |                           |   | (12,997                | ) |                       | N/A     |       |  
|Income taxes (benefit) and minority interest            |  |                            | 1,359   |                           |   | (4,990                 | ) |                       | N/A     |       |  
|Net income (loss)                                       |  |                            | 1,705   |                           |   | (8,007                 | ) |                       | N/A     |       |  
|Net income (loss) per share (basic)                     |  |                            | .08     |                           |   | (.35                   | ) |                       | N/A     |       |  
|Net income (loss) per share (diluted)                   |  |                            | .08     |                           |   | (.35                   | ) |                       | N/A     |       |  
|Fiscal 2000                                             |  |                            |         |                           |   |                        |   |                       |         |       |  
|Total revenues                                          |  | $                          | 149,045 |                           | $ | 138,869                |   | $                     | 132,455 |       | $
|Income before income taxes and minority interest        |  |                            | 6,190   |                           |   | 3,828                  |   |                       | 2,803   |       |  
|Income taxes and minority interest                      |  |                            | 2,414   |                           |   | 1,494                  |   |                       | 1,073   |       |  
|Net income                                              |  |                            | 3,776   |                           |   | 2,334                  |   |                       | 1,730   |       |  
|Net income per share (basic)                            |  |                            | .17     |                           |   | .10                    |   |                       | .08     |       |  
|Net income per share (diluted)                          |  |                            | .17     |                           |   | .10                    |   |                       | .08     |       |  

40

---

Corporate Information

BOARD OF DIRECTORS

Inside Directors

Frederick W. LangChairman of the Board

Michael J. LaVellePresident and Chief Executive Officer

John D. BambergerExecutive Vice President and Chief Operating Officer

Outside Directors

Krzysztof K. BurhardtPartner, Clotho & Associates

Willis K. DrakeRetired Chairman of the Board
Data Card Corporation

Michael B. EsstmanRetired Vice President
GTE Corporation

Margaret A. LoftusPrincipal, Loftus Brown-Wescott, Inc.

Edward M. MahoneyRetired Chairman and Chief Executive Officer
Fortis Investors, Inc. and Fortis Advisers, Inc.

Robb L. PrinceRetired Vice President and Treasurer
Jostens, Inc.

OFFICERS

Michael J. LaVellePresident and Chief Executive Officer

John D. BambergerExecutive Vice President and Chief Operating Officer

John T. PaprockiExecutive Vice President and Chief Financial Officer

Paulette M. QuistSenior Vice President, Business Development and Strategy

Colleen M. DavenportSecretary and General Counsel

David J. SteichenController and Assistant Treasurer

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10-K AVAILABLE

A copy of the Company's 2002 Annual Report on Form 10-K, filed with the Securities and Exchange Commission, is available to security holders
without charge upon request to the Treasurer at: Analysts International Corporation, 3601 West 76th Street, Minneapolis, Minnesota 55435-3000.

STOCK TRANSFER AGENT

EquiServe
Trust Company, N.A.
P.O. Box 43010
Providence, Rhode Island
02940-3010

Shareholder
Inquiries:
800-426-5523
www.equiserve.com

INDEPENDENT AUDITORS

Deloitte &
Touche LLP
Minneapolis, Minnesota

QUARTERLY REPORTS

Analysts International Corporation mails quarterly earnings releases to registered shareholders.

WORLD WIDE WEB ADDRESS

www.analysts.com

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ANALYSTSINTERNATIONAL

Analysts International Corporation3601 West 76th Street
Minneapolis, Minnesota 55435-3000

Telephone:
952 835-5900
www.analysts.com

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