**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-Q**

 

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended March 31, 2003**

 

**Commissionfile number 0-23940**

 

| **ALTERNATIVE  RESOURCES CORPORATION**                           |
|------------------------------------------------------------------|
| (Exact name of  registrant as specified in its charter)          |
|                                                             |   |   |
| **Delaware**                                                     |   | **38-2791069** |
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                             |   |   |
| **600 Hart Road, Suite 300,  Barrington, IL**                    |   | **60010** |
| (Address of  principal executive offices)                        |   | (Zip code) |
|                                                             |   |   |
| **(847) 381-6701**                                               |
| (Registrant’s  telephone number, including area code)       |

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  YES  ý    NO o.

 

Indicate by checkmark whether the registrant (1) is an accelerated filer (as defined in Rule12b-2 of the Act).  YES  o    NO  ý.

 

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date:

 

17,117,819 shares of theregistrant’s common stock were outstanding as of May 5, 2003.

 

 

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**ALTERNATIVE RESOURCES CORPORATION**

**FORM 10-Q**

**INDEX**

 
| PART  I.  FINANCIAL INFORMATION                                                                                    |
|-------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                    |
| Item  1.  Financial Statements                                                                                     |
|                                                                                                                    |
| Consolidated  Balance Sheets at March 31, 2003 (Unaudited) and December 31, 2002                                        |
|                                                                                                                    |
| Consolidated  Statements of Operations for the three months ended March 31, 2003 and 2002  (Unaudited)                  |
|                                                                                                                    |
| Consolidated  Statements of Comprehensive Income (Loss) for the three months ended March  31, 2003 and 2002 (Unaudited) |
|                                                                                                                    |
| Consolidated Statements of Cash Flows for  the three months ended March 31, 2003 and 2002 (Unaudited)                   |
|                                                                                                                    |
| Notes to Consolidated Financial Statements  (Unaudited)                                                                 |
|                                                                                                                    |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and  Results of Operations               |
|                                                                                                                    |
| Item  3.  Quantitative and Qualitative  Disclosures About Market Risk.                                             |
|                                                                                                                    |
| Item  4.  Controls and Procedures                                                                                  |
|                                                                                                                    |
| PART  II.  OTHER INFORMATION                                                                                       |
|                                                                                                                    |
| Item  6. Exhibits and Reports on Form 8-K.                                                                              |
|                                                                                                                    |
| SIGNATURES.                                                                                                             |
|                                                                                                                    |
| CERTIFICATIONS.                                                                                                         |

 

2

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##### **PARTI** - FINANCIAL INFORMATION

**Item 1****. -Financial Statements**

 

**ALTERNATIVE RESOURCES CORPORATION**

**CONSOLIDATED BALAN****CE SHEETS**

(In thousands,except share data)

 
|                                                                                                                                                       |   | **December  31,  2002** |       | **March 31,  2003** |       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|---------------------|------------|
|                                                                                                                                                       |   |                    |       | **(Unaudited)**     |       |
| **ASSETS**                                                                                                                                                 |   |                    |       |                |       |
| **Current  Assets:**                                                                                                                                       |   |                    | ** ** |                | ** ** |
| Cash  and cash equivalents                                                                                                                                 |   | $                       | 54         |                | $          | 43 |   |
| Trade  accounts receivable, net of allowance for doubtful accounts                                                                                         |   | 34,497                  |       | 25,754              |       |
| Prepaid  expenses                                                                                                                                          |   | 1,787                   |       | 1,632               |       |
| Income  taxes receivable                                                                                                                                   |   | 94                      |       | 31                  |       |
| Other  receivables                                                                                                                                         |   | 178                     |       | 115                 |       |
| Total  current assets                                                                                                                                      |   | 36,610                  |       | 27,575              |       |
| **Property  and Equipment:**                                                                                                                               |   |                    |       |                |       |
| Office  equipment                                                                                                                                          |   | 8,319                   |       | 8,384               |       |
| Furniture  and fixtures                                                                                                                                    |   | 2,389                   |       | 2,389               |       |
| Software                                                                                                                                                   |   | 19,726                  |       | 19,785              |       |
| Leasehold  improvements                                                                                                                                    |   | 2,012                   |       | 2,008               |       |
|                                                                                                                                                       |   | 32,446                  |       | 32,566              |       |
| Less  accumulated depreciation and amortization                                                                                                            |   | (21,448                 | )          | (22,377             | )          |
| Net  property and equipment                                                                                                                                |   | 10,998                  |       | 10,189              |       |
| **Other  Assets:**                                                                                                                                         |   |                    |       |                |       |
| Goodwill                                                                                                                                                   |   | 2,723                   |       | 2,723               |       |
| Other  assets                                                                                                                                              |   | 2,399                   |       | 2,261               |       |
| Total  other assets                                                                                                                                        |   | 5,122                   |       | 4,984               |       |
| Total  assets                                                                                                                                              |   | $                       | 52,730     |                | $          | 42,748 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)**                                                                                                   |   |                    |       |                |       |
| **Current  Liabilities:**                                                                                                                                  |   |                    |       |                |       |
| Cash  overdraft                                                                                                                                            |   | $                       | 3,202      |                | $          | 2,825 |   |
| Accounts  payable                                                                                                                                          |   | 12,236                  |       | 10,903              |       |
| Payroll  and related expenses                                                                                                                              |   | 5,920                   |       | 5,832               |       |
| Accrued  expenses                                                                                                                                          |   | 2,340                   |       | 2,441               |       |
| Accrued  restructuring and other charges                                                                                                                   |   | 4,922                   |       | 4,112               |       |
| Total  current liabilities                                                                                                                                 |   | 28,620                  |       | 26,113              |       |
| Long-term  debt                                                                                                                                            |   | 27,107                  |       | 21,326              |       |
| Other  liabilities                                                                                                                                         |   | 384                     |       | 379                 |       |
| Total  liabilities                                                                                                                                         |   | 56,111                  |       | 47,818              |       |
| **Stockholders’  Equity (Deficit):**                                                                                                                  |   |                    |       |                |       |
| Preferred  stock ($.01 par value, 1,000,000 shares authorized; none issued and  outstanding)                                                               |   | —                  |       | —              |       |
| Common  stock ($.01 par value, 50,000,000 shares authorized; 17,702,819 shares issued  and 17,117,819 outstanding at December 31, 2002 and March 31, 2003) |   | 178                     |       | 178                 |       |
| Additional  paid-in capital                                                                                                                                |   | 30,695                  |       | 30,695              |       |
| Accumulated  other comprehensive loss                                                                                                                      |   | (64                     | )          | (99                 | )          |
| Accumulated  deficit                                                                                                                                       |   | (29,393                 | )          | (31,047             | )          |
|                                                                                                                                                       |   | 1,416                   |       | (273                | )          |
| Less:  Treasury stock, at cost (585,000 shares)                                                                                                            |   | (4,797                  | )          | (4,797              | )          |
| Total  stockholders’ equity (deficit)                                                                                                                 |   | (3,381                  | )          | (5,070              | )          |
| Total  liabilities and stockholders’ equity (deficit)                                                                                                 |   | $                       | 52,730     |                | $          | 42,748 |   |

 

See accompanyingnotes to consolidated financial statements.

 

3

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**ALTERNATIVE RESOURCES CORPORATION**

**CONSOLIDATED STATE****MENTS OF OPERATIONS**

(In thousands,except per share data)

 

 
|                                        |   | **Three  Months  Ended March 31,** | ** ** |
|---------------------------------------------|--------|------------------------------------|------------|
|                                        |   | **2002**                           |       | **2003** |   |
|                                        |   | **(Unaudited)**                    | ** ** |
|                                        |   |                               |       |   |   |   |   |
| Revenue                                     |   | $                                  | 40,759     |   | $ | 36,846 |   |
| Cost  of services                           |   | 29,336                             |       | 27,668 |   |
| Gross  profit                               |   | 11,423                             |       | 9,178 |   |
| Operating  expenses:                        |   |                               |       |   |   |
| Selling,  general and administrative        |   | 10,910                             |       | 8,921 |   |
| Depreciation  and amortization              |   | 1,146                              |       | 929 |   |
| Total  operating expenses                   |   | 12,056                             |       | 9,850 |   |
| Loss  from operations                       |   | (633                               | )          | (672 | ) |
| Other  expense, net                         |   | (811                               | )          | (983 | ) |
| Loss  before income taxes                   |   | (1,444                             | )          | (1,655 | ) |
| Income  tax expense (benefit)               |   | (950                               | )          | (1 | ) |
|                                        |   |                               |       |   |   |
| Net  loss                                   |   | $                                  | (494       | ) | $ | (1,654 | ) |
|                                        |   |                               |       |   |   |
| Net  loss per share:                        |   |                               |       |   |   |
| Basic  and diluted                          |   | $                                  | (0.03      | ) | $ | (0.10 | ) |
|                                        |   |                               |       |   |   |
| Shares  used to compute net loss per share: |   |                               |       |   |   |
| Basic  and diluted                          |   | 17,026                             |       | 17,117 |   |

 

See accompanyingnotes to consolidated financial statements.

 

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**ALTERNATIVERESOURCES CORPORATION**

**CONSOLIDATED STATEMENTS****OFCOMPREHENSIVE INCOME (LOSS)**

(In thousands)

 
|                                                 |   | **Three  Months  Ended March 31,** | ** ** |
|------------------------------------------------------|--------|------------------------------------|------------|
|                                                 |   | **2002**                           |       | **2003** | ** ** |
|                                                 |   | **(Unaudited)**                    | ** ** |
| Net  loss                                            |   | $                                  | (494       | ) | $ | (1,654 | ) |
| Other  comprehensive income (loss):                  |   |                               |       |   |   |
| Foreign  currency translation adjustment, net of tax |   | 7                                  |       | 35 |   |
| Other  comprehensive income                          |   | 7                                  |       | 35 |   |
|                                                 |   |                               |       |   |   |
| Comprehensive  loss                                  |   | $                                  | (487       | ) | $ | (1,619 | ) |

 

See accompanyingnotes to consolidated financial statements.

 

5

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**ALTERNATIVE RESOURCES CORPORATION**

**CONSOLIDATED****STATEMENTSOF CASH FLOWS**

(In thousands)

 
|                                                                                      |   | **Three  Months Ended  March 31,** |   |
|-------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                      |   | **2002**                           |   | **2003** |   |
|                                                                                      |   | **(Unaudited)**                    |   |
| **Cash  flows from operating activities:**                                                |   |                               |   |   |   |
| Net  loss                                                                                 |   | $                                  | (494   | ) | $ | (1,654 | ) |
| Adjustments  to reconcile net loss to net cash provided by (used in)operating activities: |   |                               |   |   |   |
| Depreciation  and amortization                                                            |   | 1,146                              |   | 929 |   |
| Provision  for (recoveries of) doubtful accounts                                          |   | (126                               | )      | (39 | ) |
| Deferred  compensation on restricted shares                                               |   | 33                                 |   | — |   |
| Non-cash  interest expense from deferred financing costs                                  |   | 83                                 |   | 131 |   |
| Non-cash  interest expense from accretion of warrants                                     |   | 69                                 |   | 112 |   |
| Change  in assets and liabilities:                                                        |   |                               |   |   |   |
| Trade  accounts receivable                                                                |   | (995                               | )      | 8,782 |   |
| Prepaid  expenses                                                                         |   | 113                                |   | 155 |   |
| Income  taxes receivable                                                                  |   | 517                                |   | 63 |   |
| Other  receivables                                                                        |   | (28                                | )      | 63 |   |
| Other  assets                                                                             |   | (1,196                             | )      | 7 |   |
| Accounts  payable                                                                         |   | (1,180                             | )      | (1,333 | ) |
| Payroll  and related expenses                                                             |   | (282                               | )      | (88 | ) |
| Accrued  expenses and other liabilities                                                   |   | 908                                |   | (714 | ) |
| Net  cash provided by (used in) operating activities                                      |   | (1,432                             | )      | 6,414 |   |
|                                                                                      |   |                               |   |   |   |
| **Cash  flows from investing activities:**                                                |   |                               |   |   |   |
| Purchases  of property and equipment                                                      |   | (99                                | )      | (120 | ) |
| Net  cash used in investing activities                                                    |   | (99                                | )      | (120 | ) |
|                                                                                      |   |                               |   |   |   |
| **Cash  flows from financing activities:**                                                |   |                               |   |   |   |
| Proceeds  from long-term debt                                                             |   | 59,672                             |   | 55,166 |   |
| Payments  on long-term debt                                                               |   | (65,291                            | )      | (61,059 | ) |
| Proceeds  from issuance of debt and warrants                                              |   | 10,000                             |   | — |   |
| Cash  paid for cancellation of stockholder rights plan                                    |   | (172                               | )      | — |   |
| Proceeds  from issuance of shares under the employee stock purchase plan                  |   | 83                                 |   | — |   |
| Cash  overdraft                                                                           |   | (2,778                             | )      | (377 | ) |
| Net  cash provided by (used in) financing activities                                      |   | 1,514                              |   | (6,270 | ) |
| Effect  of exchange rate changes                                                          |   | 7                                  |   | (35 | ) |
|                                                                                      |   |                               |   |   |   |
| Net  decrease in cash and cash equivalents                                                |   | (10                                | )      | (11 | ) |
| Cash  and cash equivalents at beginning of period                                         |   | 127                                |   | 54 |   |
| Cash  and cash equivalents at end of period                                               |   | $                                  | 117    |   | $ | 43 |   |
|                                                                                      |   |                               |   |   |   |
| Supplemental  disclosures of cash flow information:                                       |   |                               |   |   |   |
| Cash  paid for interest                                                                   |   | $                                  | 313    |   | $ | 310 |   |
| Cash  paid for income taxes                                                               |   | 11                                 |   | 1 |   |
| Cash  refunds received for income taxes                                                   |   | 1,467                              |   | 65 |   |

 

See accompanyingnotes to consolidated financial statements.

 

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**ALTERNATIVE RESOURCES CORPORATION**

**NOTES****TOCONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

 

**1.****                    Basisof Presentation**

 

The interim consolidatedfinancial statements presented are unaudited, but in the opinion of management,have been prepared in conformity with accounting principles generally acceptedin the United States of America applied on a basis consistent with those of theannual financial statements.  Suchinterim consolidated financial statements reflect all adjustments (consistingprincipally of normal recurring accruals) necessary for a fair presentation ofthe financial position and the results of operations for the interim periodspresented.  The results of operationsfor the interim periods presented are not necessarily indicative of the resultsto be expected for any other interim period and the year ending December 31,2003.  The interim consolidatedfinancial statements should be read in connection with the audited consolidatedfinancial statements for the year ended December 31, 2002, included in the 2002Form 10-K of Alternative Resources Corporation (“ARC” or the “Company”).

 

**2.****                    Computationof Earnings (Loss) per Share**

 

Basic earnings (loss) pershare is based on the weighted average number of common shares outstanding forthe period.  Diluted earnings (loss) pershare is based on the weighted average number of common shares outstanding andincludes the dilutive effect of unexercised stock options and warrants whichare in-the-money using the treasury stock method.   Dilutive securities have not been included in the weightedaverage shares used for the calculation of earnings per share in periods of netloss because the effect of such securities would be anti-dilutive. At March 31,2003 and 2002, potentially dilutive securities consisted of options to purchase4.0 million and 2.5 million shares of common stock, respectively.  In addition, the Company issued 11.0 millionwarrants to purchase common stock in connection with its debt refinancingdescribed in note 4.  These warrants arealso potentially dilutive securities as of March 31, 2003 and 2002.

 

7

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**3.****                    RecentlyAdopted Accounting Pronouncements**

 

In July 2002, the FASBissued SFAS No. 146, “Accounting for Costs Associated with an Exit or DisposalActivity,” (“SFAS 146”) which supercedes EITF No. 94-3 “Liability Recognitionfor Certain Employee Termination Benefits and Other Costs to Exit an Activity(Including Certain Costs Incurred in a Restructuring),” which was effective forexit or disposal activities initiated after December 31, 2002.  SFAS 146 requires that a company record a liabilitywhen that liability is incurred and can be measured at fair value.  Incurred is defined as when an eventobligates the entity to transfer or use assets.  The recognition of termination benefits to employees will dependon whether additional service is required of the employee.  If the employee must continue to provideservice for a period of at least a minimum of sixty days in order to beeligible for the benefits (called a “minimum retention period”), the fair valueof the benefits should be accrued over the time the employee renders theservice.  If future service beyond aminimum retention period is not required, the liability for the fair value ofthe benefits should be recognized at the time the company communicates thearrangement to the employees.  TheCompany has adopted this statement in the year beginning January 1, 2003 and itis not anticipated to have a material effect on the Company’s consolidatedfinancial position or results of operations for any restructuring activityinitiated after December 31, 2002.

 

In November 2002, theFASB issued Interpretation No. 45 (“FIN 45”), “Guarantor’s AccountingDisclosure Requirements for Guarantees, Including Guarantees of Indebtedness toOthers.” This interpretation expands the disclosures to be made by a guarantorin its financial statements about its obligations under certain guarantees andrequires the guarantor to recognize a liability for the fair value of anobligation assumed under guarantee. In general, FIN 45 applies to contracts orindemnification agreements that contingently require that the guarantor makepayments to the guaranteed party. The disclosure requirements of FIN 45 areeffective as of December 31, 2002, and require disclosure of the nature ofthe guarantee, the maximum potential amount of future payments that the guarantorcould be required to make under the guarantee, and the current amount of theliability, if any, for the guarantor’s obligations under the guarantee. Therecognition requirements of FIN 45 are to be applied prospectively toguarantees issued or modified after December 31, 2002. The Company doesnot have any guarantees and thus the requirements of FIN 45 did not have animpact on its consolidated financial statements.

 

InDecember 2002, the FASB issued SFAS No. 148, “Accounting forStock-Based Compensation–Transition and Disclosure–an Amendment of FASBStatement No. 123.” (“SFAS 148”) This Statement amends FASB StatementNo. 123, Accounting for Stock-Based Compensation, to provide alternativemethods of transition for a voluntary change to the fair value based method ofaccounting for stock-based employee compensation. In addition, this statementamends the disclosure requirements of SFAS No. 123 to require prominentdisclosures in both annual and interim financial statements about the method ofaccounting for stock-based employee compensation and the effect of the methodused on reported results. The Company has elected not to change to the fairvalue based method of accounting for stock-based employee compensation. TheCompany accounts for employee stock options under Accounting Principles Board(APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” underwhich no compensation cost was recognized by us and provides the disclosuresrequired by SFAS No. 123 and SFAS No. 148.

 

InJanuary 2003, the FASB issued Interpretation No. 46, “Consolidationof Variable Interest Entities” to provide new guidance with respect to theconsolidation of certain previously unconsolidated entities, including specialpurpose entities. The adoption of this interpretation in 2003 did not have animpact on the Company’s consolidated financial position or results ofoperations.

 

##### **4.**                    Long-termborrowings

 

On January 31, 2002,the Company entered into a Senior Secured Revolving Credit facility with FleetCapital Corporation, that provides for up to $30.0 million of revolvingcredit based on the Company’s available collateral base. This facility wasreduced to $28.0 million in August 2002 as discussed below. Thecredit facility has a three-year term and bears interest at LIBOR plus 3.25% orthe lenders’ base rate plus 1.00%. As of March 31, 2003, the applicable rate is5.25%, which represents the bank’s base rate plus 1.00%. The initial proceedsof this facility together with the net proceeds from the sale of convertiblesubordinated notes described below were used to repay the

 

8

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Company’s existing creditfacility. Advances from the revolving credit facility are determined on a dailybasis to minimize the Company’s average debt balance. As of March 31, 2003, theCompany has $1.5 million in excess availability and $12.2 millionoutstanding.

 

On January 31, 2002,the Company also entered into a Securities Purchase Agreement with WynnchurchCapital Partners, L.P., pursuant to which the Company sold $10 millionprincipal amount of 15% Senior Subordinated Convertible Notes dueJanuary 31, 2009. These notes are convertible into common stock of theCompany at a conversion price of $2.50 per share. At the Company’s election,one half of the interest may be deferred during the first four years, subjectto certain conditions. Effective August 8, 2002, the Company andWynnchurch Capital Partners, L.P. agreed to defer all of the interest.

 

In conjunction with thesale of these notes, the Company issued 10,000,000 warrants (immediatelyexercisable) to Wynnchurch Capital Partners, L.P. to purchase shares of theCompany’s common stock at $0.55 per share. Additionally, the Company issued1,000,000 warrants to purchase its common stock at $0.73 per share. Thesewarrants were not exercisable for one-year, contingent upon the Company meetingcertain performance measures, however, the warrants would expire if suchperformance measures were met. As of December 31, 2002, the Company didnot meet the specific performance measures related to the 1,000,000 contingentwarrants and these warrants did not expire. A fair value was required to beascribed to these warrants and recorded as a decrease in the debt and anincrease to additional-paid-in-capital. This value is then amortized over theseven-year life of the debt by a non-cash interest charge. The fair value ofthese warrants was determined to be approximately $3.1 million andresulted in a non-cash interest charge of approximately $69,000 and $112,000for the three month periods ended March 31, 2002 and 2003, respectively. Thevaluation of the warrants was determined based on advice from third-partyvaluation specialists who utilized a valuation model with the following inputs:measurement date of Janaury 31, 2002; fair value of $0.80; exercise price of$0.55 ($0.73 for contingent warrants); contractual term of 10 years;dividend rate of zero; volatility rate of 101%; risk-free interest rate of5.49%; and probability of 100% (for contingent warrants only).

 

In conjunction with theSecurities Purchase Agreement on January 31, 2002, the Company’s Board ofDirectors redeemed all of the rights issued under its stockholder rights plan.Each share of the Company’s common stock carried with it one right to purchasea fraction of a share of the Company’s preferred stock in certain circumstancesdescribed in the Stockholder Rights Plan. The rights were attached to, andcould not be separated from, shares of the Company’s common stock. The Companypaid a redemption payment of $0.01 per right to stockholders onFebruary 8, 2002, at a total cost of approximately $171,000.

 

Throughout 2002, theCompany and Fleet Capital Corporation executed certain amendments to therevolving credit agreement. The impact of these amendments was to reduce theborrowing limit subject to pledged accounts receivable as collateral to$28.0 million in consideration for the waiver of existing financial loancovenants.

 

In April 2003, theCompany and Fleet Capital Corporation executed additional amendments to therevolving credit agreement. The impact of these amendments was to obtain awaiver of financial loan covenants existing as of December 31, 2002 and toredefine financial loan covenant calculations for future periods.

 

In April 2003, in connectionwith an amendment to the Company’s credit agreement with Fleet CapitalCorporation, the Company’s senior lender, to allow overadvances of up to$2,000,000 through December 31, 2003, Wynnchurch Capital Partners, L.P.executed a guaranty to Fleet Capital Corporation of the overadvance amounts. Inconsideration, Wynnchurch Capital Partners, L.P. and the Company amended theiragreements, 15% Senior Subordinated Convertible Notes and warrants to reducethe conversion price of the notes to common stock to $1.50 per share,reduce the exercise price of all outstanding warrants to $0.26 per share,provide that any draw on the guaranties could be satisfied by a purchase byWynnchurch Capital Partners, L.P. of additional 15% Senior SubordinatedConvertible Notes having a principal amount equal to Fleet CapitalCorporation's draw and having terms equal to the outstanding 15% SeniorSubordinated Convertible Notes and provide for a $250,000 fee to WynnchurchCapital Partners, L.P. in the event of a draw upon their guaranty, payablethrough the issuance of additional 15% Senior Subordinated ConvertibleNotes.  The value of the warrants willbe reassessed during the second quarter of 2003, due to the decrease inexercise price; amortization will be adjusted accordingly. 

 

At March 31, 2003, theCompany has long-term debt of $21.3 million.  This is comprised of $12.2 in Senior Secured Revolving Creditwith Fleet Capital Corporation and $9.1 million of long-term debt related tothe Securities Purchase Agreement with Wynnchurch Capital Partners, L.P.

 

At March 31, 2003, the total contractual obligation to WynnchurchCapital Partners, L.P. is $11.8 million. This is comprised of $10.0 million in original principal and$1.8 million in accrued interest. $6.9 million of the principal is included in long-term debt whilethe remaining $3.1 million is classified as equity, representing the valueassigned to the warrants.  The$9.1 million of this obligation recorded as long-term debt is comprised ofthe following:

 
|                   |   | **(in  thousands)** |   |
|------------------------|--------|---------------------|--------|
|                   |   |                |   |
| Original  principal    |   | $                   | 6,865  |   |
| Accrued interest       |   | 1,755               |   |
| Accretion of  warrants |   | 522                 |   |
|                   |   |                |   |
| Total long-term  debt  |   | $                   | 9,142  |   |
|                   |   |                |   |

 

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

 

9

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##### **5.**                    Restructuringand Other Charges

 

The Company recordedrestructuring and other charges in the aggregate amount of $6.1 millionduring 2002. During the second quarter of 2002, the Company recorded a chargeof $1.1 million representing the severance pay associated with thedeparture of the Company’s former Chief Executive Officer. During the thirdquarter of 2002, the Company recorded a $4.7 million restructuring chargedue to excess office space and the restructuring of the service deliveryfunction. An additional $0.3 million restructuring charge was recorded inthe fourth quarter, which was also due to the restructuring of the servicedelivery function. The primary components of the restructuring and othercharges can be summarized as follows:

 

| **(in millions)**     |   |   |   |
|-----------------------|--------|--------|--------|
| Restructuring  charge |   |   |   |
| Real  estate costs    |   | $      | 4.4    |   |
| Severance             |   | 0.6    |   |
| Other  charges        |   | 1.1    |   |
|                  |   |   |   |
|                  |   | $      | 6.1    |   |

 

The primary components ofthe restructuring charge can be summarized as follows:

 
|                        |   | **Total  Initial  Reserve** |   | **2002  Cash  Payments** |   | **Balance at  December 31,  2002** |   | **2003  Cash  Payments** |   | **Balance at  March 31,  2003** |   |
|-----------------------------|--------|-----------------------------|--------|--------------------------|--------|------------------------------------|--------|--------------------------|--------|---------------------------------|--------|
| **(in thousands)**          |   |                        |   |                     |   |                               |   |                     |   |                            |   |
| Real  estate costs          |   | $                           | 4,328  |                     | $      | (569                               | )      | $                        | 3,759  |                            | $      | (550 | ) | $ | 3,209 |   |
| Severance                   |   | 627                         |   | $                        | (362   | )                                  | 265    |                     | $      | (173                            | )      | 92 |   |
| Other  charges              |   | 1,100                       |   | (202                     | )      | 898                                |   | (87                      | )      | 811                             |   |
|                        |   |                        |   |                     |   |                               |   |                     |   |                            |   |
| Total  restructuring charge |   | $                           | 6,055  |                     | $      | (1,133                             | )      | $                        | 4,922  |                            | $      | (810 | ) | $ | 4,112 |   |

 

The portion of the chargerelated to real estate costs, which totaled $4.3 million, relates to leasecosts associated with decreased requirements for office space as the Companyrestructured its service delivery organization. The costs associated with thischarge related primarily to ongoing lease obligations for vacated offices, netof anticipated sublease income. A portion of the charge also related to brokercommissions and estimated leasehold improvement costs necessary to subleasevacated offices.

 

The $0.6 millionseverance charge related to head-count reductions associated with centralizingthe service delivery organization as part of a re-engineering exercise. A totalof 60 positions were eliminated with the largest group being the clientstaffing managers. The remainder of positions eliminated was a mix of corporatestaff and recruiting personnel. The remaining severance balance atMarch 31, 2003 relates to employees with employment agreements. Thisamount will be paid out through July 2003.

 

The $1.1 million othercharges related to the severance pay associated with the departure of theCompany's former Chief Executive Officer. The remaining balance at March 31, 2003 is required to be paid in fullby July 2004.

 

##### **6.**              StockOptions

 

The Company accounts forits stock options in accordance with the provisions of Accounting PrinciplesBoard Opinion No. 25, “Accounting for Stock Issued to Employees” (APB25) and related interpretations. Under APB 25, no compensation cost hasbeen recognized for the Company’s stock-based compensation plans. TheCompany continues to apply the provisions of APB 25 and provides the pro formadisclosures required by SFAS No. 123 and SFAS No. 148.

 

The following datareflect the pro forma effects of the stock-based compensation cost forthe Company’s stock option transactions in accordance with SFAS No. 123 andSFAS No. 148:

 
|                            |   | **Three  Months Ended March 31,**         |   |
|---------------------------------|--------|-------------------------------------------|--------|
|                            |   | **2002**                                  |   | **2003** |   |
|                            |   |                                      |   |   |   |
|                            |   | **(in thousands, except per share data)** |   |
|                            |   |                                      |   |   |   |
| Net loss, as  reported          |   | $                                         | (494   | ) | $ | (1,654 | ) |
| Pro forma  compensation expense |   | (704                                      | )      | (211 | ) |
|                            |   |                                      |   |   |   |
| Pro forma net  loss             |   | $                                         | (1,198 | ) | $ | (1,865 | ) |
|                            |   |                                      |   |   |   |   |   |
| Diluted loss per  share:        |   |                                      |   |   |   |
| As reported                     |   | $                                         | (0.03  | ) | $ | (0.10 | ) |
| Pro forma                       |   | (0.07                                     | )      | (0.11 | ) |

 

Thefair value of each option is estimated on the date of grant using the Black-Scholesoption-pricing model with the following weighted average assumptions usedfor grants for the three months ended March 31, 2002 and 2003,respectively: risk-free interest rates of 4.7% and 3.8%; expectedlives of 5 and 9 years; expected volatility of 145% and 123%; and no dividendsexpected to be paid.

 

 

##### **Item2. - Management’**s Discussion andAnalysis of Financial Condition and Results of Operations

 

## **Results of Operations**

 

Essentially all of theCompany’s revenue is generated from information technology services that offerthe benefits of outsourcing, while allowing information services operationsmanagers to retain strategic control of their operations. Revenues arerecognized as services are performed, utilizing four different billingmethodologies as follows:  (1) time andmaterial billing, whereby the client is billed by the hour on a weekly basisfor past services performed; (2) project-based billing, for which fees arefixed and are based on specific contracts; (3) per-incident billing, wherebythe Company charges a fee for each specific task related to certain services;and (4) fee-based billing, which is used for candidate placement/recruitingfees and vendor management fees.  TheCompany typically provides discounts on staffing services to its largestclients in exchange for the opportunity to sell more volume, as well as theopportunity to sell its higher-margin, value-added services.  All revenues are recognized net of suchdiscounts and after services have been completed.

 

10

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# **First Quarter Fiscal 2003 Compared to First QuarterFiscal 2002**

 

**Revenue.**Revenuesconsist of fees earned from ARC Staffing Management Solutions and ARCTechnology Management Solutions. Revenue decreased $3.9 million or 9.6% from $40.8 million in the firstquarter of 2002 to $36.9 million in the first quarter of 2003, primarily fromthe slowdown in IT spending experienced industry-wide.  ARC Technology Management Solutions revenueincreased by $1.3 million or 7.4% from $18.2 million in the first quarter of2002 to $19.5 million in the first quarter of 2003.  The Company’s traditional Staffing Management Solutions revenuedecreased by $5.2 million or 23.2% from $22.6 million in the first quarter of2002 to $17.4 million in the first quarter of 2003.

 

**Gross profit.** Grossprofit decreased by $2.2 million or 19.7% from $11.4 million in the firstquarter of 2002 to $9.2 million in the first quarter of 2003.  As a percentage of revenue, gross profitdecreased by 3.1% from 28.0% in the first quarter of 2002 to 24.9% in the firstquarter of 2003 due to the very competitive IT staffing environment, which iscausing some margin pressures in all service offerings.

 

**Operating expenses. **Operating expenses consistof salaries and benefits, sales costs, recruiting, retention and trainingcosts, management and administrative costs, and depreciation andamortization.  Operating expensesdecreased by $2.2 million or 18.3% from $12.1 million in the first quarter of2002 to $9.9 million in the first quarter of 2003.  The operating expense decrease was attributable to therestructuring actions the Company has taken in the past, which is reflected inreduced office space and lower headcount. As a percentage of revenue, operatingexpenses decreased by 2.9% from 29.6% in the first quarter of 2002 to 26.7% inthe first quarter of 2003.

 

**Other expense, net. **Other expense, net,consists primarily of interest expense on the Company’s outstanding debt. Otherexpense, net, increased by $0.2 million or 21.2% from $0.8 million in the firstquarter of 2002 to $1.0 million in the first quarter of 2003. The increase inother expense, net, is primarily the result of an increase in interest expenserelated to increased average debt levels.

 

**Income tax benefit.**Duringthe first quarter of 2002, the Company recorded a tax benefit of $1.0 millionrelated to a refund obtained due to a change in income tax law.  There was no similar benefit in the firstquarter of 2003.

 

# **Liquidity and Capital Resources**

 

Current assets exceedcurrent liabilities by $1.5 million at March 31, 2003.  Net cash provided by operations was $6.4million in the first three months of 2003. Net cash provided by operations was principally the result of a decreasein accounts receivable of approximately $8.8 million offset by decreases inaccounts payable and accrued expenses and other liabilities of $1.3 million and$0.7 million, respectively.  Thesignificant decrease in accounts receivable was due to a payment agentagreement entered into with IBM Credit, LLC in the first quarter of 2003.  This agreement provides for an expeditedreceipt of outstanding IBM receivables from 45 days to 15 days in exchange fora discount of 0.76%.

 

Capital spending wasapproximately $0.1 million in both of the three months ended March 31, 2003 and2002. The Company does not anticipate that its capital spending going forwardwill be significantly greater than $1.0 million to $2.0 million per annum.

 

On January 31, 2002, theCompany replaced its existing bank line with a $30.0 million senior securedrevolving credit facility with Fleet Capital Corporation, a subsidiary of theFleetBoston Financial Corporation and $10.0 million principal amount of SeniorSubordinated Convertible Notes sold to Wynnchurch Capital Partners, L.P., aprivate equity investor. The $30.0 million revolving credit facility is securedby the assets of the Company, principally consisting of accountsreceivable.  In August 2002, ARC andFleet Capital Corporation executed an amendment to the revolving creditagreement.  The impact of this amendmentwas to reduce the borrowing limit subject to pledged accounts receivable ascollateral to $28.0 million in consideration for the waiver of existingfinancial loan covenants.  The creditfacility has a three-year term and bears interest at LIBOR plus 3.25% or thelender's base rate plus 1.00%. As of March 31, 2003, the applicable rate is5.25%, which represents the bank’s base rate plus 1.00%.

 

The Senior SubordinatedConvertible Notes bear interest at 15% and are due January 31, 2009. Thesenotes are convertible into common stock anytime after January 31, 2002 at aconversion price of $2.50 per share. At the Company’s election, one-half of the

 

11

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interest may be deferredduring the first four years, subject to certain conditions.  Effective August 8, 2002, the Company andWynnchurch Capital Partners, L.P. agreed to defer all of the interest.  In conjunction with the sale of these notes,the Company issued 10,000,000 warrants to purchase shares of the Company’scommon stock at $0.55 per share. An additional 1,000,000 warrants to purchaseits common stock at $0.73 per share, were not exercisable for one yearcontingent upon the Company meeting certain performance measures, however, thewarrants would expire if such performance measures were met.  As of December 31, 2002, the Company did notmeet the specific performance measures related to the 1,000,000 contingentwarrants and these warrants did not expire.

 

Throughout 2002, theCompany and Fleet Capital Corporation executed certain amendments to therevolving credit agreement.  The impactof these amendments was to reduce the borrowing limit subject to pledgedaccounts receivable as collateral to $28.0 million in consideration for the waiverof existing financial loan covenants.

 

In April 2003, theCompany and Fleet Capital Corporation executed additional amendments to therevolving credit agreement.  The impactof these amendments was to obtain a waiver of financial loan covenants existingas of December 31, 2002 and to redefine financial loan covenant calculationsfor future periods.

 

In April 2003, inconnection with an amendment to the Company’s credit agreement with FleetCapital Corporation, the Company’s senior lender, to allow overadvances of upto $2.0 million through December 31, 2003, Wynnchurch Capital Partners, L.P.executed a guaranty to Fleet Capital Corporation of the overadvanceamounts.  In consideration, WynnchurchCapital Partners, L.P and the Company amended their agreements, 15% SeniorSubordinated Convertible Notes and warrants to reduce the conversion price ofthe notes to common stock to $1.50 per share, reduce the exercise price of alloutstanding warrants to $0.26 per share, provide that any draw on theguaranties could be satisfied by a purchase by Wynnchurch Capital Partners, L.Pof additional 15% Senior Subordinated Convertible Notes having a principalamount equal to Fleet Capital Corporation’s draw and having terms equal to theoutstanding 15% Senior Convertible Notes and provide for a $250,000 fee toWynnchurch Capital Partners, L.P in the event of a draw upon their guaranty,payable through the issuance of additional 15% Senior Subordinated ConvertibleNotes.  The value of the warrants willbe reassessed during the second quarter 2003, due to the decrease in exerciseprice; amortization will be adjusted accordingly.

 

The Company believes itscash balances and funds from operations together with funds available under itscredit facility will be sufficient to meet all of its anticipated cashrequirements for at least the next 12 months. However, general economic and industry conditions could impact theCompany’s ability to meet anticipated cash requirements.  Since the existing credit facility issecured by the assets of the Company, principally consisting of accountsreceivable, these uncertainties may directly impact the availability of thiscredit facility.

 

The following summarizesthe Company’s contractual obligations at March 31, 2003, and the effectsuch obligations are expected to have on our liquidity and cash in the futureperiods.

 
|                                |   | **Payments  Due by Period** |   |
|-------------------------------------|--------|-----------------------------|--------|
|                                |   | **Total**                   |   | **Less Than  1 Year** |   | **1-3  Years** |   | **4-5  Years** |   | **After  5 Years** |   |
|                                |   | **(in  thousands)**         |   |
|                                |   |                        |   |   |   |   |   |   |   |   |   |
| Contractual  Obligations:           |   |                        |   |   |   |   |   |   |   |   |   |
| Senior  Secured Revolving Credit    |   | $                           | 12,183 |   | $ | — |   | $ | 12,183 |   | $ | — |   | $ | — |   |
| Securities  Purchase Agreement      |   | 11,755                      |   | — |   | — |   | — |   | 11,755 |   |
| Non-cancelable  operating leases    |   | 14,126                      |   | 4,125 |   | 5,494 |   | 2,651 |   | 1,856 |   |
|                                |   |                        |   |   |   |   |   |   |   |   |   |
| Total  contractual cash obligations |   | $                           | 38,064 |   | $ | 4,125 |   | $ | 17,677 |   | $ | 2,651 |   | $ | 13,611 |   |

 

**CRITICAL ACCOUNTING POLICIES**

 

The Company’sconsolidated financial statements are impacted by the accounting policies used, and the estimates and assumptionsmade by management.  The mostsignificant accounting policies and management estimates that affect thepresentation of the consolidated financial statements include revenuerecognition, allowance for doubtful accounts, analysis of goodwill impairmentand valuation allowance for deferred tax assets.

 

12

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**Revenue Recognition**

 

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

 

**Allowance for Doubtful Accounts**

 

The Company performs ongoing credit evaluationsof its customers and adjusts credit limits based upon payment history and thecustomers’ current credit worthiness. The Company continuously monitors collections and payments from itscustomer base and maintains a provision for estimated credit losses based upon historicalexperience and any specific customer collection issues that have beenidentified.  The Company specificallyreviews outstanding account balances that are overdue 90 days or more in makingits assessment of the provision for bad debts in each period.  While the Company has historically hadsufficient coverage of allowances for credit losses, it cannot guarantee thatit will continue to experience the same credit loss rates as in past periods.

 

**Goodwill Impairment**

 

On January 1, 2002, theCompany adopted SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS142”).  This Statement dictates thatgoodwill and intangible assets with indefinite useful lives should be testedand written down for impairment at least annually, instead of being amortizedon an ongoing basis.  The Company has terminatedits policy of amortizing goodwill on a monthly basis and will perform an annualanalysis of goodwill impairment, using the discounted future cash flowsmethodology.  Since the Company wroteoff the significant majority of its goodwill balance in 2000 due to impairment,the adoption of this standard has not had an impact on its financialstatements.

 

**Valuation Allowance forDeferred Tax Assets**

 

The Company records avaluation allowance to reduce its deferred tax assets to the amount that itbelieves is more likely than not to be realized.  A valuation allowance was established for the net deferred taxasset given the uncertainty with respect to the future realization of deferredtax assets.  This valuation allowance isrequired given that the net operating losses have no remaining carrybackpotential and the lack of ability to accurately forecast taxable income overthe 17-20 year net operating loss carryforward period.  When a valuation allowance is deemed necessary,the Company records an adjustment to the deferred tax asset, with acorresponding charge to the statement of operations.  In the event that the Company determines that it would be able torealize its deferred tax assets in the future in excess of its net recordedamount, an adjustment to the deferred tax assets would increase income, orreduce a net loss, in the period such determination was made.

 

##### **Item3**. - Quantitative andQualitative Disclosures About Market Risk

 

 The market risk that the Company is exposedto primarily relates to changes in interest rates on its borrowings. At March31, 2003, the Company had $12.2 million in floating-rate debt. An adversechange in interest rates during any period that the loan is outstanding wouldcause an increase in interest expense. A 100 basis point increase in the bank’sbase rate would increase the annual amount of interest paid by $0.1 million.

 

The Company issuedwarrants on January 31, 2002, which are classified as derivative financialinstruments pursuant to SFAS 133, “Accounting for Derivative Instruments and

 

13

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Certain HedgingActivities,” which was adopted by the Company on January 1, 2001.  Pursuant to SFAS 133 and interpretations bythe Emerging Issues Task Force covering derivative financial instruments, thesewarrants meet the criteria for equity classification on the measurement date ofJanuary 31, 2002 and the Company is not required to remeasure the warrants onsubsequent dates.  As such, there is nomark-to-market adjustment which will be reflected in the statement ofoperations as unrealized gains or losses as a result of changes in fair valueof these warrants in periods subsequent to the measurement date.  However, due to the decrease in the exerciseprice of the warrants in April, 2003, the value of the warrants will bereassessed and amortization adjusted accordingly.  There is no equity price risk associated with changes in fairvalue of the warrants.  The Company doesnot have any derivative financial instruments other than the warrants.

 

**Item 4****. - Controlsand Procedures**

 

Our Chief ExecutiveOfficer and Chief Financial Officer have concluded, based on their evaluationwithin 90 days of the filing date of this report, that our disclosure controlsand procedures are effective for gathering, analyzing and disclosing theinformation we are required to disclose in our reports filed under theSecurities Exchange Act of 1934.  Therehave been no significant changes in our internal controls or in other factorsthat could significantly affect these controls subsequent to the date of thepreviously mentioned evaluation, including any corrective actions with respectto significant deficiencies and material weaknesses.

 

**FORWARD-LOOKING STATEMENTS**

 

The Company makesforward-looking statements from time to time and desires to take advantage ofthe “safe harbor,” which is afforded such statements under the PrivateSecurities Litigation Reform Act of 1995, when they are accompanied bymeaningful cautionary statements identifying important factors that could causeactual results to differ materially from those in the forward-lookingstatements. The statements contained in this Form 10-Q, including those under“Management’s Discussion and Analysis of Financial Condition and Results ofOperations,” statements contained in future filings with the Securities andExchange Commission and publicly disseminated press releases, and statementswhich may be made from time-to-time in the future by management of the Companyin presentations to shareholders, prospective investors, and others interestedin the business and financial affairs of the Company, which are not historicalfacts, are forward-looking statements that involve risks and uncertainties thatcould cause actual results to differ materially from those set forth in theforward-looking statements. Any projections of financial performance orstatements concerning expectations as to future developments should not beconstrued in any manner as a guarantee that such results or developments will,in fact, occur. There can be no assurance any forward-looking statement will berealized or that actual results will not be significantly different from thatset forth in such forward-looking statement.

 

In addition to the risksand uncertainties of ordinary business operations, the forward-lookingstatements of the Company referred to above are also subject to the followingrisks and uncertainties:

 

•                  TheCompany’s ability to attract and retain qualified information technologyprofessionals;

•                  TheCompany’s ability to recruit, train, integrate and retain qualified salesdirectors, account managers, and recruiters;

•                  Competitionin the information technology services marketplace;

•                  TheCompany’s continued ability to initiate and develop client relationships;

•                  TheCompany’s ability to identify and respond to trends in information technology;

•                  Unforeseenbusiness trends in the Company’s national accounts or other large clients;

•                  Pricingpressures and/or wage inflation and the resulting impact on gross profit andnet operating margins;

•                  Theability to successfully enter new geographic markets;

•                  TheCompany’s ability to successfully meet debt covenants; and

•                  Theeffect of changes in general economic conditions.

 

14

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**PART II****- OTHERINFORMATION**

### ** **

### **Item 6**.- Exhibits and Reports on Form 8-K

 

(a)                      Thefollowing documents are furnished as an exhibit and numbered pursuant to Item601 of Regulation S-K:

 
| **Exhibit  Number** |   | **Description**                                                                                                           |
|---------------------|--------|---------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                      |
| 4.1                 |   | Fifth Amendment to  credit and security agreement dated April 14, 2003.                                                   |
|                |   |                                                                                                                      |
| 4.2                 |   | Fifth Amendment to  securities purchase agreement dated April 14, 2003.                                                   |
|                |   |                                                                                                                      |
| 4.3                 |   | First Amendment to  subordination and intercreditor agreement dated April 14, 2003.                                       |
|                |   |                                                                                                                      |
| 4.4                 |   | Guaranty Agreement  dated April 14, 2003.                                                                                 |
|                |   |                                                                                                                      |
| 4.5                 |   | Amendment to  subordinated convertible promissory notes dated April 14, 2003.                                             |
|                |   |                                                                                                                      |
| 4.6                 |   | Amendment to stock  purchase and contingent warrants dated April 14, 2003.                                                |
|                |   |                                                                                                                      |
| 99.1                |   | Certification Pursuant  to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

(b)                     No reports onForm 8-K were required to be filed during the quarterly period ended March 31,2003.

 

15

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**SIGNA****TURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|               | ALTERNATIVE RESOURCES  CORPORATION                                        |
|--------------------|---------------------------------------------------------------------------|
|               |                                                                      |
|               |                                                                      |
| Date: May 14, 2003 | /s/  Steven Purcell                                                       |   |
|               | Steven Purcell                                                            |
|               | Senior Vice President,  Chief Financial Officer,  Treasurer and Secretary |

 

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**CERTIFICATIO**NS

 

I, George W. Watts,certify that:

 

1.               I have reviewedthis quarterly report on Form 10-Q of Alternative Resources Corporation;

 

2.               Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of circumstances under which such statements were made, not misleadingwith respect to the period covered by this quarterly report;

 

3.               Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.               The registrant’sother certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

(a) designed such disclosure controls and proceduresto ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

(b) evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to filing date of this quarterly report (the“Evaluation Date”); and

 

(c) presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.               The registrant’sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

(a) all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

(b) any fraud, whether ornot material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.               The registrant’sother certifying officers and I have indicated in this quarterly report whetheror not there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 

 
| Date:  May 14, 2003 | /s/  George W. Watts |                    |
|--------------------------|----------------------|-------------------------|
|                     |                 | George W. Watts         |   |
|                     |                 | Chief Executive Officer |   |
|                     |                 |

 

17

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**CERTIFICATIONS**

I, Steven Purcell,certify that:

 

1)              I have reviewed thisquarterly report on Form 10-Q of Alternative Resources Corporation;

 

2)              Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3)              Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4)              The registrant’sother certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

(a) designed such disclosure controls and proceduresto ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

(b) evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to filing date of this quarterly report (the“Evaluation Date”); and

 

(c) presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5)              The registrant’sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalent function):

 

(a) all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors any materialweaknesses in internal controls; and

 

(b) any fraud, whether ornot material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6)              The registrant’sother certifying officers and I have indicated in this quarterly report whetheror not there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 
| Date:  May 14, 2003 | /s/  Steven Purcell |                    |
|--------------------------|---------------------|-------------------------|
|                     |                | Steven Purcell          |   |
|                     |                | Chief Executive Officer |   |
|                     |                |

 

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