DIVERSIFIED CORPORATE RESOURCES, INC.
(Exact name of registrant as specified in its charter)

10670 NORTH CENTRAL EXPRESSWAY
SUITE 600
DALLAS, TEXAS 75231
(Address of principal executive offices)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

Number of shares of common stock of the registrant outstanding on August 14, 2003 was 3,034,865.

DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)

DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands except Per Share Data)
(Unaudited)

DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

(Unaudited)

The consolidated financial statements include the operations of Diversified Corporate Resources, Inc. and its wholly owned subsidiaries (the "Company", "our", "we", or "us"). The financial information for the three and six months ended June 30, 2003 and 2002, is unaudited but includes all adjustments (consisting only of normal recurring accruals) which we consider necessary for a fair presentation of the results for the periods. The financial information should be read in conjunction with the consolidated financial statements for the year ended December 31, 2002, included in our Annual Report on Form 10-K. Operating results for the three and six months ended June 30, 2003, are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2003.

All inter-company accounts and transactions have been eliminated in consolidation.

Certain reclassifications have been made to prior year balances to conform to the current year presentation.

We account for Stock Based Compensation to employees and directors under the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations rather than the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation". No stock-based employee compensation expense for stock options was reflected in net income (loss) for the three and six months ended June 30, 2003 and 2002, as all stock options granted had an exercise price equal to the fair market value of the underlying common stock on the date of grant.

The following tables illustrate the effect on net income and earnings (loss) per share as if the fair value method had been applied to all outstanding options:

Following is a reconciliation of the weighted average number of shares outstanding during the period for basic and diluted EPS:

Under the terms of the Greenfield Facility, outstanding loan balances bear interest at the lender's index rate plus 8%, and interest is payable monthly. For the three months ended June 30, 2003, the weighted average interest rate on the borrowings under the facility was 13.4%; the interest rate at June 30, 2003 was 13.2%. As of June 30, 2003, the amounts outstanding under the revolving line of credit amounted to $4,011,000 and there was no net borrowing availability.

In connection with the Greenfield Facility, J. Michael Moore, our CEO and Chairman ("Moore") executed a Validity Guaranty (the "JMM Guaranty"). The JMM Guaranty basically obligates Moore to repay the Greenfield loan in the event and to the extent that the Company engages in any inappropriate activities related to the Greenfield Facility. As the result of Moore executing the JMM Guaranty, our Board of Directors has previously indicated that it is their intent to indemnify Moore against actions taken by others in the organization with which he had no knowledge.

At various times in 2002 and in the first quarter of 2003, we were in default of our obligations to make debt payments with respect to our acquisition debt, i.e. obligations to the former owners of Datatek and Texcel. As of the date of this report, we are not in default with respect to any of the amounts payable to the former owners of Datatek and Texcel. We owe approximately $301,000 to the former owners of Datatek and approximately $741,000 (plus accrued and unpaid interest) to the former owners of Texcel.

Pursuant to the Note Purchase Agreement effective January 8, 1999, by and among the Company, Compass Bank (the "Bank"), DCRI L.P. No. 2, Inc. ("L.P. No. 2"), an entity controlled by Moore, and Moore, the Company is obligated to purchase from the Bank two promissory notes (the "Notes") issued to the Bank by LP No.2. We have been notified that an entity affiliated with Moore has entered into a purchase agreement with the Bank that, upon its consummation, will eliminate the Company's obligation to the Bank. As of November 13, 2002, when L.P. No. 2 filed for bankruptcy protection, the amount payable to the Bank pursuant to the Notes was approximately $270,000. The Notes are secured by 168,500 shares of the Company's common stock pledged to the Bank by L.P. No. 2 and Moore. Based on the market price of the Company's common stock on November 13, 2002, the unsecured balance of the liability to the Bank by all parties involved was approximately $252,000. The Company does not have the funds availab le to purchase the Notes if required to do so under the terms of the Purchase Agreement. As the Notes are guaranteed by Moore, we believe, based upon financial information provided by Moore, that Moore has the financial ability to satisfy the Notes.

Availability of credit under our only source of liquidity, the Greenfield Facility, is contingent on our success in generating eligible receivables from operations. Consequently, a temporary contraction in revenue (and thus eligible accounts receivable) or an unfavorable outcome of litigation could materially affect our cash flow and ability to stay in business. This factor, among others, indicates that the Company may be unable to continue as a going concern.

We are, of course, continuing to evaluate various financing and restructuring strategies designed to expand our sources of liquidity, and to maximize shareholder value. We can provide no assurance that we will be successful in implementing the changes necessary to accomplish these objectives, or if we are successful, that the changes will improve our cash flow and liquidity.

The income tax provision (benefit) and the amount computed by applying the federal statutory income tax rate to income before income taxes differs as follows:

As of June 30, 2003, we have a federal net operating loss carryforward of approximately $9.2 million, which if unused, expires in 2021. In addition, we have various state net operating loss carryforwards totaling approximately $12.7 million as of June 30, 2003, which, if unused, expire in varying amounts over the next 20 years.

As of June 30, 2003, because of the factors discussed in Footnote No. 3, "Liquidity and Management Plans," we recorded a net valuation allowance of $3.6 million against the entire amount of the net deferred tax asset.

In 1996, Ditto Properties Company ("DPC") filed suit against L.P. No. 2. Moore and the Company were also initially named as garnishees in this lawsuit (the "Ditto Litigation") with respect to 899,200 shares (the " LP Shares") of common stock of the Company which were the subject matter of a series of transactions in 1993 (collectively referred to herein as the "1993 Transactions") which ultimately resulted in the LP Shares being conveyed by DPC to L.P. No. 2. Subsequent to the initial filing of this litigation, Moore was added as a defendant in such proceedings and F. Scott Otey and Jeffery Loadman intervened as parties to the litigation. On April 12, 2001, DPC and Donald R. Ditto Sr. filed an amended petition in the Ditto Litigation and named the Company as a defendant in such lawsuit. The venue for the Ditto Litigation is the District Court of Dallas County, Texas, 298th Judicial District (the "Court"). The relief sought by the plaintiffs include, among other things, ownership of the LP Shares, at least $6.5 million in compensatory damages and at least $26.1 million in punitive and exemplary damages. As of the date of this report, no amount of loss reserves has been established by the Company in connection with the Ditto Litigation because management does not believe that the likely result of the litigation will adversely impact our financial position or results of operation.

In the past, the Company has incurred legal fees on its own behalf and has funded certain of the legal fees and expenses of Moore and/or L.P. No. 2 in connection with the Ditto Litigation. As the result of the Company being named as a defendant in 2001, the Company retained counsel separate from Moore and (a) approved the payment to Moore of up to $250,000 to fund legal fees and expenses anticipated to be incurred by Moore and L.P. No. 2 in the Ditto Litigation; (b) entered into an Indemnification Agreement with each of the officers and directors of the Company pursuant to which these individuals will be indemnified in connection with matters related to the Ditto Litigation; and (c) amended the Bylaws of the Company to require the Company to indemnify its present and former officers and directors to the full extent permitted by the laws of the State of Texas, in connection with any litigation in which such persons became a party subsequent to March 29, 2001, and in which such persons a re involved in connection with performing their duties as officers or directors of the Company. Through June 30, 2003, the Company has expended approximately $200,000 as part of the aforesaid $250,000 to be paid to or for the benefit of Moore.

We are also involved in certain other litigation and disputes not noted. With respect to these matters, management believes the claims against us are without merit and has concluded that their ultimate resolution will not have a material effect on our consolidated financial position or results of operations.

Fees from permanent personnel placement are recognized as income at the time the applicant accepts employment. A provision is made for estimated losses in realization of such fees (principally due to applicants not commencing employment, or not remaining in employment for the guaranteed period). Revenues from contract and specialty staffing are recognized upon performance of services. Direct costs of contract and specialty staffing consists of direct wages and related payroll taxes paid to non-permanent personnel.

Effective January 1, 2002, we adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement requires the following three-step approach for assessing and recognizing the impairment of long-lived assets: (1) consider whether indicators of impairment of long-lived assets are present; (2) if indicators of impairment are present, determine whether the sum of the estimated undiscounted future cash flows attributable to the assets in question is less than their carrying amount; and (3) if less, recognize an impairment loss based on the excess of the carrying amount of the assets over their respective fair values. In addition, SFAS No. 144 provides more guidance on estimating cash flows when performing a recoverability test, requires that a long-lived asset to be disposed of other than by sale (such as abandoned) be classified as "held and used" until it is disposed of, and establishes more restrictive criteria to classify an asset as "held for sale ". The adoption of SFAS No. 144 did not have a material impact on our financial statements since it retained the fundamental provisions of SFAS No, 121, "Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," related to the recognition and measurement of the impairment of long-lived assets to be "held and used."

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost as defined was recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 also establishes that the fair value is the objective for the initial measurement of the liability. SFAS No. 146 is effective for exit and disposal activities that are initiated after December 31, 2002. This statement will impact the timing of our recognition of liabilities for costs associat ed with exit or disposal activities.

We provide contract staffing , specialty/temporary, and permanent placement staffing solutions through three core verticals: General Engineering & Technology, Information Technology, and Biological Technologies /Pharmacies & Healthcare. A fourth vertical, Telecommunications, has been combined with Information Technology for reporting purposes as we decided in 2002 to wind down our exposure to Telecommunications due to the dramatic slowdown in the Telecommunications industry. During the quarter ended June 30, 2003 the relative percentage contribution to our gross revenue by Telecommunications has declined to less than 5%, all in contract staffing.

Contract and specialty/temporary personnel placed by us are our employees, and we are responsible for employee related expenses, including workers compensation, unemployment insurance, Medicare and Social Security taxes and general payroll expenses. We offer health, dental, 401(k), disability and life insurance to eligible billable employees. Staffing and consulting companies, such as DCRI, typically pay their billable employees for their services before receiving payment from customers. This often results in significant outstanding receivables. To the extent we grow, these receivables will increase, requiring additional borrowing availability under our credit facility to fund current operations.

Service Revenue Summary:

For the quarter ended June 30, 2003, overall net revenue decreased $0.6 million, or 4%, to $12.8 million as compared to $13.4 million for the previous year period. As noted in the table above, revenue derived from contract and specialty staffing increased $0.6 million, or 6%, as an increase in revenues from our Datatek operations exceeded the decrease of $2.2 million, resulting from the sale of our Mountain division in December 2002. Permanent placement revenue decreased $1.2 million, or 36%, as a result of the continuing effect of hiring freezes and staff reductions implemented by our customers due to the recession in the economy. We continue to experience a change in our business mix as revenue derived from contract and specialty staffing comprised 84% of total revenue for the quarter ended June 30, 2003, as compared to 75% of total revenue in the previous year period.

During the quarter ended June 30, 2003, we continued the process of exiting the Telecommunications core industry vertical and increasing revenue from the Biological Technologies/Pharmacies and Healthcare core industry vertical. Following is a breakdown of the relative percentage contributions to our gross revenue for the quarter ended June 30, 2003 of each of the three solutions within each of the three core verticals:

For the quarter ended June 30, 2003, our total gross margin decreased by $0.9 million, or 18%, to $4.2 million as compared to $5.1 million in the previous year period, reflecting management's stated commitment to increasing the mix of somewhat lower-margin but more predictable contract revenues. The decline in permanent placement revenues accounted for all of the absolute decrease in total gross margin. Overall gross margin, as a percentage of net service revenue, declined to 33%, as compared with 38% in the previous year period, again, reflective of the change in business mix noted above. As a percentage of contract and specialty staffing, the gross margin derived therefrom for the quarter ended June 30, 2003 was 19%, as compared to 18% in the previous year period. This was primarily a result of increased efforts to control our cost of services and to achieving higher than average margins with respect to the ordinarily somewhat lower margin contract and specialty staffing bus iness.

Operating expenses amounted to $4.5 million for the quarter ended June 30, 2003, a decrease of $0.8 million, or 15%, as compared to the previous year period. Included in operating expenses for the quarter ended June 30, 2003 was $2.2 million of variable sales expenses, which were down $0.3 million, or 11%, as compared to the previous year period due primarily to the reduction in commissions associated with the decline in revenue from permanent placement. In addition, for the quarter ended June 30, 2003, general and administrative expenses amounted to $2.1 million, a decline of $0.5 million, or 18%, as compared to the previous year period. Business initiatives implemented throughout 2002, including a review of our business processes, organizational structure and the level of permanent workforce, accounted for the decrease in general and administrative expenses.

For the quarter ended June 30, 2003, net interest expense was $251,000, as compared to $285,000 in the previous year period. The decrease was due to the absence, in 2003, of forbearance fees being charged to the Company in 2002 by its previous lender. Depreciation expense amounted to $241,000 for the quarter ended June 30, 2003, a decrease of $44,000, as compared to the previous year period.

For the quarter ended June 30, 2003, as a result of an increase to our deferred tax valuation allowance, we reported no income tax benefit.

Overall, we reported a $0.6 million net loss for the quarter ended June 30, 2003, as compared to a net loss of $0.5 million for the previous year period.

Management believes the economy is beginning to show signs of recovery. To better competitively position the Company, we are implementing business initiatives, primarily in our Bio/Pharm & Healthcare verticals, that will support sustained growth. As a result, for the quarter ended June 30, 2003, we realized a net loss before interest, taxes, depreciation and amortization (i.e. negative EBITDA) of $90,000, as compared to a net profit before such items (i.e. positive EBITDA) of $66,000 for the year ago period. Following is a reconciliation of net loss to EBITDA for the quarters ended June 30, 2003 and 2002:

The presentation of EBITDA permits investors to compare a peer group's core operations without regard to differences in capital costs, income tax status, non-operating expenses, or non-cash items. Presentation of the EBITDA should, therefore, provide useful information to investors in their evaluation of management's future efforts to streamline the core operations of the Company as well as invest for future growth.

Service Revenue Summary:

For the six months ended June 30, 2003, overall net revenue decreased $1.2 million, or 5%, to $24.9 million as compared to $26.1 million for the previous year period. As noted in the table above, revenue derived from contract and specialty staffing increased $0.7 million, or 4%, as an increase in revenues from our Datatek operations exceeded the decrease of $4.6 million, resulting from the sale of our Mountain division in December 2002. Permanent placement revenue decreased $1.9 million, or 31%, as a result of the continuing effect of hiring freezes and staff reductions implemented by our customers due to the recession in the economy. We continue to experience a change in our business mix as revenue derived from contract and specialty staffing comprised 83% of total revenue for the six months ended June 30, 2003, as compared to 77% of total revenue in the previous year period.

During the six months ended June 30, 2003, we continued the process of exiting the Telecommunications core industry vertical and increasing revenue from the Biological Technologies/Pharmacies and Healthcare core industry vertical. Following is a breakdown of the relative percentage contributions to our gross revenue for the six months ended June 30, 2003 of each of the three solutions within each of the three core verticals:

For the six months ended June 30, 2003, our total gross margin decreased by $1.7 million, or 18%, to $8.1 million as compared to $9.8 million in the previous year period. The decline in permanent placement revenues accounted for all of the absolute decrease in total gross margin. Overall gross margin, as a percentage of net service revenue, declined to 32%, as compared with 37% in the previous year period, primarily due to the change in business mix noted above. As a percentage of contract and specialty staffing, the gross margin derived therefrom for the six months ended June 30, 2003 was 19%, as compared to 18% in the previous year period. This was primarily a result of increased efforts to control our cost of services and to achieving higher than average margins with respect to the ordinarily somewhat lower margin contract and specialty staffing business.

Operating expenses amounted to $8.6 million for the six months ended June 30, 2003, a decrease of $2.0 million, or 19%, as compared to the previous year period. Included in operating expenses for the six months ended June 30, 2003 was $4.1 million of variable sales expenses, which were down $0.8 million, or 16%, as compared to the previous year period due primarily to the reduction in commissions associated with the decline in revenue from permanent placement. In addition, for the six months ended June 30, 2003, general and administrative expenses amounted to $4.0 million, a decline of $1.1 million, or 22%, as compared to the previous year period. Business initiatives implemented throughout 2002, including a review of our business processes, organizational structure and the level of permanent workforce, accounted for the decrease in general and administrative expenses.

For the six months ended June 30, 2003, net interest expense was $427,000, as compared to $532,000 in the previous year period. The decrease was due to the absence, in 2003, of forbearance fees being charged to the Company in 2002 by its previous lender. Depreciation expense amounted to $502,000 for the six months ended June 30, 2003, a decrease of $69,000, as compared to the previous year period.

For the six months ended June 30, 2003, as a result of an increase to our deferred tax valuation allowance, we reported no income tax benefit. As a result of the finalization of the 2001 Federal Income Tax Return and the associated 1996 through 2000 Amended Federal Income Tax Returns, the Company recorded an income tax benefit of $0.2 million for the six months ended June 30, 2002.

Overall, we reported a $1.0 million net loss for the six months ended June 30, 2003, as compared to a net loss of $1.2 million for the previous year period.

Our efforts in 2002 and 2003 to reduce full time employee headcount, close under performing offices, and cut general and administrative expenses have contributed to a significant reduction in our net loss. As a result, for the six months ended June 30, 2003, we realized a net loss before interest, taxes, depreciation and amortization (i.e. negative EBITDA) of $39,000, as compared to a net loss before such items (i.e. negative EBITDA) of $261,000 for the year ago period. Following is a reconciliation of net loss to EBITDA for the six months ended June 30, 2003 and 2002:

The presentation of EBITDA permits investors to compare a peer group's core operations without regard to differences in capital costs, income tax status, non-operating expenses, or non-cash items. Presentation of the EBITDA should, therefore, provide useful information to investors in their evaluation of management's future efforts to streamline the core operations of the Company as well as invest for future growth.

Liquidity and Capital Resources

For the six months ended June 30, 2003, cash used by operating activities was approximately $1.0 million, principally as a result of increases in our trade accounts receivable.

As discussed in Item 1 above, the Greenfield Facility is our sole source of liquidity, with our borrowing capacity thereunder at any given time depending on the amount of eligible trade accounts receivable. Management is continuing in its efforts to increase the gross margin, in spite of the relative growth in revenue of the lower margin contract and specialty staffing as a percentage of total revenues, and decrease operating expenses, i.e. to utilize this source of liquidity as efficiently as possible and survive in these difficult times for our industry. The risk remains, however, that management's efforts may not be sufficient to offset the impact of a temporary contraction in revenue or an unfavorable outcome of litigation and we might be unable to continue as a going concern.

We are, of course, continuing to evaluate various financing strategies, including an injection of equity capital which should strengthen our balance sheet and enlarge our borrowing capacity. We can provide no assurance that our efforts in this regard will be successful or that our cash flow and liquidity will improve.

Inflation has not had a significant effect on our operating results.

Statements in this Quarterly Report on Form 10-Q that are not historical facts, including, but not limited to, projections or expectations of future financial or economic performance of the Company, and statements of our plans and objectives for future operations are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended and involve a number of risks and uncertainties. No assurance can be given that actual results or events will not differ materially from those projected, estimated, assumed or anticipated in any such "forward-looking" statements. Important factors (the "Cautionary Disclosures") that could result in such differences include: general economic conditions in our markets, including inflation, recession, interest rates and other economic factors; the availability of qualified personnel; our ability to successfully integrate acquisitions or joint ventures with our operations (including the ability to successfully integrate businesses that may be diverse as to their type, geographic area or customer base); the level of competition experienced by us; our ability to implement our business strategies and to manage our growth; the level of development revenues and expenses; the level of litigation expenses; our ability to effectively implement an e-commerce strategy; and other factors that affect businesses generally. Subsequent written and oral "forward-looking" statements attributable to us, or persons acting on our behalf, are expressly qualified by the Cautionary Disclosures.

We are exposed to market risks from fluctuations in interest rates and the effects of those fluctuations on the earnings of our cash equivalent short-term investments, as well as interest expense on line of credit borrowings. Assuming that interest rates increase by 200 basis points (2%) above the interest rates at June 30, 2003, on an annualized basis, interest expense would increase by approximately $0.1 million based on the outstanding line of credit borrowings of $4.0 million at June 30, 2003.

Based on an evaluation of the Company's disclosure controls and procedures performed by the Company's management as of the end of the period covered by this report, the Company's Chief Executive Officer and Chief Financial Officer believe that the Company has appropriate disclosure controls and procedures to ensure that information required to be disclosed by the Company in its periodic reports is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities Exchange Commission.

Since the date of such evaluation, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

On June 3, 2003, the lawsuit against the Company by M. Ted Dillard, filed in October 2002 in Dallas County, Texas (in the 160^th District Court), reported in the Company's Quarterly Report on Form 10Q for the quarter ended September 30, 2002, was dismissed with prejudice. Other than the foregoing, and litigation previously reported (in which there have not been any material developments during the quarter ended June 30, 2003), the Company is not involved in any litigation which is not ordinary nature litigation incidental to our business.

The 2003 Annual Meeting of Shareholders of the Company was held on June 6, 2003. At the Annual Meeting, the following Directors were re-elected and continue to serve on the Board of Directors of the Company: J. Michael Moore, Samuel E. Hunter, Mark E. Cline, John M. Gilreath and W. Brown Glenn, Jr., with the results of the voting being as follows:

In addition, the issuance of warrants to purchase 2,700,000 shares of the Company's Common Stock to J. Michael Moore in connection with his guaranty of the Company's senior credit facility, submitted to a shareholder vote pursuant to the rules of the American Stock Exchange, was approved. Computershare Trust Company, the Company's transfer agent. collected and tabulated all votes cast, whether in person or by proxy, at the Annual Meeting. According to the official report of Computershare Trust Company the results of the vote were as follows:

On June 9, 2003, Kenneth E. Dopher was named Treasurer and Chief Financial Officer of the Company.. Mr. Dopher, age 43, a Certified Public Accountant, served as the Chief Financial Officer of Pursuant Technologies, Inc., an Atlanta-based software company that provides solutions to the staffing and employment industry, from January 2001 to June 2003. From September 1999 to January 2001, he served as Chief Financial Officer of InJesus.com, LLC and from January 1998 to May 1999, he served as the Chief Financial Officer of Headhunter.net, Inc. From 1990 to 1998, Mr. Dopher served in various finance and operations positions with The Walt Disney Company. Mr. Dopher holds a B.S. (magna cum laude) in Accounting from Indiana State University and an M.B.A. in Finance from Indiana University.

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