TALX CORP - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED MARCH 31, 2005

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 000-21465

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

MISSOURI 43-0988805
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1850 BORMAN COURT, ST. LOUIS, MO 63146
(Address of principal executive offices) (Zip Code)

(314) 214-7000
(Registrant's telephone number, Including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE

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

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

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

As of September 30, 2004, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $299.4 million. For
purpose of this calculation only, without determining whether the following are
affiliates of the registrant, the registrant has assumed that (i) its directors
and executive officers are affiliates and (ii) entities controlled by such
persons are affiliates.

As of May 19, 2005 there were 20,936,128 shares of the registrant's Common
Stock outstanding, net of treasury shares held by the Company.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the registrant's 2005 Annual
Meeting of Shareholders, which definitive proxy statement will be filed within
120 days of the end of the registrant's fiscal year, are incorporated by
reference into Part III of this Annual Report on Form 10-K.
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PART I

FORWARD-LOOKING STATEMENTS

This report contains certain statements regarding future results,
performance, expectations, or intentions that may be considered forward-looking
statements ("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. These statements relate to, among other
things, business trends and prospects, potential future profitability, revenue
growth and cash flows, including without limitation, forward-looking statements
under "Item 7 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations." All statements other than statements of historical facts
included in this Form 10-K are forward-looking statements. Although we believe
that the expectations reflected in such forward-looking statements are
reasonable, we can give no assurance that such expectations will prove to be
correct. Actual results could differ materially from those projected in the
forward-looking statements as a result of risks facing us. Such risks include,
but are not limited to:

(1) risks related to our ability to increase the size and range of
applications for The Work Number database and successfully market current
and future services and our dependence on third party providers to do so;

(2) the risk that our revenues from The Work Number may fluctuate in
response to changes in certain economic conditions such as interest rates
and employment trends;

(3) risks relating to the dependence of the market for The Work Number
on mortgage documentation requirements in the secondary market and the risk
that our revenues and profitability would be significantly harmed if those
requirements were relaxed or eliminated;

(4) risks associated with our ability to prevent breaches of
confidentiality or inappropriate use of data as we perform large-scale
processing of verifications;

(5) risks associated with our ability to maintain the accuracy,
privacy and confidentiality of our clients' employee data;

(6) risks associated with potential challenges regarding the
applicability of the Fair Credit Reporting Act or similar law;

(7) risks associated with changes in economic conditions or
unemployment compensation laws;

(8) the risk to our future growth due to our dependence on our ability
to effectively integrate acquired companies and capitalize on cross-selling
opportunities;

(9) risks related to the applicability of any new privacy legislation
or interpretation of existing laws;

(10) risks relating to the applicability of the SUTA Dumping
Prevention Act of 2004 to our tax planning services; and

(11) the risk of interruption of our computer network and telephone
operations, including potential slow-down or loss of business as potential
clients review our operations.

See "Item 1 -- Business -- Risk Factors" for a more detailed description of
many of these and other risk factors. You should read this Form 10-K completely
and with the understanding that our actual results may be materially different
from what we expect. We do not undertake any obligation to update these
forward-looking statements, even though our situation may change in the future.
We qualify all of our forward-looking statements by these cautionary statements.

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ITEM 1. BUSINESS

OVERVIEW

We are a leading provider of automated employment and income verification
and tax management services and a leader in providing payroll and human
resources business process outsourcing. We provide services that enable large
and mid-size corporations, including approximately two-thirds of the Fortune 500
companies, as well as government agencies, to outsource the performance of
business processes that would otherwise be performed by their own payroll or
human resources department. Our services use web access, interactive voice
response, fax, document imaging and other technologies to enable mortgage
lenders, pre-employment screeners, credit issuers, social service agencies and
other authorized users to obtain payroll and human resources information and
allow employees and their managers to review and modify information in payroll
and human resources management information systems on a self-service basis.
Further, we provide unemployment insurance claims processing, unemployment tax
planning and management services, and employment-related tax credit and
incentive services to a broad range of employers. Our focus is on eliminating
paper and manual steps from routine payroll and human resources-related
processes. We interact with various payroll systems and human resources
services, but are virtually independent of the solutions our clients select.

As used in this Form 10-K the terms "TALX," "we," "our," and "us" and other
similar terms refer to TALX Corporation, unless we specify otherwise.

We have obtained a trademark registration for the name TALX and a trademark
registration for The Work Number for Everyone, The Work Number, FasTime, UC
eXpress, W-2 eXpress, and Advanced HR Solutions with the United States Patent
and Trademark Office. In addition, TALXWare is our trademark, and ePayroll, I-9
eXpress, HireXpress and FasCast are our service marks. All other trade names,
trademarks and product names in this Form 10-K are the property of their
respective owners.

We are a Missouri corporation, with our principal executive offices located
at 1850 Borman Court, St. Louis, Missouri, 63146. Our telephone number is (314)
214-7000.

AVAILABLE INFORMATION

Our Internet website address is http://www.talx.com. We have made copies of
the following reports available free of charge through our Internet website, as
soon as reasonably practicable after they have been filed with or furnished to
the Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934: our annual report on Form 10-K; quarterly
reports on Form 10-Q; current reports on Form 8-K; and amendments to those
reports. Information on our website does not constitute a part of this Report.

RESTATEMENTS OF FINANCIAL STATEMENTS

In January 2004 and December 2002, we restated our financial statements for
some previous periods, as more fully discussed in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Restatements of Financial Statements", which is provided elsewhere
in this Report.

RECENT ACQUISITIONS

Pursuant to an asset purchase agreement dated March 22, 2004, effective
April 1, 2004, we purchased substantially all of the assets and assumed certain
of the liabilities of the unemployment compensation, employment verification and
applicant screening and hiring workflow services businesses of Sheakley-
Uniservice, Inc. and its wholly owned subsidiary, Sheakley Interactive Services,
LLC (collectively, the "Sheakley Businesses"). The acquired businesses provide
unemployment cost management services, to a broad customer base. This
unemployment cost management services business now operates through our
wholly-owned subsidiary, TALX Employer Services, LLC. The employment
verification services and applicant screening and hiring workflow services
businesses operate as a part of The Work Number Services. The purchase price was
approximately $40 million, including transaction costs, and was paid in cash.
Under
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the asset purchase agreement, Sheakley-Uniservice, Inc. and Sheakley Interactive
Services, LLC are required to indemnify us for certain pre-closing liabilities
and obligations of the business, subject to certain limitations. An escrow
account, maintained by a bank pursuant to the terms of an escrow agreement, was
also available until March 31, 2005 to satisfy the indemnification obligations
of Sheakley-Uniservice, Inc. and Sheakley Interactive Services, LLC under the
asset purchase agreement, subject to certain limitations described in the asset
purchase agreement. For such purposes, $1.0 million of the purchase price was
paid into the escrow account. As of March 31, 2005, we have made a claim against
the amount held in escrow, and the claim will be subject to arbitration.
Consequently, $1.0 million remained in the escrow account as of March 31, 2005.
In connection with the asset purchase agreement, the parties executed a
transition services agreement under which Sheakley-Uniservice, Inc. will provide
certain services to us for up to two years. The services are intended to provide
for the orderly transition of the acquired businesses and the employees of such
businesses from Sheakley-Uniservice, Inc. and Sheakley Interactive Services, LLC
to us.

On October 15, 2004, we closed on the acquisition of the stock of TBT
Enterprises, Incorporated and UI Advantage, Inc., headquartered in Gaithersburg,
Maryland, which we collectively refer to as "TBT Enterprises". On October 25,
2004, we closed on the acquisition of Net Profit, Inc., headquartered in
Greenville, South Carolina. The acquisitions were structured as stock purchases
for cash of approximately $19 million. Additionally, the TBT Enterprises and Net
Profit, Inc. acquisition agreements include provisions for potential earn-out
payments if certain future financial performance measures are achieved before
October 31, 2005 and October 31, 2006, respectively. An earn-out payment of $1.5
million has been agreed upon with the sellers of TBT Enterprises, to be paid in
October 2005. These acquisitions enhance our existing tax management services
offerings by allowing us to offer clients expanded services in connection with
processing of the federally reinstated work opportunity ("WOTC") and welfare to
work ("WTW") tax credits, as well as assisting clients in calculating certain
other federal and state tax credits which were not previously a part of our
service offerings.

Pursuant to an acquisition agreement dated April 20, 2005, we acquired
Jon-Jay Associates, Inc., which specializes in providing unemployment cost
management services as well as an employment verification service, for
approximately $24 million, including transaction costs, subject to certain
post-closing adjustments. Additionally, the acquisition agreement includes
provisions for potential earn-out payments if certain future financial
performance measures are achieved through the twelve months ending April 30,
2006 and April 30, 2007, respectively.

Pursuant to an asset purchase agreement dated April 26, 2005, we acquired
substantially all of the assets and assumed certain of the liabilities of Glick
& Glick Consultants, LLC, which specializes in employment-related tax credit and
incentive services, for approximately $5 million, including transaction costs,
subject to certain post-closing adjustments. The purchase prices were determined
based on arms'-length negotiations, and were paid in cash financed through our
2005 Loan Agreement as discussed in Note 8 to our consolidated financial
statements and in "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

SERVICES AND PRODUCTS

We provide services that enable large and mid-size corporations, as well as
government agencies, to outsource the performance of business processes that
would otherwise be performed by their own payroll or human resources
departments. Our services offer web access, interactive voice response, fax,
document imaging and other technologies to enable mortgage lenders,
pre-employment screeners, credit issuers, social service agencies and other
authorized users to obtain payroll and human resources management information
and to allow employees and their managers to review and modify information in
the payroll and human resources management information systems on a self-service
basis.

SEGMENTS

Our services and products fall within three business segments: The Work
Number services, tax management services and customer premises systems and
related maintenance and support. The Work

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Number services include our employment verification and services, W-2 eXpress,
ePayroll, FasTime, HireXpress, and I-9 eXpress; tax management services include
our employment tax consulting and claim processing operations, unemployment tax
planning services, and employment-related tax credit and incentive services; and
customer premises systems and maintenance and support relate to a business we
are phasing out. We discontinued the operation of our Human Resources and
Benefits Application Services business in the first fiscal quarter of fiscal
year 2004, retaining certain contracts to administer other human resources
services for three clients, which we expect will either terminate or be assigned
before the end of fiscal year 2006. Selected financial data regarding our
business segments for fiscal years 2003, 2004, and 2005 is set forth in Note 17
of Notes to Consolidated Financial Statements contained in "Item 8 -- Financial
Statements and Supplementary Data." For additional information, see "Item
7 -- Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."

THE WORK NUMBER SERVICES

Responding to inquiries to verify employment and income information,
printing and distributing pay stubs and annual W-2 forms, collecting
time-reporting data, updating employee personnel records, and screening job
applicants are burdensome and time-consuming tasks for employers and divert
resources from managing their businesses. The Work Number employment and income
verification service is designed to help employers save time and effort and
reduce expenses associated with many of the administrative tasks required to
support large workforces. Additionally, all services in The Work Number suite of
services provide secure web access for managers to obtain management reports,
approve certain transactions and exercise important control functions.

The Work Number. Lenders, pre-employment screeners, credit issuers, social
service agencies and other information verifiers often request organizations to
verify employment and income information that has been provided by employees or
former employees. For example, the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation, leading purchasers of residential
mortgages in the United States, usually require independent verification of
employment and income data for the past two calendar years and a current payroll
period in connection with mortgages that they will purchase. The Work Number is
an outsourced service that enables employers to direct the third-party verifiers
to our website or to a toll-free telephone number to confirm the employee's
employment status and income for the past three years. We generate substantially
all of The Work Number revenues from transaction-based fees charged to lenders,
pre-employment screeners, credit issuers, social service agencies and other
information verifiers for verification of income and employment information.

As of March 31, 2005, The Work Number database contained approximately
106.9 million employee records and had contracts to receive an additional 6.2
million records. The Work Number database is updated on an ongoing basis as
employers transmit data electronically directly to us each payroll period.
Employers contract to provide this data for specified periods, generally three
years.

W-2 eXpress. W-2 eXpress is a suite of services relating to the initial
distribution (either printed or electronic), reissue and correction of W-2 wage
and tax statement forms that we offer to existing clients and other large
employers. Using data provided by employers, we distribute original W-2 forms
(both electronically and in paper form through business alliances) to the
employees of our clients and provide an automated process to enable these
employees to request corrections to their W-2 forms and obtain additional copies
via the web, telephone or direct download into their tax preparation software.
Through our T4 eXpress service, we offer similar initial distribution and
reissue functionality for Canadian employees of our W-2 eXpress clients. This
suite of services allows complete employee self-service, without requiring
direct interaction with the employer's payroll staff.

For employers, the primary benefits of our W-2 eXpress services include:

- simplifying the task of generating thousands of W-2 statements within a
narrow time period each year;

- reducing staff and other resources that must be allocated to the
production and distribution of W-2 statements and the reissue of
corrected statements;

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- automating the process for collecting correction requests; and

- providing a mechanism for employees to completely bypass the paper W-2
process and receive their W-2's in a completely electronic manner.

The majority of W-2 eXpress clients are billed based upon either the number
of unique W-2s or the number of employees, generally pursuant to multi-year
contracts.

ePayroll. ePayroll (or Paperless Pay) is a suite of payroll self-service
applications that enables employees, via the web or by telephone, to receive pay
statement information, access current and historical payroll information, review
and change direct deposit account or paycard information, review and change W-4
information, update personal information, and enroll in selected paycard
services chosen by their employer. Employers that send us electronic
transmissions of their employees' pay stubs and direct deposit data can reduce
the amount of staff required to process routine employee payroll requests as
well as reduce the cost to distribute paper pay advices.

FasTime. FasTime services are integrated time capture and reporting
solutions that work from any phone or the web and are used by large employers
and the temporary staffing industry. For large employers, FasTime collects hours
worked and exception time codes providing a user-friendly online approval and
reporting for managers. FasTime is customized according to a company's business
rules and processes. For the temporary staffing industry, FasTime provides a
comprehensive, paperless system for time, expenses and availability, including
manager approvals and the reporting and management tools for branch offices.

HireXpress. The HireXpress service was added to our portfolio of services
through our acquisition of the Sheakley Businesses, as noted above. HireXpress
is an applicant screening and hiring workflow services business that is designed
to provide clients with a steady stream of qualified job candidates
electronically. Job candidates provide their responses to job requirements over
the web or telephone. Using HireXpress, employers can specify job requirements,
screen potential workers, schedule candidate interviews, capture candidate
responses, automate the hiring process work flow and maintain all required
documentation. We believe this service is particularly valuable to our clients
in high turnover industries.

I-9 eXpress. Our I-9 eXpress service was introduced in the fourth quarter
of fiscal year 2005 and is designed to help clients alleviate the difficulties
involved with complying with the Immigration Reform and Control Act of 1986,
which requires employers to complete an I-9 Employment Eligibility Verification
form for all new employees and maintain these forms for a minimum of three years
after the date of hire. Using this service, an employer can electronically
generate and store I-9 forms and generate reports to monitor compliance.

TAX MANAGEMENT SERVICES

We also provide tax management services under the names UC eXpress, TALX
Employer Services (through our acquisition of the Sheakley Businesses), and
Johnson and Associates (collectively referred to as "UC eXpress"). UC eXpress
offers a broad suite of services designed to reduce the cost of processing
unemployment claims by human resource departments and to better manage the tax
rate that employers are assessed for unemployment taxes. UC eXpress services
utilize document imaging, web access, fax and interactive voice response to
speed the processing of unemployment claims, with the goal of resisting
unmeritorious or illegitimate claims for unemployment compensation that have
been filed with state agencies by separated employees. These services are aimed
at relieving human resource departments of the administrative burden of managing
unemployment claims. Following an employee separation, UC eXpress services
respond on behalf of our client to an unemployment claim filed by the separated
employee. This includes reviewing employment records to preserve the clients'
rights as an employer. If an unemployment hearing is required, these UC eXpress
services include client conferences with our hearing consultants/attorneys and,
upon client request, attendance at the hearing with the employer's
representative. In addition, our UC eXpress services field-based account
management team and hearing consultants bring state-specific unemployment tax
knowledge to the client.

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UC eXpress also offers comprehensive employer tax services that encompass
five service areas:

- unemployment tax services;

- employment tax research and recovery;

- unemployment tax planning;

- tax registrations; and

- employment tax consulting (withholding and unemployment.)

Clients who choose UC eXpress for tax services collaborate with a UC
eXpress tax analyst to monitor the clients' unemployment tax accounts, verify
tax rates and contribution reports and identify voluntary contribution
opportunities.

Following the acquisition of Johnson and Associates, which was effective
July 1, 2003, our tax management services offerings were expanded to include
processing of the work opportunity ("WOTC") and welfare to work ("WtW") tax
credits, which are designed to provide incentives to employers for hiring
individuals who have traditionally faced difficulties in securing employment.
Our services include assisting employers with integrating WOTC/WtW processing
into the current hiring process as well as processing all necessary forms to
identify applicants and employees who are potential qualifiers for hiring tax
credits. Effective in the fiscal 2005 third quarter, through the acquisition of
Net Profit, Inc. and TBT Enterprises Inc., we have expanded our existing tax
services offerings, including the expansion of our capabilities to process
WOTC/WtW credits, as well as our ability to assist clients in identifying and
calculating certain other federal and state tax credits which were not
previously a part of our service offerings, such as enterprise zone credits and
training credits.

MAINTENANCE AND SUPPORT SERVICES RELATED TO OUR FORMER CUSTOMER PREMISES
SYSTEMS BUSINESS

We previously offered our products and services exclusively through
licensed software specifically developed for each customer, and installed these
systems at the customer's site. In 2000 we discontinued sales to new customers.
Today, we provide system enhancements to existing customers and customer support
7-days per week, 24-hours per day, through a toll-free hotline, email and our
website. We sold these systems under licenses and generate additional revenues
by providing ongoing maintenance and support. During 2003, we notified our
maintenance clients of our intention to discontinue all support services
effective June 2005. In the second quarter of 2005, as a result of requests from
a number of clients, we agreed to extend these support services until December
2005. In the first quarter of fiscal 2006, we agreed to extend these support
services until March 2006.

SALES AND MARKETING

We employ a direct sales force and also utilize strategic marketing
alliances. We use our direct sales force and strategic alliances to develop
relationships with large employers, typically those having over 3,500 employees.
In addition, we use our strategic alliances to help us to identify potential
clients among small and mid-sized employers, typically those with less than
3,500 employees. We also utilize a direct sales force to market the use of The
Work Number database to verifiers such as lenders and credit issuers.

DIRECT SALES FORCE

Our sales, service and marketing effort relies on a team approach
consisting of approximately 200 professionals in 33 U.S. cities, including
regional sales vice presidents, regional sales directors, regional client
relationship directors, regional sales managers, business development
representatives, client relationship managers, account managers, product
managers, product consultants and marketing personnel. Our business development
representatives qualify companies as viable potential clients and establish
appointments for our regional sales managers. Our regional sales directors and
regional sales managers are responsible for presenting our service offerings to
prospective clients and negotiating for the sale of our services. Our product
managers oversee product direction and provide sales assistance. Our regional
client relationship directors, client
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relationship managers and account managers service existing clients. Product
consultants provide technical assistance to regional sales managers and
prospective clients during the sales process. Our marketing personnel develop
market strategies and support the sales force at all levels.

Additionally we have a team dedicated to the management of our alliance
relationships. This team includes alliance sales managers, alliance account
managers and integration project managers. The alliance sales managers are
responsible for generating sales through the development and management of
existing alliance relationships. The alliance account managers are responsible
for servicing our alliance relationships, and integration managers are
responsible for developing technical integration with our alliance
relationships.

Finally, we have a team dedicated to marketing the use of The Work Number
database to verifiers such as lenders and credit issuers. This team identifies
potential new verifiers and uses of the database, as well as ensures that
current verifiers are utilizing the database to the fullest extent.

STRATEGIC MARKETING ALLIANCES

We have established alliances with leading providers of related payroll and
human resources outsourcing services with the goal of building the database of
records for The Work Number and extending UC eXpress services relating to
employees of both large and mid-sized employers. These alliances include:

- Hewitt Associates LLC: Hewitt Associates is a global management
consulting firm specializing in human resource services that has agreed
to make The Work Number available to its clients. For example, The Work
Number is directly accessible by employees of Hewitt's clients through an
employee portal that incorporates a seamless link to our website for The
Work Number. In exchange, we have agreed, among other things, to share
revenue with Hewitt resulting from its referrals.

- Ceridian Corporation: Ceridian is a national human resource outsourcing
company that has agreed to make The Work Number and selected tax
management services available to its clients in exchange for a share of
the revenue generated by such activities.

These and other strategic marketing alliances, such as ExcellerateHRO (a
joint venture of EDS and Towers Perrin), Convergys Corporation, ACS, Checkpoint
HR, Comdata and Money Network, are generally governed by non-exclusive
contractual arrangements that remain in effect for specified periods. The
success of these alliances generally will depend on the interest and commitment
of these companies in promoting and coordinating product development and
marketing efforts with us, which is entirely at their discretion. Some of these
companies maintain similar relationships with some of our competitors and
compete directly with us in certain applications.

COMPETITION

We believe the principal competitive factors in our markets include:

- service and product quality, reliability and performance;

- breadth of service offerings;

- functionality and ease of use;

- company reputation for integrity and confidentiality;

- company financial strength; and

- cost of the service or product.

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We have a number of competitors for our various services. Below is a
summary of the more significant competitors:

We believe that we compete favorably in the key competitive factors that
affect our markets for The Work Number services and our tax management services.
However, our markets are still evolving, and we may not be able to compete
successfully against current or future competitors. Many of our existing and
potential competitors have significantly greater financial, marketing, technical
and other resources than we do. In addition, many of our competitors have
well-established relationships with our current and potential clients and
extensive knowledge of our markets. It is possible that new competitors or
alliances among competitors will emerge and rapidly acquire market share.
Moreover, our competitors may consolidate with each other, or with other
companies, giving them even greater capabilities with which to compete against
us.

TECHNOLOGY AND PRODUCT DEVELOPMENT

Our business is based on databases we construct and applications we build
or acquire to access and process data. Our tax management services are run on
industry standard databases and internally developed applications. Historically,
our other services have been run on industry standard databases, and we have
used a combination of Microsoft technologies and a proprietary integrated visual
development environment and software system known as TALXWare to build our
applications. TALXWare utilizes Microsoft operating systems and is designed to
support the creation and management of self-service solutions. We also license
and integrate complementary technologies into our products including speech
recognition, text-to-speech, facsimile, and terminal emulation. We license these
technologies from third-party suppliers pursuant to non-exclusive license or
resale agreements or purchase the technologies under open market arrangements
and then integrate them into our products.

We have directed our development efforts toward enhancing and developing
new offerings for The Work Number services and tax management services. The most
recent enhancements include extending the features and capabilities of The Work
Number database, through new verification types; our W-2 eXpress, ePayroll
paystub/direct deposit services and I-9 eXpress service; the addition of new
integrated and batch interfaces and the expansion of our social services data.
Additionally, we have focused our efforts on enhancing and expanding our UC
eXpress in-house claims processing system.

We incurred total product development costs of $4.8 million, $6.3 million
and $8.1 million in fiscal years 2003, 2004 and 2005, respectively. As of March
31, 2005, our total product development staff consisted of approximately 50
full-time employees. We believe that significant investments in product
development are required to remain competitive.

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PROPRIETARY RIGHTS

Our success and ability to compete is dependent in part upon our ability to
protect and maintain our proprietary rights to our intellectual property. We
regard our trademarks and our other intellectual property as having significant
value and as being important factors in the development and marketing of our
products.

We currently rely on a combination of trademark, trade secret and copyright
laws and restrictions on disclosure to establish and protect our intellectual
property. We have obtained a trademark registration for the name TALX and a
trademark registration for The Work Number for Everyone, The Work Number,
FasTime, UC eXpress, W-2 eXpress, and Advanced HR Solutions with the United
States Patent and Trademark Office. In addition, TALXWare is our trademark, and
ePayroll, I-9 eXpress, HireXpress and FasCast are our service marks.

We generally enter into confidentiality agreements with our officers,
employees and consultants. We also generally limit access to and distribution of
our source code, access to our databases, and the disclosure and use of other
proprietary information. However, these measures provide only limited protection
of our intellectual property rights. In addition, we may not have signed
agreements containing adequate protective provisions in every case, and the
contractual provisions that are in place may not provide us with adequate
protection in all circumstances.

Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy or otherwise obtain or use technology that we regard as
proprietary. We cannot assure you that the steps taken by us to protect our
proprietary rights will be adequate to prevent misappropriation of our
technology or that our competitors will not independently develop techniques
that are similar or superior to our technology. Any failure to adequately
protect our proprietary rights could result in our competitors offering similar
products, potentially resulting in loss of competitive advantage and decreased
revenues. In addition, litigation may be necessary to enforce our intellectual
property rights or to determine the validity and scope of the proprietary rights
of others. Litigation of this type could result in substantial costs and
diversion of resources and could significantly harm our business.

Interactive voice response technology is characterized by the existence of
a large number of patents and frequent litigation based on allegations of patent
infringement. Third-parties have asserted in the past and, from time to time,
may assert in the future, patent, copyright, trademark and other intellectual
property rights to technologies that are important to our business. In one case,
we entered into a license agreement to use various interactive voice response
and computer telephony integration technologies under which we made an initial
payment and will pay future royalties. Further, we have not conducted a search
to determine whether the technology included in our products infringes or
misappropriates intellectual property held by other third-parties. In addition,
because patent applications in the United States are not publicly disclosed
until the patent is issued, applications may have been filed which could relate
to our products. Any claims asserting that our systems infringe or may infringe
proprietary rights of third-parties, if determined adversely to us, could
significantly harm our business.

CLIENTS

As of March 31, 2005, The Work Number database contained employee records
from over 1,000 clients, representing approximately 106.9 million present and
former employees. Additionally, as of that date, we had contracts with new
clients to provide 6.2 million records of present and former employees in
backlog. These clients typically employ over 3,500 employees. Our clientele
includes approximately two-thirds of the Fortune 500 companies and a number of
federal, state and local government agencies. Our clients operate in a wide
variety of industries, including financial services, telecommunications
services, retail, consumer products, health care, temporary services and
government. As of March 31, 2005, our tax management business had over 6,500
clients of various sizes and operated in a broad range of industries. No client
accounted for more than 10% of total revenues in any of the fiscal years 2003,
2004 or 2005.

10

EMPLOYEES

As of March 31, 2005, we employed approximately 1,337 full-time and 46
part-time employees.

We have never had a work stoppage, and no employees are represented by a
labor organization. We consider our employee relations to be good.

RISK FACTORS

You should carefully consider the following factors and other information
in this Form 10-K in evaluating our company:

OUR FUTURE GROWTH IS SUBSTANTIALLY DEPENDENT ON OUR ABILITY TO INCREASE THE
SIZE AND RANGE OF APPLICATIONS FOR THE WORK NUMBER DATABASE.

In order to successfully grow our business, we will have to make The Work
Number and related business process outsourcing services increasingly attractive
to a greater number of large organizations, their employees and verifiers. To
achieve this goal, we believe that we will need to increase the number of
employee records contained in The Work Number database, the amount and type of
information contained in those records and the number of services that make use
of those records. Our strategy for increasing the size of The Work Number
database is based in part on strategic alliances with several providers of
payroll and human resources outsourcing services. Our success will depend on the
interest and commitment of these providers, which is entirely at their
discretion. Some of these companies compete with us in certain service areas.
Our strategy is also based in part on strategic acquisitions of businesses with
databases of employee information. If we are unable to attract and retain a
sufficient number of employer clients, if we cannot persuade them to include a
greater amount of information in the employee records they provide us, or if we
fail to develop additional applications to use this information, we may not
achieve our growth objectives.

OUR REVENUES FROM THE WORK NUMBER MAY FLUCTUATE IN RESPONSE TO CERTAIN
ECONOMIC CONDITIONS SUCH AS INTEREST RATES AND EMPLOYMENT TRENDS.

A significant portion of our revenues from The Work Number depends on
residential mortgage-related and employment-related activity. We charge a fee
for each request from lenders, pre-employment screeners, credit issuers, social
services agencies, and other verifiers to verify employment and income
information. Therefore, a decrease in activity within either of these segments
would reduce our overall number of transactions per record in the database. This
reduction in transactions, whether due to increases in interest rates or
otherwise, could cause our revenues and profitability to be harmed. As an
example, during a portion of fiscal year 2004, revenues for The Work Number
services were adversely affected by a slowdown in the refinancing segment of the
mortgage loan market.

THE MARKET FOR THE WORK NUMBER DEPENDS IN PART ON THE REQUIREMENTS ESTABLISHED
BY PURCHASERS IN THE SECONDARY MORTGAGE MARKET, AND OUR REVENUES AND
PROFITABILITY WOULD BE SIGNIFICANTLY HARMED IF THESE REQUIREMENTS WERE RELAXED
OR ELIMINATED.

We believe that residential mortgage lenders are among the most active
users of The Work Number. They utilize our services to verify employment, income
and related information. The demand for this verification is driven in part by
the requirements of the Federal National Mortgage Association, which is also
known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, which is
also known as Freddie Mac, the leading purchasers of residential mortgages in
the United States. These agencies currently require specific information,
including independent verification of employment and income data for the past
two calendar years and a current payroll period in connection with certain
mortgages they purchase. Accordingly, most lenders seek this information from
mortgage applicants. If Fannie Mae or Freddie Mac were to reduce the requirement
for employment and income data or eliminate the requirement for independent
verification thereof, our revenues and profitability would be significantly
harmed.

11

AS WE PERFORM LARGE-SCALE PROCESSING OF VERIFICATIONS, THERE IS AN INCREASED
RISK OF BREACH OF CONFIDENTIALITY OR INAPPROPRIATE USE OF DATA, WHICH MAY
RESULT IN DAMAGE CLAIMS AND LOSS OF CUSTOMERS.

As we seek to increase the use of The Work Number database by verifiers
with frequent need of verification, we plan to use new methods of verification.
These verifiers may be large mortgage lenders, pre-employment screeners, credit
issuers, social service agencies, or other volume verifiers. These volume
verifiers may obtain verifications in large volume or "batch" transactions using
different means and requiring less proof of authorization than smaller
verifiers. We expect that these volume verifiers will enter into contracts by
which they agree that they will not use the income verification service unless
they have been authorized by the employee to do so, or have legal authority to
obtain the information. Many of the industries that utilize The Work Number for
large scale processing of verifications have high turnover which may lead to the
verifier failing to terminate access privileges to The Work Number in a timely
manner. We have the ability to conduct regular audits of these volume verifiers
to ensure compliance with documentation requirements. However, there is a risk
that the verifier may not have the requisite authority, and that there may be
claims for breach of privacy or confidentiality against us, claims for damages
by employees and employers and resulting loss of employer relationships, which
could significantly harm our results of operations.

IF WE ARE UNABLE TO MAINTAIN THE ACCURACY, PRIVACY AND CONFIDENTIALITY OF
EMPLOYEE INFORMATION IN THE WORK NUMBER AND OUR OTHER DATABASES, WE MAY FACE
SIGNIFICANT CLAIMS AND OUR REPUTATION COULD BE HARMED.

The Work Number services depend on the accuracy of highly confidential
employment and income history and other information which employers provide to
us and which we convert for use in The Work Number and our other services.
Although we have a number of protective measures in place, any inaccuracies in
such information -- whether in the recording of such information, the
unauthorized access to information, or otherwise -- or our inability to keep
such information confidential, may give rise to claims against us and adversely
affect market acceptance of The Work Number and our other services. Our
financial condition, results of operations and reputation may be significantly
harmed if any asserted claims were ultimately decided against us.

IF A COURT OR REGULATOR CONCLUDES THAT THE FAIR CREDIT REPORTING ACT OR
SIMILAR LAW APPLIES TO THE WORK NUMBER SERVICES, OUR BUSINESS AND
PROFITABILITY COULD BE SIGNIFICANTLY HARMED.

The Fair Credit Reporting Act, which we refer to as the FCRA, applies to
"consumer reporting agencies" that engage in the practice of "assembling or
evaluating" certain information relating to consumers. While we have
historically taken the position that the FCRA does not apply to The Work Number
services, the statutory language is subject to varying interpretation, and we
are not aware of controlling legal authority to support our position. Recent
public concerns relating to, among other things, data integrity, privacy and
identity theft issues may increase the risk of action by consumers through
litigation or by the Federal Trade Commission, or the "FTC", or state regulatory
authority, which enforce the FCRA or similar laws. If a court, the FTC, or a
state regulatory authority were to determine that the FCRA or other similar law
does apply, we could be subject to claims for substantial damages, penalties and
attorneys' fees and may experience negative publicity and reputational harm.
Additionally, compliance with the FCRA would likely result in increased
operational costs, divert resources from other business objectives, and result
in some changes in the manner in which we deliver The Work Number services. For
example, the FCRA requires that a consumer reporting agency identify the user
and determine that there be a "permissible purpose," as defined by the FCRA,
before disclosing a consumer report and furnish certain notices and information
in writing to consumers as consumer reports are used. We may have some
difficulty complying with certain provisions of the FCRA for certain types of
transactions; The Work Number services are designed to operate via the web and
interactive voice response, instead of paper. Due to the complexity of
requirements and pending or possible future regulation, we cannot assure you
that we would be successful in complying with the FCRA or similar law in all
aspects of our operations. As a result, while it is difficult to estimate the
ultimate impact on us if a court or regulator concludes that the FCRA or similar
law applies to us, our business, operations, results of operations and financial
condition could be significantly harmed.

12

CHANGES IN ECONOMIC CONDITIONS OR CHANGES TO UNEMPLOYMENT COMPENSATION LAWS
COULD LIMIT UNEMPLOYMENT COMPENSATION CLAIMS, CAUSING EMPLOYERS TO QUESTION
THE VALUE OF UNEMPLOYMENT COMPENSATION MANAGEMENT AND LIMITING OPPORTUNITIES
FOR TAX PLANNING.

A difficult economic environment and consequent staff reductions could
result in an increase in unemployment compensation claims. Conversely, as
economic conditions improve, and claims decrease, employers may question the
value of our unemployment compensation management and unemployment compensation
tax planning services. As a result of the difficult economic environment in
recent years, states with significant budget challenges may take legislative or
regulatory steps to reduce unemployment benefits or to close tax-planning
opportunities, which could reduce the opportunities for service to employers. In
such situations, our revenues could be harmed. For example, as a result of
uncertain economic conditions, we experienced lower revenue levels in our
unemployment cost management services business during fiscal year 2004. The UC
eXpress revenue stream is characterized by annual retainers that provide a
revenue base with upside potential through contingency billings for tax
consulting or for additional billings if claims processed, or if the performance
measures, exceed contractually set levels. For example, during fiscal year 2004,
uncertain economic conditions contributed to a reduction in activity in our
unemployment tax consulting business and current claims activity was less than
expected. If new statutes or regulations were adopted that restricted our
business or the ability of others to provide us with payroll and human resources
information, or existing statutes or regulations were deemed to apply to us or
such third parties, we may be required to change our activities and revise or
eliminate our services, which could significantly harm our revenues and
operations.

OUR FUTURE PERFORMANCE WILL BE DEPENDENT ON SUCCESSFUL INTEGRATION OF
ACQUISITIONS.

We expect a portion of our growth to come from business acquisitions which
we recently consummated or which we may consummate in the future. Such
acquisitions involve certain operational, legal and financial risks. Operational
risks include the possibility that an acquisition does not ultimately provide
the benefits originally anticipated by our management, while we continue to
incur operating expenses to provide the services formerly provided by the
acquired company. Legal risks involve contract and regulatory issues. For
example, some employers may not consent to the transfer of ownership of their
contracts by which the services are provided, and some states' unemployment
compensation commissions may require changes to powers of attorney by which the
employer authorizes processing of claims. In the event of any loss of employer-
customers or our inability to appear before state unemployment commissions, our
business and results of operations may be materially adversely affected.
Financial risks involve the incurrence of indebtedness as a result of the
acquisitions and the consequent need to service that indebtedness. In addition,
in the event we were to issue stock in connection with any acquisitions, we
would dilute the voting power and could dilute the economic interests of
existing shareholders. In carrying out our acquisition strategy, we attempt to
minimize the risk of unexpected liabilities and contingencies associated with
acquired businesses through planning, investigation and negotiation, but there
can be no assurance that we will be successful in identifying attractive
acquisition candidates or completing additional acquisitions on favorable terms.

PRIVACY LEGISLATION OR INTERPRETATIONS OF EXISTING LAWS COULD RESTRICT OUR
BUSINESS.

Personal privacy has become a significant issue in the United States. Some
commentators, privacy advocates and government bodies have recommended
limitations on, or taken actions to limit, the use of personal information by
those collecting this information. For example, in 1999, Congress enacted the
Gramm-Leach-Bliley Act, which contains provisions protecting the privacy of
consumer non-public personal information collected by financial institutions.
Additionally, federal privacy regulations relating to the use and disclosure of
individually identifiable health information were recently issued by the
Department of Health and Human Services pursuant to the Health Insurance
Portability and Accountability Act of 1996, or "HIPAA". Additional regulations
under HIPAA became effective April 15, 2005. These privacy regulations could
impose additional costs and could limit our use and disclosure of such
information. Some states have also enacted consumer and health information
privacy protection laws.

13

If new statutes or regulations were adopted that restricted our business,
or existing statutes or regulations were deemed to apply to us, we may be
required to change our activities and revise or eliminate our services, which
could significantly harm our revenues and operations.

CHANGES IN TAX LAWS COULD ADVERSELY IMPACT OUR BUSINESS AND RESULTS OF
OPERATIONS.

Certain of our revenues and profits from continuing operations were derived
from our tax services businesses. At any time, the tax laws or the
administrative interpretations of those laws may be amended. Any of those new
laws or interpretations could adversely affect us. For example, on October 22,
2004, the President signed the "American Jobs Creation Act of 2004." While we do
not believe this Act contains any provisions that are likely to have an adverse
effect on our business, we are currently evaluating its impact. On October 4,
2004, the President signed the "Working Families Tax Relief Act of 2004," which
extended the provisions of the Work Opportunity Tax Credit and the Welfare to
Work Tax Credit available to employers through December 31, 2005, after which
date, without further Congressional action, these programs would again lapse and
no longer be available to our clients. This law additionally made the extension
retroactive to January 1, 2004, allowing employers with qualified employees who
were hired during the hiatus period that followed the former expiration of the
programs on December 31, 2003 to access these tax credits for 2004.

Our tax credit and incentive services business assists employers in
identifying employment-related, location-based and other tax incentive programs
available to them under both federal and state tax legislation. Although these
programs have been historically renewed retroactively by Congress following
their lapsing in accordance with their terms, Congress may not similarly renew
such programs in the future. Moreover, if programs lapse, any future renewals
may not be retroactive, which means that the value of such programs to our
clients could be reduced to such an extent that they no longer desire our tax
credit and incentive services. Any non-renewal of these tax credit programs, the
renewal of such programs without retroactive effect, or other adverse change in
tax legislation could adversely affect our business and results of operations.

IF THE SUTA DUMPING PREVENTION ACT OF 2004 APPLIES TO OUR TAX PLANNING
SERVICES, OUR BUSINESS AND REVENUES COULD BE HARMED.

On August 9, 2004 the President signed the "SUTA Dumping Prevention Act of
2004." In the past, some employers found ways to manipulate state experience
rating systems so that these employers paid lower state employment compensation
taxes than their unemployment experience would otherwise allow. This practice is
referred to as "SUTA dumping." "SUTA" refers to state unemployment tax acts, but
has also been referred to as "state unemployment tax avoidance." Most frequently
these avoidance tactics involved mergers, acquisitions or corporate
restructurings, the legality of which depended upon state laws. The SUTA Dumping
Prevention Act of 2004 established a nationwide minimum standard to curb SUTA
dumping. The law also established penalties for employers and their advisors who
knowingly violate those state law provisions.

Our unemployment cost management services include advising clients as to
unemployment compensation taxes. We fully support the measures enacted in the
SUTA dumping legislation, and we believe the advice we have given since the
enactment of this legislation does not include advice to clients to take any
action which would be prohibited under the legislation. However, there can be no
assurance that we have not and will not provide advice to clients or that our
clients have not taken or will not take action which runs afoul of the SUTA
Dumping Prevention Act of 2004. We could be subject to "meaningful civil and
criminal penalties," as the statute provides, for violations of the law. We
could also be subject to negative publicity, harm to our reputation, and
strained relationships with state agencies which are important to our business
if we were accused of advising clients to take actions in violation of the SUTA
dumping guidelines, or if clients took such actions at a time when we were
providing advice on unemployment compensation taxes. The new law has not been
interpreted or applied, and, as a consequence, it is difficult to predict the
impact of the new law on our tax planning services.

14

INTERRUPTIONS TO OUR COMPUTER NETWORK OR TELEPHONE OPERATIONS COULD
SIGNIFICANTLY HARM OUR REVENUES AND INDUSTRY REPUTATION.

Significant portions of our operations depend on our ability to protect our
computer equipment and the information stored in our data processing centers
against damage from fire, power loss, telecommunications failures, unauthorized
intrusion and other events. We have data processing centers located in St.
Louis, Missouri; Columbus, Ohio; Cleveland, Ohio; and Plano, Texas, which areas
have historically been vulnerable to natural disasters and other risks, such as
floods, earthquakes and tornadoes. We back up software and related data files
regularly and store the back-up files off-site at a nearby secure facility. A
portion of the data is also replicated to an off-site storage area network for
high availability. We cannot assure you that these measures will eliminate the
risk of extended interruption of our operations. We also rely on local and long-
distance telephone companies to provide dial-up access, Web and corporate
intranet access to our services. We have not established an alternative disaster
recovery facility, which would serve to protect us from losses of employee
record information due to damage to our data storage facilities. Any damage or
failure that interrupts our operations or destroys some or all of our database
of employee records could have a material adverse effect on our revenues,
profitability and industry reputation.

OUR QUARTERLY AND ANNUAL OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, WHICH
COULD CAUSE OUR STOCK PRICE TO DECLINE SIGNIFICANTLY.

Our revenues, margins and results from operations have fluctuated in the
past, and may continue to fluctuate in the future due to a number of factors.

For The Work Number, these factors include residential mortgage activity
and interest rate levels. Revenues generated from our W-2 eXpress service are
affected by seasonality, as revenues are primarily earned in our fourth fiscal
quarter. The non-renewal of certain tax credit programs, such as WOTC or WtW,
the renewal of such programs without retroactive effect, or other adverse
changes in tax legislation would cause fluctuations in our tax credit and
incentive services business. For all of our service offerings, other factors
that can cause our operating results to fluctuate include:

- new product introductions or announcements by us or our competitors;

- market acceptance of new services;

- pricing pressure;

- the hiring and training of additional staff;

- the length of the sales cycle; and

- general economic conditions.

We cannot assure you that we will be able to sustain our level of total
revenue or our historical rate of revenue growth on a quarterly or annual basis.
It is likely that, in some future quarters, our operating results will fall
below our targets and the expectations of stock market analysts and investors.
In such event, the price of our common stock could decline significantly.

IF WE ARE UNABLE TO SUCCESSFULLY INTRODUCE NEW BUSINESS PROCESS OUTSOURCING
SERVICES AND ENHANCED FUNCTIONALITY TO KEEP PACE WITH RAPID TECHNOLOGICAL
CHANGES THAT CHARACTERIZE OUR MARKETS, OUR RESULTS OF OPERATIONS WOULD BE
SIGNIFICANTLY HARMED.

The business process outsourcing industry is characterized by rapidly
changing technology, and our future success will depend upon our ability to keep
pace with technological developments. In particular, the market for self-service
applications through the Web and corporate intranets using browser software is
rapidly evolving.

To remain competitive, we must continually change and improve our services
in response to changes in operating systems, application software, computer and
telephony hardware, communications, database and networking systems, programming
tools and computer language technology. Additionally, we must also
15

introduce new business process outsourcing services and add functionality to
existing services in response to changing market conditions and client demand.

The development of new, technologically advanced services is a complex and
uncertain process requiring high levels of innovation and highly skilled
engineering and development personnel, as well as the accurate anticipation of
technology and market trends.

If we are unable, for technical or other reasons, to develop and market new
business process outsourcing services or enhancements to existing services in a
timely and cost-effective manner, or if new business process outsourcing
services do not achieve market acceptance, we could lose revenues and our
competitive position could suffer.

WE DEPEND ON THIRD-PARTY SOFTWARE AND HARDWARE, WHICH EXPOSES US TO DISRUPTION
IF THOSE PRODUCTS ARE NO LONGER SUPPORTED OR DEVELOP DEFECTS.

Our services involve integration with both operating systems and products
developed by others. If any third-party software or hardware, such as Microsoft
Windows server products, Microsoft development tools, Oracle database software,
Sun Solaris, Informix database software, Intel Media processing hardware or
Sybase Power Builder development tools, become unavailable for any reason, fail
to integrate with our products or fail to be supported by their respective
vendors or to operate properly, we would have to redesign our products. We
cannot assure you that we could accomplish any redesign in a cost-effective or
timely manner. Further, if third-parties release new versions of these systems
or products before we develop products compatible with such new releases, demand
for our services and products might decline, thereby harming our revenues and
profitability.

We believe that if any supplier agreement expires or is canceled or
otherwise terminated, or if a third-party supplier refuses to sell to us, we
could locate any number of different suppliers. However, it would require a
significant amount of time to integrate the relevant technology from the new
supplier, which would result in a significant delay in our ability to offer the
particular enhancement. We could also experience difficulties integrating the
new supplier's technology with our services. We cannot assure you we could
accomplish any such integration in a cost-effective manner. Significant delays
in the offering of service enhancements due to integration of technology from
new suppliers could significantly harm our revenues and profitability.

OUR SERVICES MAY CONTAIN DEFECTS OR LACK ADEQUATE SECURITY WHICH MAY CAUSE US
TO INCUR SIGNIFICANT COSTS, DIVERT OUR ATTENTION FROM PRODUCT DEVELOPMENT
EFFORTS AND RESULT IN A LOSS OF CUSTOMERS.

As a result of their complexity, business process outsourcing services and
hardware and software products may contain undetected errors or failures when
first introduced or as new versions are released. We cannot assure you that,
despite testing by us and our clients, errors will not occur in services and
systems after implementation. The occurrence of such errors could result in
potential security issues or loss or delay in market acceptance of our services,
which could significantly harm our revenues and our reputation.

Web or other users could access without authorization or otherwise disrupt
our Web and corporate intranet services. Such unauthorized access and other
disruptions could jeopardize the security of information stored in and
transmitted through the computer systems of our clients, which could result in
significant liability to us, could cause the loss of existing clients and could
discourage potential new clients.

THE LOSS OF KEY MANAGEMENT WOULD ADVERSELY AFFECT OUR BUSINESS.

Our success depends in large part upon the retention of key management,
especially William W. Canfield, the Chairman of our Board of Directors and our
President and Chief Executive Officer, who has served in that capacity for more
than 15 years. We would likely undergo a difficult transition period if we were
to lose the services of our key management, including Mr. Canfield, which would
materially and adversely affect our business and prospects.

16

BECAUSE OF INTENSE COMPETITION FOR TRAINED PERSONNEL, WE MAY NOT BE ABLE TO
RECRUIT OR RETAIN NECESSARY PERSONNEL ON A COST-EFFECTIVE BASIS.

Our success depends in large part upon our ability to identify, hire,
retain and motivate highly-skilled employees. Competition for highly-skilled
employees in our industry is intense. In addition, employees may leave our
company and subsequently compete against us. Our failure to attract and retain
these qualified employees could significantly harm our ability to develop new
services and maintain customer relationships.

Moreover, companies in our industry whose employees accept positions with
competitors frequently claim that those competitors have engaged in unfair
hiring practices. We may be subject to such claims as we seek to retain or hire
qualified personnel, some of whom may currently be working for our competitors.
Some of these claims may result in material litigation. We could incur
substantial costs in defending ourselves against these claims, regardless of
their merits. Such claims could also discourage potential employees who
currently work for our competitors from joining us.

CLAIMS THAT WE INFRINGE THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS COULD RESULT
IN SIGNIFICANT EXPENSES OR RESTRICTIONS ON OUR ABILITY TO SELL OUR SERVICES.

Other parties have asserted in the past, and may assert in the future,
patent, copyright, trademark and other intellectual property rights to
technologies that are important to our business. For example, we have entered
into a license to use various interactive voice response and computer telephony
technologies that required us to make an initial payment and to pay future
royalties. Further, we have not conducted a search to determine whether the
technology we have in our services infringes or misappropriates intellectual
property held by other third-parties. We cannot provide assurance that others
will not claim that we are infringing their intellectual property rights or that
we do not in fact infringe those intellectual property rights.

Any claims asserting that our services infringe or may infringe proprietary
rights of third-parties, if determined adversely to us, could significantly harm
our results of operations. Any claims, with or without merit, could:

- be time-consuming;

- result in costly litigation;

- divert the efforts of our technical and management personnel;

- require us to develop alternative technology, thereby resulting in delays
and the loss or deferral of revenues;

- require us to cease marketing business process outsourcing services
containing the infringing intellectual property;

- require us to pay substantial damage awards;

- damage our reputation; or

- require us to enter into royalty or licensing agreements which may not be
available on acceptable terms, if at all.

In the event a claim against us were successful and we could not obtain a
license to the relevant technology on acceptable terms or license a substitute
technology or redesign our products to avoid infringement, our revenues, results
of operations and competitive position would be harmed.

OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY MAY SIGNIFICANTLY HARM OUR
RESULTS OF OPERATIONS AND REPUTATION.

Our success and ability to compete is dependent in part on our ability to
protect and maintain our proprietary rights to our intellectual property. We
currently rely on a combination of trade secret, trademark and copyright laws to
establish and protect our intellectual property.

17

We generally enter into confidentiality agreements with our officers,
employees and consultants. We also generally limit access to and distribution of
our source code, access to our databases and the disclosure and use of our other
proprietary information. However, these measures provide only limited protection
of our intellectual property rights. In addition, we may not have procured
signed agreements containing adequate protective provisions in every case, and
the contractual provisions that are in place may not provide us with adequate
protection in all circumstances. Further, we have not included copyright notices
on all of our copyrightable intellectual property. Efforts to address any
infringement of our proprietary rights could result in significant litigation
costs, and any failure to adequately protect our proprietary rights could result
in our competitors offering similar services, potentially resulting in the loss
of one or more competitive advantages and decreased revenues.

Despite our efforts to protect our proprietary rights, existing trade
secret, copyright, patent and trademark laws afford us only limited protection.
Others may attempt to copy or reverse engineer aspects of our services or to
obtain and use information that we regard as proprietary. Accordingly, we may
not be able to prevent misappropriation of our technologies or to deter others
from developing similar technologies. Further, monitoring the unauthorized use
of our products and other proprietary rights is difficult. Litigation may be
necessary to enforce our intellectual property rights or to determine the
validity and scope of the proprietary rights of others. Litigation of this type
could result in substantial costs and diversion of resources and could
significantly harm our results of operations and reputation.

WE FACE COMPETITION FROM A BROAD RANGE OF COMPANIES.

The markets for our services are extremely competitive and subject to rapid
technological change.

We consider the primary competitor to The Work Number to be large employers
and outsourcers who manage employment verification through a call center or
through internal automated systems. We believe the primary competitors to other
Work Number services are ADP, Paychex, and Ceridian. We consider the primary
competitor to our tax management services to be ADP, as well as a few smaller
firms that offer similar services.

Increased competition could result in price reductions, reduced gross
margins and loss of market share, any of which could significantly harm our
results of operations. Additionally, we may be required to increase spending in
response to competition in order to pursue new market opportunities or to invest
in research and development efforts, and, as a result, our operating results in
the future may be adversely affected. We cannot assure you that we will be able
to compete successfully against current and future competitors or that
competitive pressures we face will not significantly harm our results of
operations.

PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS AND MISSOURI LAW MAY
MAKE IT DIFFICULT FOR A THIRD PARTY TO ACQUIRE US, DESPITE THE POSSIBLE
BENEFITS TO OUR SHAREHOLDERS.

A number of provisions of our articles of incorporation and bylaws and
Missouri law could make it difficult for a third party to acquire, or discourage
a third party from attempting to acquire, control of us. These provisions:

- provide for a classified Board of Directors;

- limit the right of shareholders to remove directors or change the size of
the Board of Directors;

- limit the right of shareholders to fill vacancies on the Board of
Directors;

- limit the right of shareholders to call a special meeting of shareholders
or propose other actions;

- require unanimity for shareholders to act by written consent, in
accordance with Missouri law;

- require a higher percentage of shareholders than would otherwise be
required by Missouri law to amend, alter, change or repeal certain
provisions of our articles of incorporation;

- provide that the bylaws may be amended only by the majority vote of the
Board of Directors and shareholders will not be able to amend the bylaws
without first amending the articles of incorporation;
18

- authorize the issuance of preferred stock with any voting powers,
designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions of such
rights as may be specified by our Board of Directors, without shareholder
approval; and

- restrict specified types of "business combinations" and "control share
acquisitions," as well as regulate some tender offers.

These provisions may:

- have the effect of delaying, deferring or preventing a change in our
control despite possible benefits to our shareholders;

- discourage bids at a premium over the market price of our common stock;
and

- harm the market price of our common stock and the voting and other rights
of our shareholders.

OUR STOCK PRICE IS VOLATILE AND COULD DROP UNEXPECTEDLY.

The market price of our common stock has been volatile. The price could
continue to be subject to wide fluctuations due to factors including:

- actual or anticipated variations in our operating results;

- announcements of technological innovations or new services or contracts
by us or our competitors;

- developments with respect to patents, copyrights or proprietary rights;

- changes in financial estimates by securities analysts;

- concerns regarding the security of our database;

- conditions and trends in outsourcing of tax management, human resources
and payroll services; and

- general economic and market conditions.

The stock market has experienced extreme price and volume fluctuations that
have particularly affected the market prices of equity securities of many
technology companies. Often these fluctuations have been unrelated or
disproportionate to the operating performances of those companies.

Broad market and industry factors may significantly affect the market price
of our common stock, regardless of our actual operating performance. Declines in
the market price of our common stock could also harm employee morale and
retention, our access to capital and other aspects of our business.

BECAUSE OUR SHARE PRICE IS VOLATILE, WE MAY BE THE TARGET OF SECURITIES
LITIGATION, WHICH IS COSTLY AND TIME-CONSUMING TO DEFEND.

In the past, following periods of volatility in the market price of a
company's securities, shareholders have often instituted class action securities
litigation against those companies. For example, we recently settled class
action litigation, as discussed in "Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Other Matters"
below. Such litigation could result in substantial costs and a diversion of
management attention and resources, which would significantly harm our
profitability and reputation. These market fluctuations, as well as general
economic, political and market conditions such as recessions, may adversely
affect the market price of our common stock.

19

ITEM 2. PROPERTIES

As of March 31, 2005, we occupied approximately 342,000 square feet of
office space in 30 buildings across the country. At such date, all of our
facilities were leased and were utilized primarily for general administrative,
data processing and sales purposes. We believe our facilities have been
generally well maintained, are in good operating condition and are adequate for
our current requirements. Additionally, we had approximately 75 employees,
primarily sales-related, working out of their homes. The following table
includes descriptions of our significant facilities and, if applicable, the
specific business segment to which the property is dedicated.

ITEM 3. LEGAL PROCEEDINGS

We are a defendant from time to time in lawsuits. Based on information
currently available, we believe that no current proceedings, individually or in
the aggregate, will have a material adverse effect upon us, our consolidated
financial position, or our results of operations.

As previously disclosed, the staff of the Securities and Exchange
Commission ("SEC") conducted an investigation into the matters that were the
subject of the restatements of our financial statements that we had announced on
December 16, 2002, and January 5, 2004. On August 12, 2004, we announced that we
had made an offer of settlement to the Enforcement Division of the SEC. On March
7, 2005, the U.S. District Court for the Eastern District of Missouri entered a
final judgment against us whereby we agreed, without admitting or denying any
liability, to pay $2.5 million in civil penalties and not to violate certain
provisions of the federal securities laws in the future. In addition, the SEC
entered an Order Instituting Proceedings Pursuant to Section 8A of the
Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934,
Making Findings, and Imposing a Cease-And-Desist Order whereby we agreed,
without admitting or denying any liability, to pay one dollar in disgorgement
and not to violate certain provisions of the federal securities laws in the
future. Separately, William W. Canfield, our president and chief executive
officer, entered into a settlement with the SEC related to its investigation
against him in a related matter.

In anticipation of the SEC settlement, we recorded a reserve of $3.0
million in the first quarter of fiscal year 2005. This charge was included in
"other income (expense), net" in the consolidated statement of earnings for the
quarter ended June 30, 2004. In the fourth quarter of fiscal year 2005, we
reclassified the SEC settlement charge to "operating expenses" in our
consolidated statement of earnings. Additionally, $0.5 million of the reserve
recognized in the 2005 first quarter was reclassified to "general and
administrative" expenses, representing related legal expenses incurred during
the fiscal year.

20

We have released our insurance providers from claims against our applicable
insurance policies. Any fines or penalties assessed by the SEC against us, along
with any further defense costs that we incur in connection with the SEC
investigation, either on our own behalf or as indemnification on behalf of
William W. Canfield or Craig N. Cohen, and any future related litigation costs
will be borne by us and will not be covered by insurance. In addition, to the
extent that we are required to indemnify Messrs. Canfield or Cohen against any
fines or penalties assessed against either of them, those amounts will be borne
by us and will not be covered by insurance. The application of the foregoing
remedies, or the commencement of any regulatory proceeding or enforcement
action, could harm our business and financial condition.

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

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock trades on the Nasdaq National Market under the symbol
"TALX." On January 6, 2005, we declared a 3-for-2 stock split, which was
effected in the form of a 50 percent stock dividend, payable February 17, 2005,
to shareholders of record on January 20, 2005. The following table sets forth
the high and low sales prices of our common stock as quoted in the Nasdaq
National Market for each of the quarters since the beginning of fiscal 2004
through the end of fiscal 2005, retroactively adjusted for the effects of the
3-for-2 stock split.

On May 19, 2005, the last reported sale price on the Nasdaq National Market
for our common stock was $27.69 per share. As of May 19, 2005, there were
approximately 141 holders of record of our common stock.

During fiscal 2001, we began paying dividends on our common stock on a
quarterly basis. The following table sets forth dividends declared per share of
common stock for the periods indicated, retroactively adjusted for the effects
of the 3-for-2 stock split:

21

Any future determination to pay dividends will be at the discretion of our
Board of Directors and will depend upon our earnings, capital requirements and
operating and financial condition and such other factors as the board may deem
relevant. See "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources"
regarding certain contractual restrictions on our ability to pay dividends that
are found in our loan agreement.

The following table provides information about purchases by us and our
affiliated purchasers during the quarter ended March 31, 2005 of equity
securities that are registered by us pursuant to Section 12 of the Exchange Act:

ISSUER PURCHASES OF EQUITY SECURITIES

- ---------------

(1) On September 25, 2002, our Board of Directors authorized us to repurchase up
to one million shares of our stock in the open market, or through privately
negotiated transactions during the 36-month period ending September 30,
2005, subject to market conditions and other factors. Under the September
25, 2002 plan, we did not repurchase any shares during the quarter ended
March 31, 2005. Cumulative shares repurchased under the September 25, 2002
plan amounted to 306,211. On May 10, 2005, our Board of Directors authorized
us to repurchase up to two million shares of our stock in the open market,
or through privately negotiated transactions during the 36-month period
ending May 9, 2008, subject to market conditions and other factors. The May
10, 2005 plan superseded the September 25, 2002 plan, and the remaining
693,789 authorized shares that had been authorized for repurchase under the
September 25, 2002 plan are no longer available for repurchase.

22

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

This section presents our selected historical financial data and certain
additional information. As discussed below, on April 22, 2003, we sold
substantially all of the assets of our Human Resources and Benefits Application
Services business. During July 2001 we acquired Ti3, Inc. and during March 2002,
we acquired the unemployment cost management services business of Gates,
McDonald & Company and James E. Frick, Inc., d/b/a The Frick Company. On July 1,
2003, we acquired Johnson and Associates. Effective April 1, 2004, we acquired
certain businesses of Sheakley-Uniservice, Inc. and Sheakley Interactive
Services, LLC. In October 2004, we acquired TBT Enterprises, Inc. and UI
Advantage, Inc. and Net Profit Inc., all of which specialize in
employment-related tax credit and incentive services.

We derived the financial data presented below for, and as of the end of,
each of the years in the five-year period ended March 31, 2005 from our
consolidated financial statements. The consolidated financial statements as of
March 31, 2005 and 2004 and for each of the years in the three-year period ended
March 31, 2005 contained herein have been audited by KPMG LLP, independent
registered public accounting firm. The financial information set forth below
reflects the classification of the database, document services and Human
Resources and Benefits Application Services businesses as discontinued
operations.

The selected data in this section is not intended to replace the financial
statements. You should read carefully the financial statements included in this
Form 10-K, including the notes to the consolidated financial statements, in
conjunction with "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations." For a discussion of material uncertainties
that might cause the data reflected herein not to indicate our future financial
condition or results of operations, see "Item 1 -- Business -- Risk Factors."

On January 6, 2005, we declared a 3-for-2 stock split, which was effected
in the form of a 50 percent stock dividend, payable February 17, 2005, to
shareholders of record January 20, 2005. Earnings per share and the weighted
average number of common shares outstanding set forth below have been
retroactively adjusted for the 3-for-2 stock split.

- ---------------

(1) Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share
reflects the incremental increase in common shares outstanding assuming the
exercise of all employee stock options and warrants that would have had a
dilutive effect on earnings per share and the full vesting of all restricted
stock. The weighted average number of shares is based on common stock
outstanding for basic earnings per share and common stock outstanding,
restricted stock outstanding, and common stock options and warrants for
diluted earnings per share in periods when such common stock options and
warrants are not antidilutive. On January 6, 2005, we declared a 3-for-2
stock split, which was effected in the form of a 50 percent stock dividend,
payable February 17, 2005, to shareholders of record January 20, 2005.
Earnings per share and the weighted average number of common shares
outstanding have been retroactively adjusted for the 3-for-2 stock split.

(2) Represents aggregate employment records included in The Work Number database
and employment records under contract that have not yet been converted to
the database.

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

You should read this discussion together with the financial statements and
other financial information included in this Form 10-K for the year ended March
31, 2005. See "Forward-Looking Statements" and "Item 1 -- Business -- Risk
Factors".

OVERVIEW

We are a leading provider of automated employment and income verification
and tax management services and a leader in providing payroll and human
resources business process outsourcing. We provide services that enable large
and mid-size corporations, including approximately two-thirds of Fortune 500
companies, as well as government agencies, to outsource the performance of
payroll and human resources business processes that would otherwise be performed
by their own payroll or human resources department. Our services use web access,
interactive voice response, fax, document imaging and other technologies to
enable mortgage lenders, pre-employment screeners, credit issuers, social
service agencies and other authorized users to obtain payroll and human
resources information and allow employees and their managers to review and
modify information in payroll and human resources management information systems
on a self-service basis. Further, we provide unemployment insurance claims
processing, unemployment tax planning and management services, and
employment-related tax credit and incentive services to a broad range of
employers. Our focus is on eliminating paper and manual steps from routine
payroll and human resources-related processes. We interact with various payroll
systems and human resources services, but are virtually independent of the
solutions our clients select.

25

As discussed in Note 5 of Notes to Consolidated Financial Statements,
effective April 1, 2004, we acquired substantially all of the assets and assumed
certain liabilities of the unemployment compensation, employment verification
and applicant screening and hiring workflow services businesses of
Sheakley-Uniservice, Inc. and its wholly owned subsidiary, Sheakley Interactive
Services, LLC, which we refer to collectively as the "Sheakley Businesses".
Additionally, on October 15, 2004, we completed the acquisition of the stock of
TBT Enterprises, Incorporated and UI Advantage, Inc., headquartered in
Gaithersburg, Maryland, which we collectively refer to as "TBT Enterprises". On
October 25, 2004, we completed the acquisition of Net Profit, Inc.,
headquartered in Greenville, South Carolina. These acquisitions enhance our
existing tax management services offerings by allowing us to offer clients
expanded services in connection with processing of the federally reinstated work
opportunity ("WOTC") and welfare to work ("WtW") tax credits, as well as
assisting clients in calculating certain other federal and state tax credits
which were not previously a part of our service offerings.

As a result of these acquisitions, in the third quarter of fiscal 2005, we
renamed as "Tax Management Services" our service offerings we previously
referred to as "Unemployment Cost Management Services". We believe that this new
name better represents the breadth of services we now offer in the tax
management field.

Our services and products fall within three business segments: The Work
Number services, tax management services and customer premises systems and
related maintenance and support. The Work Number services include our employment
verification and services, W-2 eXpress, ePayroll, FasTime, HireXpress, and I-9
eXpress; tax management services include our employment tax consulting and claim
processing operations, unemployment tax planning services, and
employment-related tax credit and incentive services; and customer premises
systems and maintenance and support relate to a business we are phasing out.

On January 6, 2005, we declared a 3-for-2 stock split, which was effected
in the form of a 50 percent stock dividend, payable February 17, 2005, to
shareholders of record January 20, 2005. Earnings per share and the weighted
average number of common shares outstanding throughout this Annual Report on
Form 10-K have been retroactively adjusted for the 3-for-2 stock split.

We achieved record revenues and gross margin in fiscal 2005. We
successfully executed our strategies and emphasized cross-selling services to
our existing client base. We continued to make strategic acquisitions and
realized operational efficiencies as we integrated these acquisitions.
Additionally, we broadened our portfolio of services, both through innovations
in-house and through our strategic acquisitions. Our revenues rose 27 percent to
$158.4 million in fiscal year 2005 compared to $124.4 million in the prior year.
Our earnings from continuing operations in fiscal 2005 increased 28 percent to
$16.0 million, or $0.74 per diluted share, including an SEC settlement charge of
$2.5 million, or $0.12 per diluted share. Earnings from continuing operations
totaled $12.5 million, or $0.59 per diluted share, in fiscal 2004.

The Work Number services achieved record revenues in fiscal year 2005,
increasing 40 percent to $65.4 million compared to $46.6 million the prior year.
Growth in revenues was primarily attributable to the increased records in the
database, coupled with the continued broadening of our verifier base.
Additionally, the acquisitions of the Sheakley employment verification business
and HireXpress, our applicant screening and hiring workflow services business,
also contributed to the increase in revenues in fiscal year 2005. Through a
program we call REACH, we are seeking to increase the number of transactions
within our existing verifier base vertically by expanding usage with verifiers
that have multiple locations and integrating our services with the verifiers'
systems and processes. Also through the REACH program, we are seeking to
increase transactions horizontally by identifying additional usages for The Work
Number database within our existing verifier base. Additionally, through a
focused marketing campaign, we have gained additional verifiers, particularly
within the automobile financing sector. Gross margin for this business improved
140 basis points to 71.5 percent from 70.1 percent the year before. The
improvement in gross margin resulted from higher transaction levels, as well as
increased use of cost-effective web-based programs to deliver employment
verification, time reporting and electronic payroll services.

The total number of employment records on The Work Number services
increased to 106.9 million at March 31, 2005 from 90.1 million a year ago,
representing a 19 percent gain. Total employment records under contract,
including those in contract backlog to be added to the database, increased 16
percent to 113.1 million at March 31, 2005 from 97.2 million a year earlier.

26

Revenues in the tax management services line of business increased 22
percent to $90.2 million, compared to $73.7 million in the prior year. The
increase in revenue was primarily attributable to the acquisitions in fiscal
year 2005, as noted above. The tax management services business continued to be
an important contributor to our overall profitability as well as to the growth
in The Work Number services, resulting from selling those services to our tax
management services client base. Gross margin in the tax management business
increased 160 basis points to 50.0 percent from 48.4 percent in the 2004 fiscal
year. The improved gross margin is primarily a result of efficiencies achieved
as acquisitions become fully integrated.

Pursuant to an acquisition agreement dated April 20, 2005, we acquired
Jon-Jay Associates, Inc., which specializes in providing unemployment cost
management services as well as an employment verification service, for
approximately $24 million, including transaction costs, subject to certain
post-closing adjustments. Additionally, the acquisition agreement includes
provisions for potential earn-out payments if certain future financial
performance measures are achieved through the twelve months ending April 30,
2006 and April 30, 2007, respectively. Pursuant to an asset purchase agreement
dated April 26, 2005, we acquired substantially all of the assets and assumed
certain of the liabilities of Glick & Glick Consultants, LLC, which specializes
in employment-related tax credit and incentive services, for approximately $5
million, including transaction costs. The purchase prices were determined based
on arms'-length negotiations, and were paid in cash financed through our Loan
Agreement as discussed below in "-- Liquidity and Capital Resources." Total
revenues for these businesses were approximately $12.0 million for calendar year
2004.

The acquisition agreements provide for indemnification of the Company by
the sellers for certain pre-closing liabilities and obligations of the business,
subject to certain limitations. Escrow accounts, maintained pursuant to the
terms of respective escrow agreements, are also available until two years
following the purchases to satisfy the indemnification obligations under the
purchase agreements, subject to certain limitations described in the acquisition
agreements. Of the purchase prices, $2.9 million was paid into the escrow
accounts.

RESTATEMENTS OF FINANCIAL STATEMENTS

2004 RESTATEMENT

In January 2004, we restated certain historical financial statements as a
result of adjustments related to our customer premises systems business. The
restatement was necessary because an internal accounting review in the third
quarter of fiscal year 2004 showed that certain revenues for customer premises
systems contracts were recorded earlier than was appropriate under the
percentage of completion methodology used for this line of business. Although we
ultimately realized the revenues from the transactions under review, our
financial results were not accurately presented, requiring the restatement. The
resulting restatement affected fiscal years ended March 31, 1999 through 2003
and the first two quarters of fiscal year 2004.

Additionally, we corrected three errors related to bill and hold
arrangements on hardware and software transactions arising out of the customer
premises systems line of business during the fiscal years ended March 31, 2000
and 2001. These adjustments resulted in movements of revenue and related costs
between quarters for each year. There was no impact to the annual financial
results of either fiscal year.

The restatement had practically no cumulative impact on our financial
results or our financial condition. It had the effect of reducing revenues by
$955,000 for fiscal years 1999, 2000 and 2001 and increasing revenues by a
similar amount in fiscal years 2002 and 2003. The impact on the fiscal years
presented, 2001, 2002 and 2003, was a reduction of revenue in 2001 of $358,000
and an increase of revenues in 2002 and 2003 of $610,000 and $384,000,
respectively. In addition to the revenue adjustments, the related commissions
associated with the revenues were adjusted accordingly and the income taxes
provisions were amended to reflect the impact of these restatements. After
adjustment for the 3-for-2 stock split, the annual impact to diluted earnings
per share was a reduction to fiscal year 1999 of $0.02, an increase to fiscal
year 2000 of $0.01, a reduction to fiscal year 2001 of $0.01 and increases to
fiscal years 2002 and 2003 of $0.02 and $0.01, respectively.

27

Our review focused on contracts in which revenue was realized in fiscal
2000 and subsequent periods as reliable historical data was not available for
earlier periods. Accordingly, our review included contracts for which services
were initiated in periods prior to fiscal 2000. The review of certain contracts
resulted in cumulative adjustments for periods prior to fiscal 2000 which have
been attributed to fiscal 1999, the earliest fiscal period presented for
financial disclosure purposes. While it is possible that certain of these
adjustments related to periods prior to fiscal 1999, data was not available to
accurately support the specific allocation to such prior periods. Such data was
not available since we had modified our systems during fiscal 1999 and had not
retained sufficient comparable data for contracts entered into prior to the
modification. While further review may have resulted in adjustments to increase
revenue in 2000 by decreasing revenues in prior periods, based on the review
performed, management believes that further adjustments were not supportable.

The adjustments also impacted our consolidated balance sheet based on the
respective revenue amounts, resulting in a restatement of our work in progress
and deferred revenues. In addition, accrued expenses were restated to give
effect to the impact on accrued commissions, and deferred income taxes were
restated for the related tax effect.

See our Form 10-K/A for the fiscal year ending March 31, 2003 regarding the
impact of our prior restatement on our consolidated statements of operations and
balance sheets. The prior restatement had no impact on our total cash flows from
operating activities, investing activities or financing activities.

2002 RESTATEMENT

In response to inquiries made by the Securities and Exchange Commission
during the course of its investigation, we reviewed, during our December 2002
quarter, the accounting treatment for two items in the year ended March 31,
2001. In December 2002, we subsequently restated certain of our previously
issued financial statements. The two items reviewed were the accounting for a
patent technology license agreement and the award of certain bonus payments to
the executive officers. The $1.6 million paid in connection with the patent
technology license entered into with Ronald A. Katz Technology Licensing, L.P.
and A2D, L.P. in March 2001 had been recorded as an intangible asset and was
being amortized over a 10-year period. We decided to expense the entire amount
in the March 2001 quarter. Certain bonus payments to the executive officers,
recommended by the compensation committee and approved by the Board of Directors
on May 15, 2001, totaling approximately $158,000, had been reflected as an
expense related to the quarter ended June 30, 2001. We decided to record the
entire expense in the quarter ended March 31, 2001.

The effect of these restatements on the consolidated statement of earnings
was to reduce earnings for the year ended March 31, 2001 by $1.1 million, after
income tax, and to increase earnings over the following 10-year period by the
same dollar amount in the aggregate.

See our Form 10-K/A for the fiscal year ending March 31, 2003 regarding the
impact of our prior restatement on our consolidated statements of operations and
balance sheets. The prior restatement had no impact on our total cash flows from
operating activities, investing activities or financing activities.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and expenses, and related disclosure of contingent assets and
liabilities. On a periodic basis, we evaluate our estimates, including those
related to revenue recognition, intangible assets, capitalized software and
income taxes. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ materially from these estimates under
different assumptions or conditions.

We believe that the following critical accounting policies include our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

Revenue Recognition: All revenues are generally recognized pursuant to
annual or multi-year contracts.
28

Revenues from The Work Number are realized primarily from transaction fees
and, to a lesser degree, based on up-front set-up fees and periodic maintenance
fees. Revenues for transaction fees are recognized in the period that they are
earned, based on fees charged to users at the time they conduct verifications of
employment and income. In accordance with Staff Accounting Bulletin No. 104, the
revenue for set up fees and monthly maintenance fees is recognized on a
straight-line basis from the time the service is available to be used by our
clients through the end of the service period.

Revenue for our W-2 service is recognized evenly from the time the service
is available for use by TALX clients through the end of the service period.
Additionally, we have some clients that are billed for this service on a
transactional basis. For these clients, we recognize revenue on a monthly basis,
as transactions occur.

We charge ePayroll clients on a per-employee, per-month basis, plus an
initial set-up fee. Revenue for the initial set-up fees is recognized evenly
over the initial contract period, beginning with the date the client is "live"
on our system. Per-employee, per-month fees are recognized as revenue in the
months billed.

FasTime clients are billed for initial set-up fees, monthly maintenance
fees and per transaction fees. Revenue is recognized evenly from the time the
service is available for use by our clients through the end of the service
period for setup and maintenance fees and as services are performed for
transaction-based fees.

HireXpress clients are billed for initial set-up fees and per transaction
fees or monthly fees. Revenue is recognized evenly from the time the service is
available for use by our clients through the end of the service period for
set-up fees and as services are performed for transaction-based or monthly fees.

Revenues from our unemployment cost management services, called UC eXpress,
are recognized in the period that they are earned, evenly over the life of the
contract. Transaction fees are recorded as the services are provided. Tax
management service revenue that is contingent upon achieving certain performance
criteria is recognized when those criteria are met.

In accordance with AICPA Statement of Position 97-2 ("SOP 97-2"), revenues
from implementations of system enhancements related to our former Customer
Premises Systems line of business were recognized by the contract method of
accounting using the percentage of completion method for larger, more complex
implementations and the completed contract method for smaller implementations.
We recognized revenue in this line of business related to hardware and software
sales upon shipment of the hardware and related software, in accordance with the
sales contracts and considerations of SOP 97-2 for multiple element
arrangements, as well as vendor-specific objective evidence.

Revenue from maintenance contracts is deferred and recognized ratably over
the maintenance period. Revenues for professional services are generally
recognized as the services are performed. If there is a significant uncertainty
about the project completion or receipt of payment for the professional
services, revenue is deferred until the uncertainty is sufficiently resolved. We
estimate the percentage of completion on contracts with fixed fees on a monthly
basis utilizing hours incurred to date as a percentage of total estimated hours
to complete the project.

In relationships with certain of our customers, we enter into agreements
with more than one of our service offerings included in the arrangement. When a
client contracts with us to provide more than one service, the terms of the
underlying contract itemize each service provided and the related fees for each
service. In accordance with the consensus of Emerging Issues Task Force Issue
No. 00-21, as these fee arrangements are similar to those charged to other
clients, we recognize revenue on the basis of the fair values of the underlying
services.

Deferred revenue represents the unearned portion of The Work Number set up
fees, UC eXpress and maintenance fees.

Commissions paid are deferred and charged to expense proportionally over
the related service period.

Direct expenses related to cost of revenues are tracked separately for each
service we provide. Incremental direct costs that are related to the origination
of a client contract are expensed as incurred.

29

Business Combinations and Intangible Asset Valuation: In connection with
the acquisitions of Ti3, Inc.; the unemployment cost management services
business of Gates, McDonald & Company, a subsidiary of Nationwide Mutual
Insurance Company; James E. Frick, Inc., d/b/a The Frick Company; Johnson and
Associates; the Sheakley Businesses; TBT Enterprises, Incorporated and UI
Advantage, Inc.; and Net Profit, Inc., we acquired certain identifiable
intangible assets. We recorded these assets in accordance with the Financial
Accounting Standards Board SFAS No. 141, "Business Combinations".

Effective April 20, 2005, we acquired Jon-Jay Associates, Inc. Effective
April 26, 2005, we purchased substantially all of the assets and assumed certain
liabilities of Glick & Glick Consultants, LLC. We will record these acquisitions
in accordance with SFAS No. 141, "Business Combinations."

Effective April 1, 2002, we adopted the Financial Accounting Standards
Board SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142
addresses the initial recognition and measurement of intangible assets acquired
outside of a business combination and the accounting for goodwill and other
intangible assets subsequent to their acquisition. SFAS No. 142 provides that
intangible assets with finite useful lives be amortized and that goodwill and
intangible assets with indefinite lives will not be amortized, but will rather
be tested at least annually for impairment. Through the use of an independent
business appraiser, we reviewed our goodwill and intangible assets as of
December 31, 2004 and determined that no impairment existed.

Capitalized Software: Software development costs are expensed as incurred
until technological feasibility is achieved, after which time they are
capitalized on a product-by-product basis. We amortize capitalized software
development costs evenly over the remaining estimated economic life of the
product, generally three years. We begin amortization of capitalized software
development costs when the product is available for general release to clients.
We review all capitalized software assets for impairment as of each balance
sheet date. Upon determination of any impairment, we write down the asset to the
appropriate value in the period that the impairment is determined.

Income Taxes: We record income taxes under the asset and liability method.
Deferred taxes arise because of different treatment between financial statement
accounting and tax accounting, known as temporary differences. We record the tax
effect of these temporary differences as deferred tax assets (generally items
that can be used as a tax deduction or credit in future periods) and deferred
tax liabilities (generally items that we received a tax deduction for, but have
not yet been recorded in the Consolidated Statement of Earnings). Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

The above listing is not intended to be a comprehensive list of all of our
accounting policies. See our consolidated financial statements and notes thereto
contained in this Annual Report on Form 10-K which contains accounting policies
and other disclosures required by accounting principles generally accepted in
the United States of America.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 (Revised 2004), "Share-Based
Payment" ("SFAS 123(R)"). SFAS 123(R) was to be effective for our quarter ended
September 30, 2005. On April 14, 2005, the Securities and Exchange Commission
amended the compliance dates for SFAS 123(R). As a result, SFAS 123(R) will be
effective beginning in our first quarter of fiscal 2007. This Statement requires
companies to recognize compensation cost for employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award. We are currently evaluating the impact of the adoption of SFAS
123(R) on our consolidated financial statements.

30

RESULTS OF OPERATIONS

The following tables set forth (1) revenues and gross margin, (2) the gross
margin percentage by revenue category, and (3) certain items from our
consolidated statement of operations as a percentage of revenues for the periods
indicated:

31

As discussed in Note 5 of Notes to Consolidated Financial Statements,
effective April 1, 2004, we acquired substantially all of the assets and assumed
certain liabilities of the unemployment compensation, employment verification
and applicant screening and hiring workflow services businesses of Sheakley-
Uniservice, Inc. and its wholly owned subsidiary, Sheakley Interactive Services,
LLC, which we refer to collectively as the "Sheakley Businesses". Additionally,
on October 15, 2004, we completed the acquisition of the stock of TBT
Enterprises, Incorporated and UI Advantage, Inc., headquartered in Gaithersburg,
Maryland, which we collectively refer to as "TBT Enterprises". On October 25,
2004, we completed the acquisition of Net Profit, Inc., headquartered in
Greenville, South Carolina. These acquisitions enhance our existing tax
management services offerings by allowing us to offer clients expanded services
in connection with processing of the federally reinstated work opportunity
("WOTC") and welfare to work ("WtW") tax credits, as well as assisting clients
in calculating certain other federal and state tax credits which were not
previously a part of our service offerings.

On April 22, 2003 we transferred substantially all of the assets of our
Human Resources and Benefits Application Services business to Workscape, Inc., a
Massachusetts-based provider of benefits and workforce management solutions.
Accordingly, the historical results of operations for this business have been
reclassified to earnings from discontinued operations on our consolidated
statement of earnings.

REVENUES.

Total revenues increased 27.3% to $158.4 million in fiscal 2005 from $124.4
million in fiscal 2004 and $115.9 million in fiscal 2003.

THE WORK NUMBER SERVICES SEGMENT

Revenues from The Work Number services increased 40.3% to $65.4 million in
fiscal 2005 from $46.6 million in fiscal 2004 and $35.9 million in fiscal 2003.
The increase in fiscal 2005 was due primarily to an increase in transaction
volumes resulting from marketing efforts directed to verifiers and employers, as
well as the continued growth of the database. Additionally, the acquisitions of
the Sheakley employment verification business and HireXpress, our applicant
screening and hiring workflow services business, also contributed to the
increase in revenues in fiscal year 2005. Through a program we call REACH, we
are seeking to increase the number of transactions within our existing verifier
base vertically by expanding usage with verifiers that have multiple locations
and integrating our services with the verifiers' systems and processes. Also
through the REACH program, we are seeking to increase transactions horizontally
by identifying additional usages for The Work Number database within our
existing verifier base. Additionally, through a focused marketing campaign, we
have gained additional verifiers, particularly within the automobile financing
sector. The increase in fiscal 2004 was due primarily to an increase in
transaction volume resulting from marketing efforts directed to verifiers and
employers, partially offset by lower average transaction fees due to the
increase in transactions from users with volume pricing discounts and the impact
of former 1-900 users moving to other means of access. We also experienced
increased transaction volumes in 2004 due to an increase in the number of
employers and related employment records in the database.

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The mortgage industry, the consumer finance industry, and pre-employment
screeners are the primary revenue generators for The Work Number. Verifications
in the consumer finance area have increased significantly over the last year as
we have focused on extending our reach to additional consumer finance lenders,
such as lenders for automobile, furniture and appliance loans. Mortgage-related
verifications declined as a percentage of total verifications in fiscal year
2005 compared to the prior year primarily as a result of overall economic
factors. The balance between mortgage-related and pre-employment-related
verification revenues began to shift back from its widest spread in the first
quarter of fiscal 2004 towards a more traditional balance towards the end of
fiscal 2004. Additionally, in fiscal 2004, we gradually increased the revenues
from collection companies and social services agencies. The table below
indicates the percentage of The Work Number revenues contributed by types of
verifiers during fiscal year 2004 and fiscal year 2005.

As of the end of fiscal year 2005, we had 106.9 million employment records
on The Work Number services database, a 19% increase from fiscal year 2004.
Total employment records under contract, including those in the contract backlog
to be added to the database, represented 113.1 million records.

Our W-2 eXpress services also experienced strong years in fiscal 2005 and
2004. We had 10.2 million W-2s live on our system for fiscal 2005, representing
an increase in excess of 20.0% over fiscal 2004. Live W-2s on our system
increased in excess of 40% in fiscal 2004 compared to fiscal 2003.

TAX MANAGEMENT SERVICES SEGMENT

Revenues from tax management services increased 22.5% to $90.2 million in
fiscal 2005 from $73.7 million in fiscal 2004 primarily as a result of our
acquisitions of the Sheakley Businesses, TBT Enterprises, and Net Profit, Inc.
in fiscal 2005. Revenues from tax management services decreased 1.3% to $73.7
million in fiscal 2004 from $74.6 million in fiscal 2003 due primarily to a
reduced level of tax consulting contracts, some pricing pressure in the claims
processing business and the loss of some smaller clients as we instituted
certain minimum pricing policies, partially offset by the addition of revenues
from our acquisition of Johnson and Associates and new sales.

The UC eXpress revenue stream is one of multi-year contracts that provide a
solid revenue base with upside potential through contingency billings from tax
consulting, or additional billings if claims processed, or other performance
measures, exceed contractually set levels. Beginning in the 2004 fiscal year,
uncertain economic conditions contributed to a reduction in activity in our tax
consulting business. In addition, claims activity was less than expected and we
did not realize the anticipated additional billings.

CUSTOMER PREMISES SYSTEMS AND MAINTENANCE AND SUPPORT SEGMENT

Revenues from customer premises systems decreased in fiscal 2005 and 2004
as we have been diminishing this business over the past several years. During
fiscal 2003 we completely eliminated sales of customer premises systems.
Revenues from maintenance and support related to the customer premises systems
declined to $2.8 million in fiscal 2005, compared to $4.1 million in fiscal 2004
and $3.6 million in fiscal 2003. We anticipate maintenance and support revenues
will continue to decrease over time from current levels as our installed base
continues to shrink as supported systems approach the end of their life cycles.
Additionally, during 2003, we notified our maintenance clients of our intention
to discontinue all support services effective June 2005. In the second quarter
of fiscal 2005, as a result of requests from a number of our

33

clients, we agreed to extend these support services until December 2005. In the
first quarter of fiscal 2006, we agreed to extend these support services until
March 2006.

GROSS PROFIT AND GROSS MARGIN.

Total gross profit increased 31.7% to $93.7 million in fiscal 2005 from
$71.1 million in fiscal 2004 and $63.6 million in fiscal 2003. Total gross
margin increased to 59.1% in fiscal 2005 from 57.2% in fiscal 2004 and 54.8% in
fiscal 2003.

THE WORK NUMBER SEGMENT

The Work Number services gross profit increased 43.1% to $46.7 million in
fiscal 2005 from $32.7 million in fiscal 2004 and $23.6 million in fiscal 2003.
Gross margin increased to 71.5% in fiscal 2005 from 70.1% in fiscal 2004 and
65.8% in fiscal 2003. The increases in gross profit and gross margin were due
primarily to higher revenue levels as discussed above and improved leveraging of
our operational infrastructure. Additionally, more transactions were performed
over the Internet, which has a lower average transaction cost compared to
transactions performed through either our 900 or 800 telephone services.

TAX MANAGEMENT SERVICES SEGMENT

Tax management services gross profit increased 26.5% to $45.1 million, or
50.0% of corresponding revenue, in fiscal 2005 from $35.7 million, or 48.4% of
corresponding revenue, in fiscal 2004 and $36.3 million, or 48.6% of
corresponding revenue, in fiscal 2003. The increases in gross profit and gross
margin in fiscal year 2005 are due primarily to higher revenues, as well as cost
savings realized through our consolidation of the operational infrastructure of
various acquisitions. The decrease in gross profit and gross margin in fiscal
year 2004 was due primarily to temporary incremental costs related to our
efforts to consolidate our operational infrastructure following the
acquisitions. The tax management services business has been an important
contributor to our overall profitability as well as to the growth in The Work
Number Services due to success in cross-selling The Work Number Services into
the tax management services client base.

CUSTOMER PREMISES SYSTEMS AND MAINTENANCE AND SUPPORT SEGMENT

Customer premises systems and maintenance and support gross profit
decreased to $1.8 million from $2.8 million in fiscal 2004 and $2.9 million in
fiscal 2003. The decline in gross profit is due to the fixed nature of personnel
and infrastructure costs even as our installed base continues to shrink.

Selling and Marketing Expenses. Selling and marketing expenses increased
16.1% to $27.7 million in fiscal 2005 from $23.9 million in fiscal 2004 and
$18.9 million in fiscal 2003. As a percentage of revenues, such expenses
decreased to 17.5% in fiscal 2005 compared to 19.2% in fiscal 2004 and 16.3% in
fiscal 2003. The

34

increases in expenses in fiscal 2005 were primarily due to increased commissions
and incentives, which resulted from our higher revenues, as well as increased
personnel as we developed a new sales and service team to market directly to
verifiers. Selling and marketing expenses as a percentage of revenues improved
in fiscal 2005 as a result of the higher revenue levels, improved leveraging of
our selling and marketing infrastructure and our continued focus on expense
control. Increased selling and marketing expenses in fiscal 2004 were primarily
due to increased costs related to our reorganization of the sales and services
teams. In addition to realigning our sales and service teams into regions, we
added personnel and related costs. Additionally, marketing costs increased in
fiscal 2004 as we increased our efforts to market to high volume verifiers of
The Work Number.

General and Administrative Expenses. General and administrative expenses
increased 26.1% to $32.8 million in fiscal 2005 from $26.1 million in fiscal
2004 and $25.2 million in fiscal 2003. The increase in such expenses in fiscal
2005 resulted primarily from additional amortization related to intangible
assets from our three acquisitions and the expansion of our infrastructure to
accommodate our growing business and the financial consolidation of the
acquisitions described in Notes 5 and 6 of Notes to Consolidated Financial
Statements. As a percentage of revenues, such expenses decreased to 20.7% in
fiscal 2005 from 20.9% in fiscal 2004 and 21.7% in fiscal 2003. This decrease is
due primarily to improved leveraging of personnel and infrastructure costs.

SEC Settlement Charge. In fiscal 2005, the Securities and Exchange
Commission accepted our offer of settlement to resolve its investigation into
our accounting for certain items, as described in Note 16 of Notes to
Consolidated Financial Statements. Under the offer of settlement, we agreed to
pay one dollar in disgorgement and $2.5 million in civil penalties.

Other Income (Expense), Net. Other income (expense), net totaled $2.7
million of other expense in fiscal 2005, compared to $0.8 million in fiscal 2004
and $1.4 million in fiscal 2003. The increase in fiscal 2005 was due to
increased borrowings resulting from funding our acquisitions in 2005. The
decrease from fiscal 2003 to fiscal 2004 was due to a lower level of outstanding
borrowings throughout fiscal 2004 compared to fiscal 2003.

Income Tax Expense. Our effective income tax rate was 42.6%, 38.7%, and
38.3% in fiscal 2005, 2004 and 2003, respectively. The SEC settlement charge, as
discussed above, was not tax deductible, causing a higher effective income tax
rate in fiscal 2005.

35

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth (1) specified unaudited statement of
operations data (2) the gross margin percentage for each of our revenue
categories, and (3) operating data expressed as a percentage of our total
revenues, in each case for each of the four quarters in fiscal 2005 and fiscal
2004. The unaudited financial statements have been prepared on the same basis as
the audited financial statements contained herein and include all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of such information when read in conjunction with our
financial statements and related notes included elsewhere in this Form 10-K. We
believe that quarter-to-quarter comparisons of our financial results should not
necessarily be relied upon as an indication of future performance.

We had initially recorded the SEC settlement charge in the first quarter of
fiscal 2005 as other income (expense), net. It has been reclassified to
operating expenses in the accompanying table of quarterly results of operations
to conform to current presentation to more accurately reflect the nature of this
charge. As a result of the reclassification, previously reported operating
income for the fiscal year 2005 first quarter should have been $2.8 million, as
reflected in the table below.

On April 22, 2003, we sold substantially all of the assets of our Human
Resources and Benefits Application Services business and reflected such
operations as a discontinued operation for financial reporting purposes. During
July 2001, we acquired Ti3, Inc. and during March 2002, we acquired the
unemployment cost management services business of Gates, McDonald & Company and
James E. Frick, Inc., d/b/a The Frick Company. On July 1, 2003, we acquired
Johnson and Associates. Effective April 1, 2004, we purchased substantially all
of the assets and assumed certain of the liabilities of the unemployment
compensation, employment verification and applicant screening and hiring
workflow services businesses of Sheakley-Uniservice, Inc. and its wholly owned
subsidiary, Sheakley Interactive Services, LLC. On October 15, 2004, we closed
on the acquisition of the stock of TBT Enterprises, Incorporated and UI
Advantage, Inc. On October 25, 2004, we closed on the acquisition of the stock
of Net Profit, Inc.

Our revenues, margins and operating results have fluctuated in the past,
and are likely to continue to fluctuate in the future, on an annual and
quarterly basis, as a result of a number of factors, most of which are outside
of our control, as discussed in "Item 1 -- Business -- Risk Factors -- Our
quarterly and annual operating results may fluctuate significantly, which could
cause our stock price to decline significantly."

SEASONALITY

Revenues generated from our W-2 eXpress service, which is part of The Work
Number services segment, are particularly affected by seasonality and are
principally earned in our fourth fiscal quarter.

37

Revenues generated from our tax management services are generally higher in
the fourth fiscal quarter as certain client contracts allow us to bill
additional fees based upon actual annual claims volumes. Additionally, our tax
planning business has an inherent seasonality based upon the general nature of
tax services.

CONTRACTUAL OBLIGATIONS

The following table summarizes certain of our contractual obligations as of
March 31, 2005.

- ---------------

(1) On April 14, 2005, we entered into a $100.0 million secured second amended
and restated loan agreement (the "2005 Loan Agreement") with LaSalle Bank
National Association, as administrative agent and the lenders party thereto,
to replace the 2004 Loan Agreement and refinance in full the $57.5 million
outstanding loan balance at March 31, 2005. All amounts outstanding under
the 2005 Loan Agreement are due and payable on April 14, 2010. As a result
of the replacement of the 2004 Loan Agreement with a 5-year revolving credit
facility, the $57.5 million owed under the 2004 Loan Agreement has been
reclassified to long-term debt on the balance sheet as of March 31, 2005.

LIQUIDITY AND CAPITAL RESOURCES

In recent years, we have financed our operations through cash flows from
operating activities. In addition to cash provided by operating activities, we
have access to a revolving credit facility.

We generated cash from operating activities of $30.0 million in fiscal
2005, an $8.4 million increase compared to $21.6 million in fiscal 2004,
primarily as a result of improved operating results.

Our principal sources and uses of cash during fiscal 2005 were as follows:

Sources:

- Generated $30.0 million from operations;

- Used restricted cash of $38.6 million to fund the acquisition of the
Sheakley Businesses;

- Borrowed $18.0 million under credit arrangements to finance acquisitions;
and

- Received proceeds of $5.2 million from the sale of short-term
investments.

Uses:

- Acquisition of three businesses for a total of $59.3 million;

- Purchased $11.3 million in short-term investments;

38

- Repaid $10.5 million under long-term debt facilities; and

- Invested $8.4 million in property and equipment and capitalized software
development.

Our net cash used in investing activities decreased to $35.2 million in
fiscal 2005 from $48.3 million in fiscal 2004. This decrease was primarily due
to the utilization of our $38.6 million restricted cash position to acquire the
Sheakley Businesses, offset by $59.3 million of cash outlays for acquisitions,
$8.4 million of investments in property, equipment, and capitalized software,
and $6.1 million of net purchases of short-term investments. At March 31, 2005,
we had no significant capital spending or purchase commitments other than normal
purchase commitments and commitments under facilities and operating leases, but
would expect capital expenditures to increase during the next 18 months as we
integrate the operations of our new acquisitions.

Net cash provided by financing activities was $8.0 million in fiscal 2005
compared to $25.9 million in fiscal 2004. The decline was due primarily to net
borrowings under credit arrangements of $7.5 million in 2005 compared to $28.0
million in 2004. In both years, borrowings were used to fund acquisitions.
Additionally, in fiscal 2005, we paid $3.0 million in dividends and received
$3.5 million from issuance of common stock in connection with employee benefit
plans.

Our working capital increased to $24.8 million at March 31, 2005 from $6.0
million at March 31, 2004. This increase is primarily due to increased cash and
cash equivalents and short-term investments on hand at March 31, 2005, as well
as the fact that we had no current portion of long-term debt at March 31, 2005
as a result of the refinancing of our debt in April 2005, as discussed in Note 8
of Notes to Consolidated Financial Statements. Our accounts receivable increased
$4.2 million to $19.7 million at March 31, 2005, compared to $15.5 million at
March 31, 2004. The increase was primarily attributable to significantly higher
revenues in the fiscal 2005 fourth quarter compared to the fourth quarter of the
prior year.

Based on cash and cash equivalents on hand, together with anticipated cash
flows from operations, we believe we have sufficient liquidity to pay our
obligations as they become due, for at least the next 12 months.

Our business strategy contemplates that we will consider acquisitions from
time to time. We cannot assure you that we will make any such additional
acquisitions or that any such acquisitions would be successful. We expect that
such acquisitions may require that we access additional credit. As described
below, our Loan Agreement will provide funding for certain possible future
acquisitions subject to certain conditions. Except in these circumstances, we
cannot assure you that additional credit would be available on acceptable terms.
Any such additional credit would increase the risks associated with leverage,
including our ability to service indebtedness and volatility of interest rates.

During fiscal 2005, we continued our quarterly dividend program, declaring
a $0.03 per share dividend in the first quarter and a $0.04 per share dividend
in each of the last three quarters, as adjusted for the effects of the 3-for-2
stock split.

SHARE REPURCHASE PLAN

On September 25, 2002, our Board of Directors authorized us to repurchase
up to one million shares of our stock in the open market, or through privately
negotiated transactions during the 36-month period ending September 30, 2005,
subject to market conditions and other factors. Under the September 25, 2002
plan, we did not repurchase any shares during the quarter ended March 31, 2005.
Cumulative shares repurchased under the September 25, 2002 plan amounted to
306,211. On May 10, 2005, our Board of Directors authorized us to repurchase up
to two million shares of our stock in the open market, or through privately
negotiated transactions during the 36-month period ending May 9, 2008, subject
to market conditions and other factors. The May 10, 2005 plan superseded the
September 25, 2002 plan, and the remaining 693,789 authorized shares that had
been authorized for repurchase under the September 25, 2002 plan are no longer
available for repurchase. Except for the 42,275 shares remaining in the treasury
at March 31, 2005, all shares repurchased have been reissued in connection with
employee stock option exercises and employee stock purchase plan purchases.

39

LONG-TERM DEBT

In connection with the acquisition of certain businesses of
Sheakley-Uniservice, Inc., we entered into an amended and restated loan
agreement dated as of March 31, 2004, (the "2004 Loan Agreement"). Pursuant to
the 2004 Loan Agreement, we obtained secured financing consisting of a $58.0
million term loan (the "Term Loan A"), a $10.0 million term loan (the "Term Loan
B") and a $15.0 million revolving credit facility (the "Revolving Credit
Facility") from LaSalle Bank National Association, as administrative agent, and
the lenders party to the 2004 Loan Agreement .

The Term Loans and advances under the Revolving Credit Facility bore
interest at rates we selected under the terms of the 2004 Loan Agreement,
including a base rate or LIBOR, plus an applicable margin. The applicable margin
for LIBOR loans under the Revolving Credit Facility and Term Loan A varied from
1.75% to 3.25%, and the applicable margin for base rate loans under the
Revolving Credit Facility and Term Loan A was either 0.00% or 0.25% in each case
based upon our ratio of total indebtedness to EBITDA (earnings before interest,
taxes, depreciation and amortization). The applicable margin for LIBOR loans
under Term Loan B varied from 2.25% to 3.75%, and the applicable margin for base
rate loans under Term Loan B was either 0.50% or 0.75%, in each case based upon
our ratio of total indebtedness to EBITDA.

On April 14, 2005, we entered into a $100.0 million secured second amended
and restated loan agreement (the "2005 Loan Agreement") with LaSalle Bank
National Association, as administrative agent and the lenders party thereto
(collectively, the "Lenders"), to replace the 2004 Loan Agreement and refinance
in full the $57.5 million outstanding loan balance at March 31, 2005. The 2005
Loan Agreement replaces the 2004 Loan Agreement and establishes a $100 million
revolving line of credit and provides for the issuance of letters of credit and
swingline loans. The total borrowing under the 2005 Loan Agreement may not
exceed $100.0 million, but we can request that the Lenders increase their
commitments by up to $25.0 million to a maximum aggregate amount of $125.0
million under specified circumstances, in which event the existing Lenders or
new lenders may agree to provide us with additional availability.

The proceeds of loans made under the 2005 Loan Agreement may be used solely
to refinance loans outstanding under the 2004 Loan Agreement and for working
capital, permitted capital expenditures, as the source for payment of our
obligations with respect to letters of credit, to pay the transaction costs of
the 2005 Loan Agreement, to finance permitted acquisitions meeting specified
criteria, and to finance certain repurchases of our capital stock subject to
specified limitations. The 2005 Loan Agreement is secured by pledges of our
stock and membership interests in, and guarantees of, our subsidiaries and
security interests in substantially all of our assets.

Loans under the 2005 Loan Agreement mature on April 14, 2010, except that
any letters of credit may extend beyond that date if the letter of credit lender
approves and we provide sufficient collateral as security for an extended loan.
We may make prepayments on advances under the revolving credit facility without
penalty, provided we give at least one business day's notice, pay accrued
interest and otherwise make the applicable lenders whole. As the 2005 Loan
Agreement is a 5-year revolving credit facility, there are no scheduled minimum
principal repayments in fiscal years 2006 through 2010. All amounts outstanding
under the credit facility are due and payable on April 14, 2010. As a result of
the replacement of the 2004 Loan Agreement with a 5-year revolving credit
facility, the $57.5 million owed under the 2004 Loan Agreement has been
reclassified to long-term debt on the balance sheet as of March 31, 2005.

Advances under the revolving credit facility bear interest at rates we
select, including a base rate or the LIBOR rate plus an applicable margin. The
base rate is a variable rate equal to the greater of the Lender's prime rate or
the federal funds rate plus 0.5%. The applicable margin for LIBOR rate loans
will vary from 1.25% to 2.00%. Swingline loans will bear interest at the base
rate. During the existence of an event of default, loans will bear additional
interest of 2.00% per year.

We paid the Lenders an amendment fee equal to $50,000 on the effective date
of the 2005 Loan Agreement. We will also pay a facility fee, payable on a
quarterly basis in the amount equal to 0.25% of the unused portion of the
revolving credit facility. If we utilize any letters of credit, we will need to
pay a fronting fee equal to 0.125% of the face amount of each letter of credit,
as well as a letter of credit fee equal to the

40

aggregate undrawn amount of the letter of credit multiplied by the LIBOR margin
in effect on the date the letter of credit is issued.

The 2005 Loan Agreement includes certain covenants, including, without
limitation, restrictions on the use of proceeds of any loans, as described
above. The 2005 Loan Agreement also requires compliance with certain financial
covenants based on our minimum interest coverage (the ratio of EBIT minus
dividends and income tax expense to interest expense), minimum EBITDA (as
defined in the 2005 Loan Agreement and as adjusted for, among other things,
approved acquisitions and the SEC settlement charge, as discussed in Note 16 of
Notes to Consolidated Financial Statements) and our ratio of total indebtedness
to EBITDA (as so adjusted). The 2005 Loan Agreement also requires compliance
with certain operating and other covenants which limit, without first obtaining
written consent of the Lenders, among other things, the ability of TALX and our
subsidiaries to incur additional debt (with specified exceptions), sales of
assets, changes in our capital structure, affiliated transactions, acquisitions,
and distributions to our shareholders. The 2005 Loan Agreement generally
prohibits the payment of cash dividends, except for cash dividends not in excess
of six cents per share per calendar quarter, up to a maximum of $7.5 million per
fiscal year, so long as we are not in default at the time of the declaration.
The 2005 Loan Agreement also contains various representations and warranties,
regarding, among others, compliance with material laws, the accuracy of
financial statements and other information delivered to the Lenders and the
absence of material changes.

In the event of a default under the 2005 Loan Agreement, the Lenders may
terminate the commitments made under the Loan Agreement, declare amounts
outstanding, including accrued interest and fees, payable immediately, and
enforce any and all rights and interests.

We have entered into an interest rate swap contract which has a notional
amount of $19.0 million at March 31, 2005. Under this contract, we pay a fixed
rate of 3.72% and receive a variable rate of LIBOR, which is equal to the LIBOR
rate utilized on our outstanding borrowings. The notional amount of our interest
rate swap contract steps down over time until its termination on March 31, 2008.
Effective April 14, 2005, in connection with the refinancing of our credit
facility, we matched our existing interest rate swap to our 2005 Loan Agreement.
This strategy effectively converts a portion of our outstanding borrowings into
a fixed rate instrument over the term of the interest rate swap contract.

The interest rate swap and related gains and losses arising on the contract
are accounted for as a cash flow hedge in accordance with SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Specifically,
changes in the fair value of derivative instruments designated as cash flow
hedges are deferred and recorded in other comprehensive income. These deferred
gains or losses are recognized in income when the transactions being hedged are
completed.

As of March 31, 2005, the fair value of the interest rate swap is an
unrealized gain in the amount of $98,000, which is included in accrued expenses
and other liabilities.

We do not use financial instruments for trading or speculative purposes.

OTHER MATTERS

We are a defendant from time to time in lawsuits. Based on information
currently available, we believe that no current proceedings, individually or in
the aggregate, will have a material adverse effect upon us.

On May 5, 2004 we reached an agreement with the plaintiffs to settle all
then-pending class action lawsuits, as further discussed in Note 16 of Notes to
Consolidated Financial Statements. The settlement called for payment of $5.75
million, which was made by our insurance carriers and did not impact earnings.
For the year ended March 31, 2004, we recorded a liability for $5.75 million in
accrued expenses and other liabilities representing the amount we owed under the
settlement agreement. Additionally, we recorded $5.75 million in prepaid
expenses and other current assets representing the amount we expected to receive
from our insurance companies. On May 8, 2004, we received $5.75 million from our
insurance companies, and on June 1, 2004, we paid the $5.75 million settlement.

41

On October 6, 2004, the Court entered a Final Judgment and Order of
Dismissal with Prejudice, approving the proposed settlement in all respects. The
Court simultaneously issued an Order Approving Allocation of Settlement
Proceeds. The Court's Final Judgment provides that the claims of the named
plaintiffs and all members of the class are dismissed with prejudice; that any
claims that were or could have been alleged by the named plaintiffs or members
of the class are released and forever discharged; and that the action is
dismissed subject to the Court's continuing jurisdiction with regard to
implementation of the settlement and distribution of the settlement fund to the
class.

In the settlement of the civil suit, we released our insurance providers
from related claims against our applicable insurance policies. Accordingly, the
SEC settlement charge discussed below was not covered by insurance.
Additionally, any further defense costs incurred by us in connection with the
SEC investigation as indemnification on behalf of our former Chief Financial
Officer, Craig N. Cohen, and any future related litigation will be borne by us
and will not be covered by insurance. In addition, to the extent that we are
required to indemnify Mr. Cohen against any fines or penalties assessed against
him, those amounts will be borne by us and not be covered by insurance. The
application of any of the foregoing remedies, or the commencement of any
regulatory proceeding or enforcement action, could harm our business and
financial condition.

Regardless of the outcome, litigation of this type is expensive and, until
settled or otherwise resolved, may require that we devote substantial resources
and executive time to defend these proceedings.

On March 7, 2005, the U.S. District Court for the Eastern District of
Missouri entered a final judgment against us whereby we agreed, without
admitting or denying any liability, to pay $2.5 million in civil penalties and
not to violate certain provisions of the federal securities laws in the future.
In addition, the SEC entered an Order Instituting Proceedings Pursuant to
Section 8A of the Securities Act of 1933 and Section 21C of the Securities
Exchange Act of 1934, Making Findings, and Imposing a Cease-And-Desist Order
whereby we agreed, without admitting or denying any liability, to pay one dollar
in disgorgement and not to violate certain provisions of the federal securities
laws in the future. Separately, William W. Canfield, our president and chief
executive officer, entered into a settlement with the SEC related to its
investigation against him in a related matter.

In anticipation of the SEC settlement, we recorded a reserve of $3.0
million in the first quarter of fiscal year 2005. This charge was included in
"other income (expense), net" in the consolidated statement of earnings for the
quarter ended June 30, 2004. In the fourth quarter of fiscal year 2005, we
reclassified the SEC settlement charge to "operating expenses" in our
consolidated statement of earnings. Additionally, $0.5 million of the reserve
recognized in the 2005 first quarter was reclassified to "general and
administrative" expenses, representing related legal expenses incurred during
the fiscal year.

In addition to matters set forth above, we are also party to other lawsuits
and claims that arise in the ordinary course of conducting our business. In the
opinion of management, after taking into account recorded liabilities, the
outcome of these other lawsuits and claims will not have a material adverse
effect on our consolidated financial position or results of operations.

See "Item 1 -- Business -- Risk Factors" for a detailed description of our
risk factors.

ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As discussed above under "Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," our credit facility bears interest at floating rates we select under
the terms of the 2004 and 2005 Loan Agreements.

As of March 31, 2005, we had $57.5 million principal outstanding on our
credit facility, of which $19.0 million was hedged with an interest rate swap
contract. On an annual basis, a 100 basis point change in interest rates would
result in an approximate $385,000 change to our annual interest expense, based
on net variable rate borrowings of $38.5 million.

42

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

43

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING:

Our management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in the Securities Exchange
Act Rule 13a-15(f)). Under the supervision and with the participation of our
management, including our principal executive officer and our principal
financial officer, we assessed the effectiveness of our internal control over
financial reporting as of March 31, 2005. In making this assessment, our
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in the Internal
Control -- Integrated Framework.

In conducting our evaluation of the effectiveness of our internal control
over financial reporting, we have excluded the following acquisitions completed
during fiscal year 2005: TBT Enterprises, Incorporated and UI Advantage, Inc.
("TBT Enterprises") and Net Profit, Inc. ("Net Profit"). Total revenues of TBT
Enterprises and Net Profit for the periods from the respective acquisitions
through March 31, 2005 were $2,300,000 and $2,400,000, respectively. TBT
Enterprises and Net Profit were acquired for total consideration of $9,000,000
and $10,000,000, respectively, subject to certain contingent purchase price
adjustments. Refer to Note 5 of Notes to Consolidated Financial Statements for
further discussion of these acquisitions and their impact on our consolidated
financial results.

Our management has concluded that, as of March 31, 2005, our internal
control over financial reporting is effective based on these criteria. Our
independent registered public accounting firm, KPMG LLP, has issued an audit
report on our assessment of our internal control over financial reporting, which
is included on page 46 herein.

TALX Corporation

by: /s/ William W. Canfield
------------------------------------
President, Chief Executive Officer
and Chairman of the Board

by: /s/ L. Keith Graves
------------------------------------
Vice President, Chief Financial
Officer
and Assistant Secretary

44

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of TALX Corporation:

We have audited the accompanying consolidated balance sheets of TALX
Corporation and subsidiaries (the Company) as of March 31, 2005 and 2004, and
the related consolidated statements of earnings, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended March 31, 2005. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of March 31, 2005 and 2004, and the results of its operations and its cash
flows for each of the years in the three-year period ended March 31, 2005, in
conformity with U.S. generally accepted accounting principles.

As discussed in Note 6 to the consolidated financial statements, effective
April 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets.

We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of the
Company's internal control over financial reporting as of March 31, 2005, based
on criteria established in Internal Control -- Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
our report dated June 3, 2005, expressed an unqualified opinion on management's
assessment of, and the effective operation of, internal control over financial
reporting.

/s/ KPMG LLP

St. Louis, Missouri
June 3, 2005

45

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of TALX Corporation:

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting, that TALX
Corporation and subsidiaries (the Company) maintained effective internal control
over financial reporting as of March 31, 2005, based on criteria established in
Internal Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.

A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that the Company maintained
effective internal control over financial reporting as of March 31, 2005, is
fairly stated, in all material respects, based on criteria established in
Internal Control -- Integrated Framework issued by COSO. Also, in our opinion,
the Company maintained, in all material respects, effective internal control
over financial reporting as of March 31, 2005, based on criteria established in
Internal Control -- Integrated Framework issued by COSO.

The Company acquired TBT Enterprises, Incorporated and UI Advantage, Inc.
(TBT Enterprises) and Net Profit, Inc. (Net Profit) during the year ended March
31, 2005. Management excluded from its assessment of the effectiveness of the
Company's internal control over financial reporting as of March 31, 2005, TBT
Enterprises' and Net Profit's internal control over financial reporting
associated with total revenues of $2,300,000 and $2,400,000, respectively,
included in the consolidated financial statements of the Company for the periods
from the respective acquisitions through March 31, 2005. TBT Enterprises and Net
Profit were acquired for total consideration of $9,000,000 and $10,000,000,
respectively, subject to certain contingent purchase price adjustments. Our
audit of internal control over financial reporting of the Company also excluded
an evaluation of the internal control over financial reporting of TBT
Enterprises and Net Profit.

46

We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of the Company as of March 31, 2005 and 2004, and the related
consolidated statements of earnings, shareholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
March 31, 2005, and our report dated June 3, 2005 expressed an unqualified
opinion on those consolidated financial statements.

/s/ KPMG LLP

St. Louis, Missouri
June 3, 2005

47

TALX CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.
48

TALX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

See accompanying notes to consolidated financial statements.
49

TALX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED MARCH 31, 2003, 2004 AND 2005

See accompanying notes to consolidated financial statements.
50

TALX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements.
51

TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2005

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) DESCRIPTION OF BUSINESS

We are a provider of automated employment and income verification, tax
management services and other outsourced employee self-service applications. Our
services enable the mortgage industry, the consumer finance industry,
pre-employment screeners, employers and other authorized users to obtain
employee human resources and payroll information. We also provide unemployment
insurance claims processing, unemployment tax planning and management, and
processing of tax credits to a broad range of employers. Further, we allow
employees to review and modify information in human resources and payroll
management information systems on a self-service basis.

Our services and software offer web access, interactive voice response,
fax, document imaging and other technologies and are designed to enhance service
levels, improve productivity and reduce costs by automating historically labor
intensive, paper-based processes and enabling users to perform self-service
transactions. We typically serve large organizations, including a number of
Fortune 500 companies and federal, state and local government agencies.

(b) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of TALX
Corporation and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

(c) CASH AND CASH EQUIVALENTS

We consider all highly liquid investments with an original maturity of
three months or less to be cash and cash equivalents.

(d) SHORT-TERM INVESTMENTS

Short-term investments at March 31, 2005 consist of highly liquid money
market account deposits. We classify our short-term investments in one of two
categories: available-for-sale or held-to-maturity. Held-to-maturity securities
are those securities which we have the ability and intent to hold until
maturity. All other securities are classified as available-for-sale. All of our
securities were classified as available-for-sale at March 31, 2005. Interest
income is recognized when earned. Short-term investments classified as
available-for-sale are stated at market value.

(e) ALLOWANCE FOR DOUBTFUL ACCOUNTS

We evaluate the collectibility of accounts receivable based on a
combination of factors. In cases where we are aware of circumstances that may
impair a specific customer's ability to meet its financial obligations, we
record a specific allowance against amounts due, and thereby reduce the net
recognized receivable (i.e., net of deferred revenue) to the amount we
reasonably believe will be collected. For the remaining customers, we recognize
allowances for doubtful accounts based on the length of time the aggregate
receivables are outstanding, the current business environment and historical
experience.

(f) RESTRICTED CASH

Pursuant to an asset purchase agreement dated as of March 22, 2004, with an
effective date of April 1, 2004, we acquired substantially all of the assets and
assumed certain of the liabilities of the unemployment compensation, employment
verification and applicant screening and hiring workflow services businesses
(collectively, the "Business") of Sheakley-Uniservice, Inc. and its wholly owned
subsidiary, Sheakley

52

TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Interactive Services, LLC. Of the purchase price, $38.6 million was reflected on
our consolidated balance sheet at March 31, 2004 as restricted cash, to fund the
acquisition with an effective date of April 1, 2004. Restricted cash was
classified as non-current since the assets being acquired were primarily
long-term in nature.

(g) PROPERTY AND EQUIPMENT

We record property and equipment at cost less accumulated depreciation and
amortization. We depreciate property and equipment evenly over the assets'
estimated useful lives. We amortize leasehold improvements evenly over the
lesser of the useful life of the asset or lease term.

(h) PRODUCT DEVELOPMENT AND CAPITALIZED SOFTWARE DEVELOPMENT COSTS

We charge product development costs to operations as incurred. Software
development costs are expensed as incurred until technological feasibility is
achieved, after which time they are capitalized on a product-by-product basis.
We amortize capitalized software development costs evenly over the remaining
estimated economic life of the product, generally three years. We begin
amortization of capitalized software development costs when the product is
available for general release to clients. We review all capitalized software
assets for impairment as of each balance sheet date. Upon determination of any
impairment, we write the asset down to the appropriate value in the period that
the impairment is determined.

(i) GOODWILL AND OTHER INTANGIBLE ASSETS

We have adopted the provisions of the Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets" as of
April 1, 2002. SFAS No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. SFAS No. 142
requires that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually. In
accordance with SFAS 142, goodwill is reviewed for impairment based upon
reporting units.

(j) REVENUE RECOGNITION, WORK IN PROGRESS AND DEFERRED REVENUE

All revenues are generally recognized pursuant to annual or multi-year
contracts.

Revenues from The Work Number are realized primarily from transaction fees
and, to a lesser degree, based on up-front set-up fees and periodic maintenance
fees. Revenues for transaction fees are recognized in the period that they are
earned, based on fees charged to users at the time they conduct verifications of
employment and income. In accordance with Staff Accounting Bulletin No. 104, the
revenue for set up fees and monthly maintenance fees is recognized on a
straight-line basis from the time the service is available to be used by our
clients through the end of the service period.

Revenue for our W-2 service is recognized evenly from the time the service
is available for use by TALX clients through the end of the service period.
Additionally, we have some clients that are billed for this service on a
transactional basis. For these clients, we recognize revenue on a monthly basis,
as transactions occur.

We charge ePayroll clients on a per-employee, per-month basis, plus an
initial set-up fee. Revenue for the initial set-up fees is recognized evenly
over the initial contract period, beginning with the date the client is "live"
on our system. Per-employee, per-month fees are recognized as revenue in the
months billed.

FasTime clients are billed for initial set-up fees, monthly maintenance
fees and per transaction fees. Revenue is recognized evenly from the time the
service is available for use by our clients through the end of the service
period for setup and maintenance fees and as services are performed for
transaction-based fees.

53

TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

HireXpress clients are billed for initial set-up fees and per transaction
fees or monthly fees. Revenue is recognized evenly from the time the service is
available for use by our clients through the end of the service period for
set-up fees and as services are performed for transaction-based or monthly fees.

Revenues from our unemployment cost management services, called UC eXpress,
are recognized in the period that they are earned, evenly over the life of the
contract. Transaction fees are recorded as the services are provided. Tax
management service revenue that is contingent upon achieving certain performance
criteria is recognized when those criteria are met.

Revenue from maintenance contracts is deferred and recognized ratably over
the maintenance period. Revenues for professional services are generally
recognized as the services are performed. If there is a significant uncertainty
about the project completion or receipt of payment for the professional
services, revenue is deferred until the uncertainty is sufficiently resolved. We
estimate the percentage of completion on contracts with fixed fees on a monthly
basis utilizing hours incurred to date as a percentage of total estimated hours
to complete the project.

In relationships with certain of our customers, we enter into agreements
with more than one of our service offerings included in the arrangement. When a
client contracts with us to provide more than one service, the terms of the
underlying contract itemize each service provided and the related fees for each
service. In accordance with the consensus of Emerging Issues Task Force Issue
No. 00-21, as these fee arrangements are similar to those charged to other
clients, we recognize revenue on the basis of the fair values of the underlying
services.

Deferred revenue represents the unearned portion of The Work Number set up
fees, UC eXpress and maintenance fees.

Commissions paid are deferred and charged to expense proportionally over
the related service period.

Direct expenses related to cost of revenues are tracked separately for each
service we provide. Incremental direct costs that are related to the origination
of a client contract are expensed as incurred.

(k) CONCENTRATION OF CREDIT RISK

We sell our services and software in a variety of industries. No client
represented over 10% of revenues in fiscal 2003, 2004 or 2005. We perform
periodic credit evaluations of our clients' financial conditions and do not
require collateral. Credit losses from clients have been within our
expectations, and we believe the allowance for doubtful accounts adequately
provides for any expected losses.

(l) INCOME TAXES

We record income taxes under the asset and liability method. Deferred taxes
arise because of different treatment between financial statement accounting and
tax accounting, known as temporary differences. We record the tax effect of
these temporary differences as deferred tax assets (generally items that can be
used as a tax deduction or credit in future periods) and deferred tax
liabilities (generally items that we received a tax deduction for, but have not
yet been recorded in the Consolidated Statement of Earnings). Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

(m) FAIR VALUE OF FINANCIAL INSTRUMENTS

We disclose estimated fair values for our financial instruments. A
financial instrument is defined as cash or a contract that both imposes on one
entity a contractual obligation to deliver cash or another financial instrument
to a second entity and conveys to that second entity a contractual right to
receive cash or another
54

TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

financial instrument from the first entity. Our financial instruments include
our credit facility. The carrying value of this credit facility approximates
fair value as its stated interest rate approximates market rates. Estimated fair
value amounts have been determined using available market information or other
appropriate valuation methodologies.

(n) DERIVATIVE FINANCIAL INSTRUMENTS

Our policy is to manage interest costs using a mix of fixed and variable
rate debt. Using interest rate swap agreements, we agree to exchange, at
specified intervals, the difference between fixed and variable interest amounts
calculated by reference to an agreed-upon notional principal amount. We do not
hold or issue any derivative financial instruments for trading or speculative
purposes.

(o) STOCK-BASED COMPENSATION

We account for stock-based compensation using the intrinsic value method in
accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations, as permitted by
SFAS No. 123, "Accounting for Stock-Based Compensation."

We record compensation expense related to restricted stock awards over the
vesting periods of the awards and reflect the unearned portion of deferred
compensation as a separate component of shareholders' equity.

Since all of our options are granted with an option price equal to the
market price at the time of grant, we have not recognized any stock-based
employee compensation cost under our stock option plans. SFAS No. 123 requires
pro forma disclosure of the impact on earnings as if the compensation expense
for these plans had been determined using the fair value method. Compensation
cost is calculated under a straight line basis. The following table presents our
net earnings and earnings per share as reported and the pro forma amounts that
would have been reported using the fair value method under SFAS No. 123 for the
years presented:

The fair value of option grants for fiscal 2003, 2004 and 2005 is estimated
on the date of the grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: expected volatility of 80%, 70%, and 48%
in fiscal 2003, 2004 and 2005, respectively; risk-free interest rate of 3.50%,
3.00%, and 4.07% in fiscal 2003, 2004 and 2005, respectively; expected life of
7.5, 7.0, and 7.0 years in fiscal 2003, 2004

55

TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and 2005, respectively; and an expected dividend yield of 1.20%, 0.90%, and
0.78% in fiscal 2003, 2004 and 2005, respectively.

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 (Revised 2004), "Share-Based
Payment" ("SFAS 123(R)"). SFAS 123(R) was to be effective for our quarter ended
September 30, 2005. On April 14, 2005, the Securities and Exchange Commission
amended the compliance dates for SFAS 123(R). As a result, SFAS 123(R) will be
effective beginning in our first quarter of fiscal 2007. This Statement requires
companies to recognize compensation cost for employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award. We are currently evaluating the impact of the adoption of SFAS
123(R) on our consolidated financial statements.

(p) MANAGEMENT'S USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ materially
from those estimates. Estimates are used when accounting for depreciation,
amortization, allowance for doubtful accounts and income taxes as well as in the
evaluation of potential losses due to impairment or pending litigation.

(q) LITIGATION

When a contingency becomes probable and estimable a reserve is established
in the consolidated financial statements. To the extent not recoverable by
directors' and officers' liability insurance coverage, legal costs are expensed
as incurred.

(r) EARNINGS PER SHARE

Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share reflects
the incremental increase in common shares outstanding assuming the exercise of
all employee stock options and warrants that would have had a dilutive effect on
earnings per share and the full vesting of all restricted stock. The weighted
average number of shares is based on common stock outstanding for basic earnings
per share and common stock outstanding, restricted stock outstanding, and common
stock options and warrants for diluted earnings per share in periods when such
common stock options and warrants are not antidilutive.

(s) RECLASSIFICATIONS

Certain balances have been reclassified to conform to the presentation
adopted in the current fiscal year. The SEC settlement charge was originally
recorded in the first quarter of fiscal 2005 as other income (expense), net. It
has been reclassified to operating expenses in the consolidated statement of
earnings. Additionally, on April 22, 2003, we transferred substantially all of
the assets of our Human Resources and Benefits Application Services business to
Workscape, Inc., a Massachusetts-based provider of benefits and workforce
management solutions. Accordingly, the historical results of operations for this
business have been reclassified to earnings from discontinued operations on our
consolidated statement of earnings.

56

TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(2) ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

Billings to customers are made in accordance with the terms of the
individual contracts.

The following table represents activity within our allowance for doubtful
accounts for the years ended March 31, 2003, 2004 and 2005:

(3) PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

57

TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Depreciation and amortization expense related to property and equipment was
$5.1 million, $4.9 million, and $5.5 million for the years ended March 31, 2003,
2004 and 2005, respectively.

(4) PRODUCT DEVELOPMENT AND CAPITALIZED SOFTWARE DEVELOPMENT COSTS

Product development costs and amortization of capitalized software
development costs for the years ended March 31, 2003, 2004 and 2005 are as
follows:

(5) ACQUISITIONS

Effective April 1, 2004, we acquired substantially all of the assets and
assumed certain liabilities of the unemployment compensation, employment
verification and applicant screening and hiring workflow services businesses
(collectively, the "Sheakley Businesses") of Sheakley-Uniservice, Inc. and its
wholly owned subsidiary, Sheakley Interactive Services, LLC, for approximately
$40 million, including transaction costs, subject to certain post-closing
adjustments. The purchase price was determined based on arms'-length
negotiations and was paid in cash. In order to finance the acquisition, we
borrowed approximately $40 million under our 2004 Loan Agreement, as further
discussed in Note 8 below. As a result of this transaction, the Sheakley
Businesses were consolidated with TALX effective April 1, 2004.

On October 15, 2004, we closed on the acquisition of the stock of TBT
Enterprises, Incorporated and UI Advantage, Inc., headquartered in Gaithersburg,
Maryland, which we collectively refer to as "TBT Enterprises". On October 25,
2004, we closed on the acquisition of Net Profit, Inc., headquartered in
Greenville, South Carolina. The acquisitions were structured as stock purchases
for cash. The purchase prices for the acquisitions were determined based on
arms'-length negotiations and totaled approximately $19 million. Additionally,
the TBT Enterprises and Net Profit, Inc. acquisition agreements include
provisions for potential earn-out payments if certain future financial
performance measures are achieved before October 31, 2005 and October 31, 2006,
respectively. The acquisitions were financed through $18.0 million in borrowings
under our 2004 Loan Agreement and the remainder in cash. An earn-out payment of
$1.5 million has been agreed upon with the sellers of TBT Enterprises, to be
paid in October 2005. These acquisitions enhance our existing tax management
services offerings by allowing us to offer clients expanded services in
connection with processing of the federally reinstated work opportunity ("WOTC")
and welfare to work ("WTW") tax credits, as well as assisting clients in
calculating certain other federal and state tax credits which were not
previously a part of our service offerings. As a result of these transactions,
TBT Enterprises and Net Profit, Inc. were consolidated with TALX effective
October 15, 2004 and October 25, 2004, respectively.

58

TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the purchase price allocations of the
estimated fair values of the assets acquired and liabilities assumed for the
acquired businesses as of the effective dates of the acquisitions. The purchase
price allocations for TBT Enterprises and Net Profit, Inc. are preliminary, and
final determinations of the required purchase accounting adjustments will be
made upon the completion of our integration plans.

The table below reflects unaudited pro forma combined results of TALX and
the acquired businesses as if the acquisitions had occurred on April 1, 2003:

These unaudited pro forma amounts are not necessarily indicative of what
the actual combined results of operations might have been if the acquisitions
had been effective at the beginning of fiscal year 2004.

(6) GOODWILL AND OTHER INTANGIBLE ASSETS

In connection with the acquisitions of Ti3, Inc.; the unemployment cost
management services business of Gates, McDonald & Company, a subsidiary of
Nationwide Mutual Insurance Company; James E. Frick, Inc., d/b/a The Frick
Company; Johnson and Associates; the Sheakley Businesses; TBT Enterprises,
Incorporated and UI Advantage, Inc.; and Net Profit, Inc., we acquired certain
identifiable intangible assets. These acquisitions enhance our existing service
offerings by allowing us to offer clients expanded services in connection with
electronic time reporting, the processing of unemployment claims, and the
processing of the federally reinstated work opportunity ("WOTC") and welfare to
work ("WTW") tax credits, as well as assisting clients in calculating certain
other federal and state tax credits. We recorded these assets in accordance with
the Financial Accounting Standards Board SFAS No. 141, "Business Combinations".

Effective April 1, 2002, we adopted the SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 addresses the initial recognition and
measurement of intangible assets acquired outside of a

59

TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

business combination and the accounting for goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 provides that intangible assets
with finite useful lives be amortized and that goodwill and intangible assets
with indefinite lives will not be amortized, but will rather be tested at least
annually for impairment. Under the provisions of SFAS No. 142, any impairment
loss identified upon adoption of this standard is recognized as a cumulative
effect of a change in accounting principle. Through the use of an independent
appraiser, we reviewed our goodwill and intangible assets as of December 31,
2003 and 2004 and determined that no impairment existed.

The following table summarizes goodwill activity by segment for years ended
March 31, 2004 and 2005:

Tax-deductible goodwill totaled $116.7 million as of March 31, 2005.

The following table summarizes other intangible asset activity for years
ended March 31, 2004 and 2005:

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TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Amortization of other intangible assets is projected to be $3.4 million for
the fiscal year ended March 31, 2006, $3.3 million for each of the fiscal years
ended March 31, 2007 and 2008 and $3.2 million for each of the fiscal years
ended March 31, 2009 and 2010.

(7) ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities as of March 31, 2004 and 2005
consist of the following:

- ---------------

(1) On May 5, 2004 we reached an agreement with plaintiffs to settle all
then-pending class action lawsuits. The settlement called for payment of
$5.75 million, which was made by our insurance carriers and did not impact
earnings. Accordingly, we recorded a liability for $5.75 million in accrued
expenses and other liabilities representing the amount we owed under the
settlement agreement. Additionally, we recorded $5.75 million in prepaid
expenses and other current assets representing the amount we would receive
from our insurance companies.

(8) LONG-TERM DEBT

Long-term debt at March 31, 2004 and 2005 consists of:

In connection with the acquisition of certain businesses of
Sheakley-Uniservice, Inc., we entered into an amended and restated loan
agreement dated as of March 31, 2004, (the "2004 Loan Agreement"). Pursuant to
the 2004 Loan Agreement, we obtained secured financing consisting of a $58.0
million term loan (the "Term Loan A"), a $10.0 million term loan (the "Term Loan
B") and a $15.0 million revolving credit facility (the "Revolving Credit
Facility") from LaSalle Bank National Association, as administrative agent, and
the lenders party to the 2004 Loan Agreement .

The Term Loans and advances under the Revolving Credit Facility bore
interest at rates we selected under the terms of the 2004 Loan Agreement,
including a base rate or LIBOR, plus an applicable margin. The applicable margin
for LIBOR loans under the Revolving Credit Facility and Term Loan A varied from
1.75% to 3.25%, and the applicable margin for base rate loans under the
Revolving Credit Facility and Term Loan A was either 0.00% or 0.25% in each case
based upon our ratio of total indebtedness to EBITDA (earnings before interest,
taxes, depreciation and amortization). The applicable margin for LIBOR loans
under Term

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TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Loan B varied from 2.25% to 3.75%, and the applicable margin for base rate loans
under Term Loan B was either 0.50% or 0.75%, in each case based upon our ratio
of total indebtedness to EBITDA. Including the effect of the interest rate swap
discussed in Note 9 below, the interest rate on the Terms Loans at March 31,
2005 was 3.30%. Following the acquisitions of TBT Enterprises and Net Profit,
Inc., we no longer had any availability under either of Term Loan A or Term Loan
B. As of March 31, 2005, we had not borrowed under our $15.0 million revolving
credit facility and it remained available.

On April 14, 2005, we entered into a $100.0 million secured second amended
and restated loan agreement (the "2005 Loan Agreement") with LaSalle Bank
National Association, as administrative agent and the lenders party thereto
(collectively, the "Lenders"), to replace the 2004 Loan Agreement and refinance
in full the $57.5 million outstanding loan balance at March 31, 2005. The 2005
Loan Agreement replaces the 2004 Loan Agreement and establishes a $100 million
revolving line of credit and provides for the issuance of letters of credit and
swingline loans. Of the $100 million revolving line of credit, $42.5 million
remained available as of April 14, 2005. The total borrowing under the 2005 Loan
Agreement may not exceed $100.0 million, but we can request that the Lenders
increase their commitments by up to $25.0 million to a maximum aggregate amount
of $125.0 million under specified circumstances, in which event the existing
Lenders or new lenders may agree to provide us with additional availability.

The proceeds of loans made under the 2005 Loan Agreement may be used solely
to refinance loans outstanding under the 2004 Loan Agreement and for working
capital, permitted capital expenditures, as the source for payment of our
obligations with respect to letters of credit, to pay the transaction costs of
the 2005 Loan Agreement, to finance permitted acquisitions meeting specified
criteria, and to finance certain repurchases of our capital stock subject to
specified limitations. The 2005 Loan Agreement is secured by pledges of our
stock and membership interests in, and guarantees of, our subsidiaries and
security interests in substantially all of our assets.

Loans under the 2005 Loan Agreement mature on April 14, 2010, except that
any letters of credit may extend beyond that date if the letter of credit lender
approves and we provide sufficient collateral as security for an extended loan.
We may make prepayments on advances under the revolving credit facility without
penalty, provided we give at least one business day's notice, pay accrued
interest and otherwise make the applicable lenders whole. As the Loan Agreement
is a 5-year revolving credit facility, there are no scheduled minimum principal
repayments in fiscal years 2006 through 2010. All amounts outstanding under the
credit facility are due and payable on April 14, 2010. As a result of the
replacement of the 2004 Loan Agreement with a 5-year revolving credit facility,
the $57.5 million owed under the 2004 Loan Agreement has been reclassified to
long-term debt on the balance sheet as of March 31, 2005.

Advances under the revolving credit facility bear interest at rates we
select, including a base rate or the LIBOR rate plus an applicable margin. The
base rate is a variable rate equal to the greater of the Lender's prime rate or
the federal funds rate plus 0.5%. The applicable margin for LIBOR rate loans
will vary from 1.25% to 2.00%. Swingline loans will bear interest at the base
rate. During the existence of an event of default, loans will bear additional
interest of 2.00% per year.

We paid the Lenders an amendment fee equal to $50,000 on the effective date
of the 2005 Loan Agreement. We will also pay a facility fee, payable on a
quarterly basis in the amount equal to 0.25% of the unused portion of the
revolving credit facility. If we utilize any letters of credit, we will need to
pay a fronting fee equal to 0.125% of the face amount of each letter of credit,
as well as a letter of credit fee equal to the aggregate undrawn amount of the
letter of credit multiplied by the LIBOR margin in effect on the date the letter
of credit is issued.

The 2005 Loan Agreement includes certain covenants, including, without
limitation, restrictions on the use of proceeds of any loans, as described
above. The 2005 Loan Agreement also requires compliance with certain financial
covenants based on our minimum interest coverage (the ratio of EBIT minus
dividends and

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TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

income tax expense to interest expense), minimum EBITDA (as defined in the 2005
Loan Agreement and as adjusted for, among other things, approved acquisitions
and the SEC settlement charge, as discussed in Note 16) and our ratio of total
indebtedness to EBITDA (as so adjusted). The 2005 Loan Agreement also requires
compliance with certain operating and other covenants which limit, without first
obtaining written consent of the lenders, among other things, the ability of
TALX and our subsidiaries to incur additional debt (with specified exceptions),
sales of assets, changes in our capital structure, affiliated transactions,
acquisitions, and distributions to our shareholders. The 2005 Loan Agreement
generally prohibits the payment of cash dividends, except for cash dividends not
in excess of six cents per share per calendar quarter, up to a maximum of $7.5
million per fiscal year so long as we are not in default at the time of the
declaration. The 2005 Loan Agreement also contains various representations and
warranties, regarding, among others, compliance with material laws, the accuracy
of financial statements and other information delivered to the Lenders and the
absence of material changes.

In the event of a default under the 2005 Loan Agreement, the Lenders may
terminate the commitments made under the Loan Agreement, declare amounts
outstanding, including accrued interest and fees, payable immediately, and
enforce any and all rights and interests.

(9) DERIVATIVE FINANCIAL INSTRUMENT

We have entered into an interest rate swap contract which has a notional
amount of $19.0 million at March 31, 2005. Under this contract, we pay a fixed
rate of 3.72% and receive a variable rate of LIBOR, which is equal to the LIBOR
rate utilized on our outstanding borrowings. The notional amount of our interest
rate swap contract steps down over time until its termination on March 31, 2008.
Effective April 14, 2005, in connection with the refinancing of our credit
facility, we matched our existing interest rate swap to our 2005 Loan Agreement.
This strategy effectively converts a portion of our outstanding borrowings into
a fixed rate instrument over the term of the interest rate swap contract.

The interest rate swap and related gains and losses arising on the contract
are accounted for as a cash flow hedge in accordance with SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Specifically,
changes in the fair value of derivative instruments designated as cash flow
hedges are deferred and recorded in other comprehensive income. These deferred
gains or losses are recognized in income when the transactions being hedged are
completed.

As of March 31, 2005, the fair value of the interest rate swap is an
unrealized gain in the amount of $98,000, which is included in accrued expenses
and other liabilities.

We do not use financial instruments for trading or speculative purposes.

(10) LEASES

We have non-cancelable operating leases, primarily for office space and
office equipment, that expire through fiscal 2011. Total rent expense for
operating leases was $5.0 million, $5.3 million, and $6.0 million in 2003, 2004
and 2005, respectively.

Amortization expense associated with assets acquired under capital leases
is included in total depreciation and amortization expense.

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TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a schedule, by year, of the future minimum payments, in
thousands, under operating leases as of March 31, 2005.

Fiscal Year:
2006...................................................... $ 5,494
2007...................................................... 3,234
2008...................................................... 1,712
2009...................................................... 1,215
2010...................................................... 448
Thereafter................................................ 147
-------
Total minimum lease payments................................ $12,250
=======

(11) INCOME TAXES

Income tax expense consists of the following:

Income tax expense differed from the amounts computed by applying the
federal income tax rate of 34% in 2003 and 35% in 2004 and 2005 to earnings from
continuing operations before income tax expense as a result of the following:

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TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 31,
2004 and 2005 are presented below:

An income tax benefit totaling approximately $614,000 was charged directly
to shareholders' equity in fiscal year 2005 in connection with the exercise of
stock options. In assessing the realization of deferred tax assets, we consider
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. We consider the scheduled
reversal of deferred tax liabilities, projected future taxable income and tax
planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, we believe it is more
likely than not we will realize the benefits of these deductible differences.

(12) SHAREHOLDERS' EQUITY

On January 6, 2005, we declared a 3-for-2 stock split, which was effected
in the form of a 50 percent stock dividend, payable February 17, 2005, to
shareholders of record January 20, 2005. Earnings per share and the weighted
average number of common shares outstanding throughout this Annual Report on
Form 10-K have been retroactively adjusted for the 3-for-2 stock split.

TALX has adopted a stock option plan for employees that provides for the
issuance of a maximum of 4,573,800 shares of common stock, after adjustment for
the effect of the 3-for-2 stock split, pursuant to incentive or non-qualified
options. Options are granted by the Board of Directors at prices not less than
fair market value as of the date of the grant. Options vest 20% per year and
expire six to ten years after the date of the grant.

TALX has adopted a stock option plan for outside Directors that provides
for the issuance of a maximum of 217,800 shares of common stock, after
adjustment for the effect of the 3-for-2 stock split. On April 1, 2004, the
outside Directors were awarded options in the amount of 3,750 shares each, after
adjustment for the effect of the 3-for-2 stock split, at the fair market value
as of the date of the grant. On May 10, 2005, the outside

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TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Directors were awarded options in the amount of 1,875 shares each at the fair
market value as of the date of the grant. The options vest one year from the
date of grant. Options outstanding amount to 99,264 and 81,586 at March 31, 2004
and 2005, respectively, after adjustment for the effect of the 3-for-2 stock
split.

The stock option plan for outside Directors also provides for grants of
restricted stock of a total of not more than 12,000 restricted shares per year
to the outside Directors, after adjustment for the effect of the 3-for-2 stock
split, upon the recommendation of the Compensation Committee of the Board of
Directors. Under this plan, a total of 15,000 shares of restricted shares was
awarded to our outside Directors in fiscal 2005, after adjustment for the effect
of the 3-for-2 stock split. The restricted shares vest evenly over 3 years. The
weighted average fair value of the restricted shares on the date of grant was
$17.23, after adjustment for the effect of the 3-for-2 stock split. Recipients
of restricted stock do not pay any cash consideration for their shares, have the
right to vote all shares subject to the grant, and have dividend rights with
respect to the shares, whether or not the shares have vested.

Activity under the plans for the three years ended March 31, 2005 is as
follows:

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TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In May 1999, we entered into an agreement with a third party, under which
they provided us with strategic advisory services. Pursuant to that agreement,
we issued them warrants to purchase a total of 68,062 shares of our common stock
at an exercise price of $3.21 per share, after adjustment for the effect of the
3-for-2 stock split. All 68,062 warrants are outstanding and exercisable at
March 31, 2005.

During fiscal 1997, shareholders approved the TALX Corporation 1996
Employee Stock Purchase Plan (ESPP), which was amended in 1998 and 2000 and
amended and restated in 2001. The ESPP allows eligible employees the right to
purchase common stock on a quarterly basis at the lower of 85% of the market
price at the beginning or end of each three-month offering period. Of the
1,361,250 shares of common stock shares reserved for the ESPP, after adjustment
for the effect of the 3-for-2 stock split, there were 516,514 shares remaining
at March 31, 2005.

On September 25, 2002, our Board of Directors authorized us to repurchase
up to one million shares of our stock in the open market, or through privately
negotiated transactions during the 36-month period ending September 30, 2005,
subject to market conditions and other factors. Under the September 25, 2002
plan, we did not repurchase any shares during the quarter ended March 31, 2005.
Cumulative shares repurchased under the September 25, 2002 plan amounted to
306,211. On May 10, 2005, our Board of Directors authorized us to repurchase up
to two million shares of our stock in the open market, or through privately
negotiated transactions during the 36-month period ending May 9, 2008, subject
to market conditions and other factors. The May 10, 2005 plan superseded the
September 25, 2002 plan, and the remaining 693,789 authorized shares that had
been authorized for repurchase under the September 25, 2002 plan are no longer
available for repurchase. Except for the 42,275 shares remaining in the treasury
at March 31, 2005, all shares repurchased have been reissued in connection with
employee stock option exercises and employee stock purchase plan purchases.

During fiscal 2001, we began paying dividends on our common stock on a
quarterly basis. After adjustment for the effect of the 3-for-2 stock split,
dividends of $0.09, $0.13 and $0.15 per share were declared and dividends of
$0.08, $0.12 and $0.15 per share were paid to shareholders during fiscal years
2003, 2004 and 2005, respectively. Any future determination to pay dividends
will be at the discretion of our Board of Directors and will depend upon our
earnings, capital requirements, operating and financial condition, restrictions
in our Loan Agreement, and such other factors as the board may deem relevant.

(13) EARNINGS PER SHARE

Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share reflects
the incremental increase in common shares outstanding assuming the exercise of
all employee stock options and warrants that would have had a dilutive effect on
earnings per share and the full vesting of all restricted stock. The weighted
average number of shares is based on common stock outstanding for basic earnings
per share and common stock outstanding, restricted stock outstanding, and common
stock options and warrants for diluted earnings per share in periods when such
common stock options and warrants are not antidilutive. As of March 31, 2004 and
2005, stock options to purchase 472,636 and 181,786 shares, respectively, were
not dilutive and, therefore, were not included in the computations of diluted
earnings per share amounts.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On January 6, 2005, we declared a 3-for-2 stock split, which was effected
in the form of a 50 percent stock dividend, payable February 17, 2005, to
shareholders of record January 20, 2005. Earnings per share and the weighted
average number of common shares outstanding throughout this Annual Report on
Form 10-K have been retroactively adjusted for the 3-for-2 stock split.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(14) DISCONTINUED OPERATIONS

On April 21, 2003, the Board of Directors granted management the authority
to dispose of the Human Resources and Benefits Application Services business.
Accordingly, it was determined that this business met the requirements to be
presented as a discontinued operation.

On April 22, 2003 we transferred substantially all of the assets of our
Human Resources and Benefits Application Services business to Workscape, Inc., a
Massachusetts-based provider of benefits and workforce management solutions. The
primary product of this line of services, the benefits enrollment business,
provides a customized solution for clients' employees to enroll in an employer's
benefits programs and make changes to their personal information and benefits
elections, all by means of the Internet or by telephone. Workscape, Inc. hired
all of the employees directly related to the benefits enrollment business.

The transaction was structured as a transfer of assets under contract for
sale with no initial down-payment and the purchase price to be paid over a
three-year period, based on a client retention formula. Proceeds are anticipated
to be between $2.0 million and $6.0 million. While the contract did not specify
a minimum guaranteed amount, we secured a $2.0 million note from Workscape, Inc.
and as of May 4, 2005 we had received payment in full on the note and $135,000
of interest payments in connection with the note.

All assets and liabilities of this business, both the portion of the
business transferred under contract to Workscape, Inc. (approximately 90% of the
assets) and the portion that has not yet been sold, along with related
transaction costs, were recorded on our consolidated balance sheet as net assets
of business held for sale. We recorded cash received under the asset purchase
agreement first to reduce the recorded value of net assets of business held for
sale and then to reflect gain on the sale of the business.

In connection with the transfer, we are providing Workscape, Inc., for
agreed-upon fees, with various transition services related to the operation of
the benefits enrollment business until December 31, 2005, or until certain
transferred client contracts have expired or been terminated. These fees, offset
by costs to deliver the service, were recorded first to reduce the recorded
value of net assets of business held for sale and then to reflect gain on the
sale of the business. The historical results of operations for this business
have been reclassified to earnings from discontinued operations on our
consolidated statement of earnings.

The results of operations for this business for the years ended March 31,
2003, 2004 and 2005 were as follows:

(15) EMPLOYEE BENEFIT PLAN

We sponsor a profit-sharing/401(k) plan. The plan covers substantially all
of our employees. Employees may contribute up to 50% of pre-tax compensation to
the plan. We make contributions to the plan, subject to ERISA limitations, up to
2.4% of employees' earnings. There is a three-year graded vesting schedule for
employer matching contributions. Participants direct the investment of both
employee deferral and employer

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TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

matching contributions among a variety of investment choices. The plan does not
hold company stock. Total expense under the plan for the years ended March 31,
2003, 2004 and 2005 was $762,000, $831,000 and $1.0 million, respectively.

(16) COMMITMENTS AND CONTINGENCIES

We are a defendant from time to time in lawsuits. Based on information
currently available, we believe that no current proceedings, individually or in
the aggregate, will have a material adverse effect upon us.

On December 26, 2001, a purported class action lawsuit was filed in the
United States District Court for the Eastern District of Missouri (Civil Action
No. 4:01CV02014DJS) by Matt L. Brody, an alleged shareholder of the Company,
against the Company, certain of its executive officers and directors (William W.
Canfield, Craig N. Cohen and Richard F. Ford) (collectively, the "Individual
Defendants"), and two underwriters (Stifel, Nicolaus & Company, Incorporated and
A.G. Edwards & Sons, Inc.) in our August 2001 secondary common stock offering
("Secondary Offering"). The case purportedly was brought on behalf of all
persons who purchased or otherwise acquired shares of our common stock between
July 18, 2001 and October 1, 2001 ("Putative Class Period"), including as part
of the Secondary Offering. The complaint alleged, among other things, that
certain statements in the registration statement and prospectus for the
Secondary Offering, as well as other statements made by the Company and/or the
Individual Defendants during the Putative Class Period, were materially false
and misleading because they allegedly did not properly account for certain
software and inventory, did not reflect certain write-offs, and did not
accurately disclose certain business prospects. The complaint alleged violations
of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder against the Company and the Individual Defendants,
violations of Section 11 of the Securities Act of 1933 against the Company, the
Individual Defendants and the underwriters, and violation of Section 15 of the
Securities Act of 1933 against Mr. Canfield.

Three additional purported class action lawsuits were filed in the same
court, against the same defendants and making substantially the same
allegations: on January 8, 2002 by Donald Metzger (Civil Action No.
4:02CV00031DJS); on January 9, 2002 by Anna Goodman (Civil Action No.
4:02CV00033DJS); and on January 30, 2002 by Al Hinton (Civil Action No.
4:02CV00168DJS) each of whom allegedly were shareholders of the Company during
the Putative Class Period. On February 15, 2002, these three lawsuits were
consolidated with and into the Brody lawsuit (Civil Action No. 4:01CV02014DJS)
for all purposes.

The Consolidated Complaint sought, among other things, an award of
unspecified money damages, including interest, for all losses and injuries
allegedly suffered by the putative class members as a result of the defendants'
alleged conduct and unspecified equitable/injunctive relief as the Court deemed
proper.

On May 5, 2004, we reached an agreement with the plaintiffs to settle all
then-pending class action lawsuits. The settlement called for payment of $5.75
million, which was made by our insurance carriers and did not impact earnings.
As of the year ended March 31, 2004, we recorded a liability for $5.75 million
in accrued expenses and other liabilities representing the amount we owed under
the settlement agreement. Additionally, we recorded $5.75 million in prepaid
expenses and other current assets representing the amount we expected to receive
from our insurance companies. On May 8, 2004, we received $5.75 million from our
insurance companies, and on June 1, 2004, we paid the $5.75 million settlement.

On October 6, 2004, the Court entered a Final Judgment and Order of
Dismissal with Prejudice, approving the proposed settlement in all respects. The
Court simultaneously issued an Order Approving Allocation of Settlement
Proceeds. The Court's Final Judgment provides that the claims of the named
plaintiffs and all members of the class are dismissed with prejudice; that any
claims that were or could have been alleged by the named plaintiffs or members
of the class are released and forever discharged; and that the

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TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

action is dismissed subject to the Court's continuing jurisdiction with regard
to implementation of the settlement and distribution of the settlement fund to
the class.

As previously disclosed, the Securities and Exchange Commission, which we
refer to as the "Commission" or the "SEC", initially commenced an investigation
into our second fiscal quarter 2001 financial results. On November 12, 2002, the
staff of the Central Regional Office of the Commission sent us a "Wells letter"
indicating the staff's plans to recommend to the Commission that it institute an
enforcement action against us and two of our executive officers, William
Canfield and Craig Cohen (who has resigned from the Company) related to two
matters, and requesting that we and such executive officers submit responses to
the letter. The Wells letter stated that the SEC staff would allege, among other
things, that our financial statements were misleading as a result of
capitalizing instead of expensing $1.6 million related to a patent technology
license agreement executed in March 2001 and expensing approximately $158,000 in
bonus payments to executive officers in the first quarter of fiscal 2002 instead
of the fourth fiscal quarter of 2001. Those items are among those that were the
subject of our prior restatement, as disclosed in our Form 10-K/A for the year
ended March 31, 2002. We and the individuals filed separate responses to the
Wells letter. Since the time of the Wells submissions, the Commission
investigated our accounting for certain items.

In anticipation of a settlement with the SEC, we recorded a reserve of $3.0
million in the first quarter of fiscal year 2005. This charge was included in
"other income (expense), net" in the consolidated statement of earnings for the
quarter ended June 30, 2004. On August 12, 2004, we announced that we had made
an offer of settlement to the Enforcement Division of the SEC, under which we
would pay a fine of $2.5 million and would consent, without admitting any
wrongdoing, to the entry of an SEC order prohibiting us from violating certain
securities laws in the future. In the fourth quarter of fiscal year 2005, we
reclassified the SEC settlement charge to "operating expenses" in our
consolidated statement of earnings. Additionally, $0.5 million of the reserve
recognized in the 2005 first quarter was reclassified to "general and
administrative" expenses, representing related legal expenses incurred during
the fiscal year. On March 3, 2005, we announced that the SEC had accepted the
previously announced offer of settlement submitted by us to resolve the SEC's
investigation into our accounting for certain items. The SEC also accepted an
offer of settlement submitted by William W. Canfield, our president and chief
executive officer, to resolve charges stemming from the same accounting issues.

In the settlement of the civil suit referred to above, we released our
insurance providers from related claims against our applicable insurance
policies. Accordingly, the SEC settlement charge was not covered by insurance.
Additionally, any further defense costs incurred by us in connection with the
SEC investigation as indemnification on behalf of Craig N. Cohen and any future
related litigation will be borne by us and will not be covered by insurance. In
addition, to the extent that we are required to indemnify Mr. Cohen against any
fines or penalties assessed against him, those amounts will be borne by us and
not be covered by insurance. The application of any of the foregoing remedies,
or the commencement of any regulatory proceeding or enforcement action, could
harm our business and financial condition.

As required under our articles of incorporation, we are obligated to
indemnify and advance expenses of each of the Individual Defendants, as current
or former officers and/or directors of the Company to the fullest extent
permitted by Missouri law, in connection with the above matters, subject to
their obligations to repay amounts advanced under certain circumstances. Stifel,
Nicolaus & Company and A.G. Edwards & Sons, Inc. have made demands on the
Company to indemnify and advance expenses to them in connection with these
matters.

Regardless of the outcome, litigation of this type is expensive and, until
settled or otherwise resolved, may require that we devote substantial resources
and executive time to defend these proceedings.

In addition to matters set forth above, we are also party to other lawsuits
and claims that arise in the ordinary course of conducting our business. In the
opinion of management, after taking into account recorded

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

liabilities, the outcome of these other lawsuits and claims will not have a
material adverse effect on our consolidated financial position or results of
operations.

(17) BUSINESS SEGMENT INFORMATION

In fiscal year 2005, we determined that we operate in three business
segments. The presentation of segment information reflects the manner in which
management organizes segments for making operating decisions and assessing
performance. The Company's Chief Operating Decision Maker and Board of Directors
review gross profit for the Company's business units. The Company's Chief
Operating Decision Maker and Board of Directors only review profit and loss
information after gross profit on a consolidated basis to assess performance,
make overall operating decisions and make resource allocations. The Company's
business units are closely interrelated in their activities and share services
such as order entry, billing, technical services, internet support, purchasing
and information technology facilities. As a result, it is impractical and
provides no value to allocate costs of these services to the business units or
to allocate any of the underlying assets to the businesses. Additionally, the
Company's Chief Operating Decision Maker and its principal officers participate
in a cash bonus program which rewards performance based upon consolidated
Company results.

As of March 31, 2005, the Company's operations are conducted principally
through business segments comprised of: The Work Number services, tax management
services, and customer premises systems and related maintenance and support. The
Work Number services include our employment verification and services, W-2
eXpress, ePayroll, FasTime, HireXpress, and I-9 eXpress; Tax Management Services
include our employment tax consulting and claim processing operations,
unemployment tax planning services, and employment-related tax credit and
incentive services; and customer premises systems and maintenance and support
relate to a business the Company is phasing out. There are no intersegment
sales, and we do not allocate assets to the segments.

Summary by Business Segments:

72

TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(18) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the year for interest totaled $1.3 million, $756,000, and
$2.6 million for the years ended March 31, 2003, 2004 and 2005, respectively.
Cash paid during the year for income taxes totaled $2.5 million, $4.7 million,
and $11.5 million for the years ended March 31, 2003, 2004 and 2005,
respectively.

(19) RELATED PARTY TRANSACTION

James W. Canfield, the son of our Chairman, President and Chief Executive
Officer, is employed in a non-executive position with our Company as Director of
Product Development. Mr. Canfield has a current annual salary of $115,600 and is
eligible for a bonus of approximately $35,000 based upon certain performance
goals. This bonus can decrease or increase based on the percentage achievement
of these performance goals. Mr. Canfield is also eligible annually for an award
of stock options. Both the bonus and stock option awards are granted under
standard corporate compensation plans and are consistent with payments made to
directors at Mr. Canfield's level. For fiscal 2005, Mr. Canfield received
$107,000 in salary, approximately $42,000 in bonus and 7,500 stock options for
his services to the Company. Additionally, during fiscal year 2005, Mr. Canfield
was awarded 3,000 stock options for fiscal year 2006.

(20) SUBSEQUENT EVENT

Pursuant to an acquisition agreement dated April 20, 2005, we acquired
Jon-Jay Associates, Inc., which specializes in providing unemployment cost
management services as well as an employment verification service, for
approximately $24 million, including transaction costs, subject to certain
post-closing adjustments. Additionally, the acquisition agreement includes
provisions for potential earn-out payments if certain future financial
performance measures are achieved through the twelve months ending April 30,
2006 and April 30, 2007, respectively.

Pursuant to an asset purchase agreement dated April 26, 2005, we acquired
substantially all of the assets and assumed certain of the liabilities of Glick
& Glick Consultants, LLC, which specializes in employment-related tax credit and
incentive services, for approximately $5 million, including transaction costs,
subject to certain post-closing adjustments. The purchase prices were determined
based on arms'-length negotiations, and were paid in cash financed through our
2005 Loan Agreement as discussed above in Note 8.

The purchase agreements provide for indemnification of the Company by the
sellers for certain pre-closing liabilities and obligations of the business,
subject to certain limitations. Escrow accounts, maintained pursuant to the
terms of respective escrow agreements, are also available until one year
following the purchases to satisfy the indemnification obligations under the
purchase agreements, subject to certain limitations described in the acquisition
agreements. Of the purchase prices, $2.9 million was paid into the escrow
accounts.

73

TALX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(21) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly data is set forth in the following tables.

On January 6, 2005, we declared a 3-for-2 stock split, which was effected
in the form of a 50 percent stock dividend, payable February 17, 2005, to
shareholders of record January 20, 2005. Earnings per share and the weighted
average number of common shares outstanding throughout this Annual Report on
Form 10-K have been retroactively adjusted for the 3-for-2 stock split.

74

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

CONTROLS AND PROCEDURES:

Our management, including our Chairman, President and Chief Executive
Officer and our Vice President, Chief Financial Officer and Assistant Secretary,
performed an evaluation of the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rule 13a-15(e)), as of March 31, 2005,
and determined that such controls and procedures are effective as of that date
to provide reasonable assurance that the information required to be disclosed by
us in the reports we file under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. They have also determined in their
evaluation that there was no significant change in our internal control over
financial reporting during the quarter ended March 31, 2005 that has materially
affected or is reasonably likely to materially affect our internal control over
financial reporting.

It should be noted that while our management, including the Chairman,
President and Chief Executive Officer and the Vice President, Chief Financial
Officer and Assistant Secretary, believe our disclosure controls and procedures
provide a reasonable level of assurance, they do not expect that our disclosure
controls and procedures or internal controls will prevent all error and all
fraud. A control system, no matter how well conceived or operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls is based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions; over time, controls may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.

The information contained in Management's Report on Internal Control over
Financial Reporting and the Report of Independent Registered Public Accounting
Firm regarding such Management's Report contained in "Item 8 -- Financial
Statements and Supplementary Data" are incorporated by reference herein.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Information regarding directors and executive officers of the Company is
contained under the caption "Nominees and Continuing Directors," the first
sentence and the last sentence under the caption "Committees and Meetings of the
Board of Directors -- Audit Committee," and the information under the captions
"Executive Officers," "Section 16(a) Beneficial Ownership Reporting Compliance"
and "Code of Business Ethics" included in the Proxy Statement for the 2005
Annual Meeting of Shareholders, which information is incorporated herein by
reference.

75

ITEM 11. EXECUTIVE COMPENSATION.

Information regarding executive compensation is contained under the caption
"Executive Compensation," "Compensation Committee Interlocks and Insider
Participation," "Equity Compensation Plan Information," "Shareholder Approved
Equity Compensation," "Non-Shareholder Approved Equity Compensation,"
"Employment and Severance Agreements" and "Director Compensation" included in
the Proxy Statement for the 2005 Annual Meeting of Shareholders, which
information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

Information regarding security ownership of certain beneficial owners and
management and related stockholder matters is contained under the captions
"Equity Compensation Plan Information," "Shareholder Approved Equity
Compensation," "Non-shareholder Approved Equity Compensation," "Common Stock
Ownership of Directors, Nominees and Officers," and "Common Stock Ownership of
Certain Beneficial Owners" included in the Proxy Statement for the 2005 Annual
Meeting of Shareholders, which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Information regarding certain relationships and related transactions is
contained under the caption "Certain Relationships and Related Party
Transactions" included in the Proxy Statement for the 2005 Annual Meeting of
Shareholders, which information is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Information regarding principal accountant fees and services is contained
under the caption "Ratification of Independent Auditors" included in the Proxy
Statement for the 2005 Annual Meeting of Shareholders, which information is
incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following documents are filed as part of this report:

(1) Financial Statements

See "Item 8 -- Index to Consolidated Financial Statements."

(2) Financial Statement Schedules

None; such schedules have been omitted because of the absence of
conditions under which they are required or because the information is
included in the financial statements or notes thereto.

(3) Exhibits

See Exhibit Index for the exhibits filed as part of or incorporated by
reference into this report.

We agree to furnish to the Securities and Exchange Commission a copy
of any long-term debt instruments for which the total amount of securities
authorized thereunder does not exceed 10% of the total assets of us and our
subsidiaries on a consolidated basis.

76

SIGNATURES

Pursuant to the requirements of Section 13 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.

TALX CORPORATION

By: /s/ WILLIAM W. CANFIELD
------------------------------------
William W. Canfield
Chairman, President and Chief
Executive Officer
(Principal Executive Officer)

June 3, 2005

By: /s/ L. KEITH GRAVES
------------------------------------
L. Keith Graves
Vice President, Chief Financial
Officer and
Assistant Secretary
(Principal Financial and Accounting
Officer)

June 3, 2005

Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated:

77

EXHIBIT INDEX

- ---------------

+ TALX Corporation undertakes to furnish supplementally a copy of any
schedule to the Securities Exchange Commission upon request.

++ Represents management contract or compensatory plan or arrangement.

* Certain portions of this agreement have been omitted pursuant to a
confidential treatment request and filed separately with the Securities and
Exchange Commission.

79