TALX CORP - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended December 31, 2002 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)

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. [X] Yes [ ] No

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

As of January 31, 2003 there were 13,692,750 shares of the Registrant's Common
Stock outstanding, net of treasury shares held by the Company.

Exhibit Index is on page 40.

TALX CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS

2

TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share information)

See accompanying notes to consolidated financial statements.

3

TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands, except share information)
(unaudited)

See accompanying notes to consolidated financial statements.

4

TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)

See accompanying notes to consolidated financial statements.

5

TALX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION AND RESTATEMENT OF FINANCIAL STATEMENTS

Our consolidated balance sheet at March 31, 2002 was obtained from our audited
balance sheet, as restated, as of that date. All financial statements contained
herein are unaudited and, in the opinion of management, contain all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation. Operating results for the three and nine months ended December 31,
2002 are not indicative of the results that may be expected for the year ending
March 31, 2003. Our accounting policies and certain other disclosures are set
forth in the notes to our audited consolidated financial statements as of and
for the year ended March 31, 2002, or in the case of restated amounts, as
indicated within this Form 10-Q.

In response to inquiries made by the Securities and Exchange Commission during
the course of its recent investigation, we commenced a review of the accounting
treatment for two items in the year ended March 31, 2001. We subsequently
restated certain of our previously issued financial statements. As a result,
certain information in the accompanying financial statements and notes as of and
for the periods ended December 31, 2001 and March 31, 2002 has been restated
from its original presentation in the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 2001 and Annual Report on Form 10-K for the
fiscal year ended March 31, 2002. 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 statement of earnings is 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.

Independent of the SEC investigation, we also considered recent guidance from
the SEC staff concerning the accounting for service transactions across many
industries, and restated certain revenues, as well as attendant costs, in the
Human Resources and Benefits Application Services and The Work Number Services
revenue lines. This guidance requires, for certain of our contracts, revenues to
be recognized on a straight-line basis from the time the service is available
for use by our clients through the end of the service period. Previously, we had
consistently recorded revenues as services were provided.

Additionally, during the course of the review into these matters, we identified
an inaccuracy in the method of computing the weighted average shares outstanding
used for the computation of diluted earnings per share.

The following tables indicate the impact of all restatements on our statements
of operations and balance sheets. The restatements had no impact on our total
cash flows from operations, investing activities or financing activities.

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TALX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

7

TALX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8

TALX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

9

TALX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10

TALX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

11

TALX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12

TALX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Throughout the financial statements and notes, all amounts presented as of March
31, 2002 and for the three and nine months ended December 31, 2001 have been
adjusted to reflect the aforementioned adjustments.

As a result of the recent SEC guidance discussed above concerning the accounting
for service transactions, we have updated our revenue recognition policy. The
updated policy is described in the following paragraph:

Revenues from The Work Number are recognized in the period that they are earned,
from transaction fees charged to users for verifications of employment history
and income. Additionally, revenue for set up fees, monthly maintenance and
employer conversion fees are 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. 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. Revenue which is contingent upon achieving certain performance
criteria is recognized when those criteria are met. Human resources and benefits
application services revenue 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. We recognize hardware and software license revenue upon shipment
based on vendor-specific objective evidence. Revenues for customization services
of customer premises systems are recognized by the contract method of accounting
using percentage of completion for larger, more complex systems and the
completed contract method for smaller systems. Revenue from maintenance
contracts is deferred and recognized ratably over the maintenance period.
Deferred revenue represents the unearned portion of The Work Number setup fees,
as well as, Human Resources and Benefits Application Services, UC eXpress and
maintenance fees. Commissions paid are deferred and expensed over the related
service period.

NOTE 2 - 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. The weighted average number of shares is based on common
stock outstanding for basic earnings per share and common 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. All weighted
average share amounts include the effect of all stock dividends and splits.

NOTE 3 - COMPREHENSIVE INCOME

Comprehensive income for the three months ended December 31, 2001 and 2002 was
$3.3 million and $4.2 million, respectively, and for the nine months ended
December 31, 2001 and 2002 was $2.5 million and $8.6 million, respectively. The
difference between comprehensive income and net income for the three and nine
months ended December 31, 2001 arose from unrealized holding gains (losses) on
our debt securities portfolio. The difference between comprehensive income and
net income for the three and nine months ended December 31, 2002 arose from
unrealized holding gains (losses) on our interest rate swap contract.

NOTE 4 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for income taxes totaled $919,000 and $2.5 million for the nine months
ended December 31, 2001 and 2002, respectively. Cash paid for interest totaled
$0 and $1.0 million for the nine months ended December 31, 2001 and 2002,
respectively.

We declared a $0.03 per share cash dividend, totaling $410,000, on November 19,
2002. The dividend was payable January 17, 2003 to shareholders of record on
December 20, 2002.

13

TALX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

As a result of our restatements discussed in Note 1 above, there were no changes
to total cash flows from operating activities, investing activities or financing
activities. There were, however, the following changes to components within cash
flows from operating activities:

NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS

In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that all business combinations initiated after
June 30, 2001 be accounted for under the purchase method and addresses the
initial recognition and measurement of goodwill and other intangible assets
acquired in a business combination. 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. 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. Any impairment loss incurred
subsequent to initial adoption of SFAS No. 142 is recorded as a charge to
current period earnings.

We have adopted the provisions of SFAS No. 141 related to all three of our
acquisitions during fiscal 2002, and have adopted SFAS No. 142 effective April
1, 2002. Goodwill and intangible assets determined to have an indefinite useful
life that are acquired in purchase business combinations will not be amortized,
but instead tested for impairment on an annual basis. Because we did not have
goodwill prior to the acquisition of Ti3, Inc., there is no impact to the
Company of implementing SFAS No. 142.

The following table summarizes goodwill and other intangible asset activity for
the nine months ended December 31, 2002 (dollars in thousands).

14

TALX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Amortization of other intangible assets was $1.0 million for the nine months
ended December 31, 2002, and is currently projected to be $1.3 million for the
fiscal year ended March 31, 2003, $1.4 million for the fiscal year ended March
31, 2004 and $1.3 million for each of the fiscal years ended March 31, 2005
through 2007.

NOTE 6 - LONG-TERM DEBT

In connection with the acquisitions of The Frick Company and the unemployment
cost management business of GatesMcDonald & Company, on March 27, 2002, pursuant
to a loan agreement dated as of March 27, 2002, (the "Loan Agreement"), we
obtained secured financing consisting of a $30,000,000 term loan (the "Term
Loan") and a $10,000,000 revolving credit facility (the "Revolving Credit
Facility") from LaSalle Bank National Association, as administrative agent and
lender, and Southwest Bank of St. Louis, as lender, and any other lenders that
may become party to the Loan Agreement (collectively, the "Lenders"). We used
the proceeds of the Term Loan to pay a portion of the purchase price for the
acquisitions; however, we have not borrowed under the Revolving Credit Facility.
We must repay principal of the Term Loan in quarterly installments, with the
final installment due on February 27, 2005. In addition, principal payments are
required out of excess cash flow. The Revolving Credit Facility also matures on
February 27, 2005.

The Loan Agreement includes certain covenants, including, without limitation,
restrictions on the use of proceeds of the Term Loan and loans made under the
Revolving Credit Facility. The Term Loan was to be used solely to pay a portion
of the purchase price for the acquisitions of the The Frick Company and the
unemployment cost management business of GatesMcDonald & Company. The proceeds
of loans made under the Revolving Credit Facility may be used solely for working
capital, permitted capital expenditures, as the source for payment of our
obligations with respect to certain existing letters of credit, to pay the
transaction cost of the Loan Agreement, and to finance certain permitted
acquisitions. The Loan Agreement also requires compliance with certain financial
covenants based on our minimum net worth, minimum EBITDA, our ratio of total
indebtedness to EBITDA and our ratio of EBITDA to fixed charges. The Loan
Agreement further requires compliance with certain operating and other covenants
which limit, among other things, the incurrence of additional indebtedness by us
and our subsidiaries, the amount of capital expenditures to be made by us and
our subsidiaries, sales of assets and mergers and dissolutions, impose
restrictions on distributions to shareholders, change of control of TALX,
investments, acquisitions and liens, and which require compliance, in all
material respects, with material laws. The Loan Agreement also contains various
representations and warranties, including among other things, the accuracy of
financial statements and other information delivered to the Lenders, the absence
of changes which would have or would reasonably be likely to have a material
adverse effect (as customarily included in secured credit facilities of this
nature).

On January 27, 2003, the Company entered into an amendment to the Loan
Agreement. Our wholly-owned subsidiaries, James E. Frick, Inc., Garcia
Acquisition Sub, Inc. and Ti3, Inc., consented to the amendment as guarantors.
Among other things, the amendment modified the minimum EBITDA covenant for the
fiscal quarters ending March 31, 2003, June 30, 2003 and September 30, 2003
contained in the Loan Agreement. In addition, the Company obtained from the
Lenders a waiver of its violation of the minimum EBITDA covenant for the quarter
ended December 31, 2002.

NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENT

On March 27, 2002, we entered into a $30 million variable rate term loan. This
loan, which accrues interest based upon certain LIBOR indexes, will amortize
over three years with a maturity of February 27, 2005. As a condition of our
Term Loan Agreement, we were required to enter into a hedge contract for 50% of
our outstanding term loan as a means of reducing our interest rate exposure.
Pursuant to this requirement, we entered into an interest rate swap contract on
June 26, 2002 for a notional amount of $14 million, which represented 50% of our
outstanding term loan balance on that date. Under this contract, we pay a fixed
rate of 3.45% and receive a variable rate of LIBOR, which is equal to the LIBOR
rate utilized on our term loan. The notional amount of our interest rate swap
contract steps down according to the same schedule as our term loan, maintaining
a 50% hedged position. All payment dates and maturity dates are the same as our
term loan. This strategy effectively converts 50% of our term loan into a fixed
rate instrument.

15

The interest rate swap and related gains and losses arising on the contract are
accounted for as a cash flow hedge in accordance with Statement of Financial
Accounting Standards ("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. The ineffective portion, if
any, of these hedges is recognized in income currently.

As of December 31, 2002, the fair value of the interest rate swap in the amount
of $276,000 is included in accrued expenses and other liabilities.

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

NOTE 8 - BUSINESS SEGMENTS

FASB Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information," requires companies to provide certain information about their
operating segments. We have two reportable segments: Payroll-Based Services and
Software and Unemployment Cost Management Services.

PAYROLL-BASED SERVICES AND SOFTWARE: This segment includes the following:

o The Work Number Services - The Work Number(R), W-2 eXpress(SM),
ePayroll and FasTime(R);

o Human Resources and Benefits Application Services; and

o Customer Premises Systems and Related Maintenance and Support

UNEMPLOYMENT COST MANAGEMENT SERVICES: This segment includes our UC
eXpress(SM) services suite.

The following items are not reported on an operating segment basis (and are
included in the following table in the column entitled "Unallocated") because
they are not considered in the performance evaluation by our chief operating
decision-maker, our chairman and CEO:

o Interest income and expense and income taxes;

o Acquisition-related debt, goodwill and intangible assets;

o Intangible asset amortization expense; and

o Executive overhead expenses

16

TALX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Summarized financial information concerning our reportable operating segments is
shown in the following table for the periods indicated, in thousands:

Prior to restatement, Payroll-Based Services and Software revenues, income from
operations and total assets for the three months ended December 31, 2001 were,
in thousands, $12,184, $2,891 and $124,194 and for the nine months ended
December 31, 2001 were $34,400, $3,511 and $124,194, respectively.

NOTE 9 - COMMITMENTS AND CONTINGENCIES

We are a defendant from time to time in routine lawsuits incidental to our
business. Except to the extent described below, 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 the Company's August 2001 secondary common stock
offering ("Secondary Offering"). The case purportedly is brought on behalf of
all persons who purchased or otherwise acquired shares of the Company's common
stock between July 18, 2001 and October 1, 2001 ("Putative Class Period"),
including as part of the Secondary Offering. The complaint alleges, 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 alleges violations
of Sections 10(b) and 20(a) of the Securities

17

TALX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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. In October 2002, the case
was transferred from the Honorable Donald J. Stohr, United States District
Judge, to the Honorable Henry E. Audrey, United States District Judge.

The consolidated lawsuit seeks, 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 deems proper.

On May 20, 2002, the Company and the Individual Defendants filed a motion to
dismiss the lawsuits, and the underwriter defendants filed a separate motion to
dismiss. The plaintiffs filed their opposition to the motions to dismiss on June
19, 2002. The defendants' reply memoranda in support of the motions to dismiss
were filed on July 9, 2002. The parties are awaiting the Court's ruling on the
motions.

The Company believes the plaintiffs' claims are without merit and intends to
defend vigorously against them. However, due to the inherent uncertainties of
litigation, the Company cannot accurately predict the ultimate outcome of the
litigation. An unfavorable outcome could have a material adverse impact on the
Company's business, financial condition and results of operations.

As previously disclosed, the Securities and Exchange Commission is conducting an
investigation into our August 2001 secondary offering of common stock and second
fiscal quarter 2001 financial results. We are cooperating fully with the
investigation, and have voluntarily produced documents requested by the
Commission and have made our employees available for interviews or testimony
upon request. 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, related to
two matters. The Wells letter states that the SEC staff will 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 are the
subject of our restatement discussed herein. The remedies the Commission may
consider include an injunction against us and the individuals and, if
appropriate, an officer and director bar and disgorgement and civil money
penalties against the individuals. We and the individuals have filed written
responses to the Wells letter setting forth the reasons why an enforcement
action should not be instituted by the Commission. Subsequently, the staff
requested additional information regarding two other items that were the subject
of the restatement, revenue recognition and earnings per share calculations.
These items are not the subject of the staff's Wells letter. We cannot predict
whether or not the staff will decide to recommend enforcement action with
respect to these two items.

As described above, the Company has restated its financial statements for each
of the quarters ended June 30, 2000 through June 30, 2002 and for the fiscal
years ended March 31, 2001 and 2002. As a result of the restatement, we could
become subject to additional litigation or regulatory proceedings or both. As of
the date hereof, we are not aware of any litigation having been commenced
against us related to this restatement. However, such litigation could be
commenced against us in the future and the plaintiffs who have filed lawsuits
against us previously could amend their complaints to include claims related to
this restatement, and if so, we could not predict the outcome of any such
litigation at this time. Additionally, the Lenders

18

TALX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

under our March 27, 2002 Loan Agreement could seek to exercise remedies which
may be available to them, such as acceleration of our loan, in the event they
determine that, as a result of the restatement discussed above or the SEC
investigation discussed below or otherwise, we have breached a covenant or
representation and warranty in the Loan Agreement. If an unfavorable result
occurred in any such action, our business and financial conditions could be
harmed.

Further, we cannot predict at this time whether or not any additional regulatory
investigation by the SEC or otherwise related to this restatement will be
commenced, or if it is, the outcome of any such investigation. However, if any
such investigation were to result in a regulatory proceeding or action against
us, our business and financial condition could be harmed.

Additionally, the Company is required to indemnify each of the Individual
Defendants, as officers and/or directors of the Company, in connection with the
above matters, provided they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the Company. Stifel,
Nicolaus & Company and A.G. Edwards & Sons, Inc. have made demands on the
Company to indemnify them in connection with these matters.

The Company's directors and officers liability insurance carriers have received
notice of the consolidated litigation and SEC investigation.

Regardless of the outcome of any litigation or regulatory proceeding, litigation
and regulatory proceedings of this type are expensive and will require that we
devote substantial resources and executive time to defend these proceedings.

NOTE 10 - SUBSEQUENT EVENT

As a result of the delay in filing our Form 10-Q for the quarter ended September
30, 2002, the letter "E" was appended to our trading symbol, signifying the
delay, from November 26, 2002 until January 22, 2003.

Following an appeal hearing by The Nasdaq Stock Market, we were informed on
January 17, 2003 that a Nasdaq Listing Qualifications Panel has determined to
continue the listing of our common stock. However, the Nasdaq Listing and
Hearing Review Council may on its own motion, within 45 days, review the Panel's
decision. There can be no assurance that the Nasdaq Listing and Hearing Review
Council will not object to the continued listing of our common stock.

19

TALX CORPORATION AND SUBSIDIARIES
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-Q and in our Annual Report on
Form 10-K/A for the year ended March 31, 2002. However, as described above in
Note 1 to the Unaudited Consolidated Financial Statements, which is incorporated
by reference herein, we have decided to restate certain of our previously issued
financial statements. As a result, certain information in the accompanying
financial statements and notes as of and for the periods ended December 31, 2001
and March 31, 2002 has been restated from its original presentation in our
Quarterly Report on Form 10-Q for the quarter ended December 31, 2001 and Annual
Report on Form 10-K for the fiscal year ended March 31, 2002.

Throughout the following Management's Discussion and Analysis, all amounts
reflect the restatements indicated in the Notes to Unaudited Consolidated
Financial Statements.

OVERVIEW

We are the leading provider of automated employment and income verification and
unemployment cost management services and a leader in providing outsourced
employee self-service applications. Our services enable mortgage lenders,
pre-employment screening companies, employers and other authorized users to
obtain employee human resources and payroll information. We also allow employees
to review and modify information in human resources, benefits and payroll
management information systems without requiring employer assistance. Further,
we provide unemployment insurance claims processing and unemployment tax
planning and management to a broad range of employers.

Our services and software use interactive web and interactive voice response
software, fax 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 approximately
two-thirds of the Fortune 500 and a number of federal, state and local
government agencies.

From the early 1980s until 1993, we offered our products and services
exclusively through licensed software specifically developed for each customer
and installed at the customer's site. We refer to this as our "customer premises
systems" business. In 1993, we began to deliver benefits enrollment and other
human resource services on an outsourced basis, allowing clients to utilize
applications and services over public or private networks without incurring the
capital expenditures and maintenance responsibilities of operating such a system
in-house. We also host many of our clients' databases at our facilities. In
1995, we introduced The Work Number, our leading service for employment and
income verification.

With the market's acceptance of our outsourced delivery method, in 1998, we
began to de-emphasize sales of customer premises systems, and in 2000
discontinued sales to new clients; however, we still have a base of clients for
whom we continue to provide maintenance and technical support services as well
as software and hardware upgrades.

SERVICES AND PRODUCTS

We provide services and systems that enable large corporations and government
agencies to outsource operations that would otherwise be performed by their own
human resources, benefits or payroll departments. Our software uses interactive
web and interactive voice response software and other technologies to enable
mortgage lenders, pre-employment screening companies, employees and other
authorized users to obtain employee human resources and payroll information, and
allows employees and their managers to review and modify information in the
human resources benefits and payroll management information systems on a
self-service basis. Our services and products fall within four general
categories: The Work Number services, unemployment cost management services,
human resources and benefits application services and customer premises systems,
including related maintenance and support.

20

TALX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE WORK NUMBER SERVICES

Responding to inquiries to verify employment and income information, printing
and distributing pay stubs and annual W-2 forms, and updating employee personnel
records are burdensome and time-consuming tasks for employers and divert
resources from managing their businesses. The Work Number employment and income
verification service and other payroll application services supported by The
Work Number's database of employee records are designed to help employers save
time and effort and reduce expenses associated with many of the administrative
tasks required to support large workforces.

The Work Number. Mortgage lenders, pre-employment screeners, 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. In 1995, we
developed The Work Number as an outsourced service that enables employers to
reduce the costs and resources to respond to verification requests, while
empowering employees to control the release of personal information to third
parties.

When an employer receives a request for income and employment data regarding an
employee, the employer may direct the third-party verifier to our web site or to
a telephone number. Using the Internet or a toll-free telephone number,
verifiers who subscribe to our service can confirm the employee's employment
status and income for the past three years. Non-subscribing verifiers can
receive the same information through these methods using a credit card or
through a 1-900 telephone number. The Work Number is designed to ensure that
access to an employee's income data is available only to verifiers who have been
pre-authorized by the employee.

We generate substantially all of The Work Number revenues from transaction-based
fees charged to mortgage lenders, pre-employment screeners, credit issuers and
other information verifiers for verification of income and employment
information. Revenue is recognized on these transaction-based fees in the period
that the transactions occur and are billed. We also generate revenues from
employer data conversion and ongoing maintenance fees, and record this revenue
on a monthly basis as billed. Lastly, we derive revenues from one-time up-front
setup fees. These fees are recognized as revenue on a straight-line basis over
the initial contract period, beginning with the date the client is live on our
system.

W-2 eXpress. W-2 eXpress is a suite of services relating to the printing,
distribution (either printed or electronic) and correction of W-2 wage and tax
statement forms that we offer to existing clients of The Work Number and other
large employers. Using data provided by employers, we distribute original W-2
forms to employees and provide an automated process to enable employees to
request corrections to their W-2 forms and obtain additional copies via the
Internet or by telephone, instead of requiring direct interaction with the
employer's payroll staff.

The majority of W-2 eXpress clients are billed based upon the number of
employees, generally pursuant to multi-year contracts. Revenue is recognized on
a straight-line basis 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 on a transactional basis. For these clients, we
recognize revenue on a monthly basis, as transactions occur.

ePayroll. ePayroll is another outsourcing service that we offer to existing
clients of The Work Number and other large employers. ePayroll is a suite of
payroll self-services applications that enable employees, via the Internet or by
telephone, to receive pay statement information, access current and historical
payroll information and review and change direct deposit account information.

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TALX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

We began offering ePayroll in November 2000, and our first clients began using
the service in August 2001. We charge ePayroll clients on a per-employee
per-month basis, plus an initial set-up fee, generally pursuant to multi-year
contracts. Revenue for the initial setup fees is recognized on a straight-line
basis 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. FasTime services are integrated time capture and reporting solutions
that work from any phone or the Internet. 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.

FasTime clients are billed for initial set up fees, monthly maintenance fees and
per transaction fees, generally pursuant to multi-year contracts. Revenue is
recognized on a straight-line basis 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.

UNEMPLOYMENT COST MANAGEMENT

As a result of our recent acquisitions, we provide unemployment cost management
services under the name UC eXpress. UC eXpress is a comprehensive suite of
services designed to reduce the cost of processing unemployment claims by human
resource departments and better manage the tax rate that employers are assessed
for unemployment taxes. UC eXpress utilizes document imaging and web access to
speed the processing of unemployment claims with the goal of uncovering
inaccuracies in claims that have been filed with the states by separated
employees. UC eXpress services are aimed at relieving HR departments of the
administrative burden of managing unemployment claims.

Following an employee separation, UC eXpress services respond to unemployment
claims on behalf of our clients. This includes reviewing employment records to
preserve the clients' rights as an employer. If an unemployment hearing is
required, UC eXpress services include client conferences with UC eXpress hearing
consultants/attorneys and, upon client request, attendance at the hearing with
the employer's representative. In addition, the UC eXpress field-based account
management team and hearing consultants bring state-specific unemployment tax
knowledge to the client.

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

o unemployment tax services

o employment tax research and recovery

o unemployment tax planning

o tax registrations

o 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. Since
UC eXpress offers a choice of employer tax services, clients can take advantage
of the services that are most effective in reducing their employment tax costs.

22

TALX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We charge clients fees on an annual contractual basis, generally billed monthly
or quarterly, pursuant to multi-year contracts. Most contracts allow for
additional charges if transaction activity exceeds a certain threshold. Some
unemployment tax planning contracts call for contingent fees based upon actual
tax savings realized. Revenues from 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. Revenue which is contingent upon
achieving certain performance criteria is recognized when those criteria are
met.

HUMAN RESOURCES AND BENEFITS APPLICATION SERVICES

For many human resources departments, benefits enrollment is a burdensome
administrative task. Employees are generally permitted to enroll in or make
changes to many types of benefit plans only at particular times during the year.
As a result, during such enrollment periods, a considerable amount of human
resources and benefits department efforts are directed toward plan
administration. Processing employee changes to information recorded under
multiple providers' benefits plans can require the completion, verification and
handling of numerous paper-based forms. Many companies find it necessary to hire
temporary workers to manage the increased workload during these periods.

We offer our clients outsourcing solutions designed to reduce the resources and
expenses associated with enrolling employees and administering ongoing
participation in employee benefits programs. Our services include processing
enrollments, producing personalized worksheets and confirmations, and delivering
completed enrollments to employers and insurance carriers. We support both open
and ongoing enrollments year-round. To reach the growing number of Internet
users, our applications enable employees to complete enrollments via the
Internet, corporate portals and corporate intranets. For those employees who
prefer or need to use the telephone, options are available for processing
enrollments via interactive voice response.

Historically, we offered customer premises-based software systems that were
tailored to meet the needs of a particular employer. Since 1993, we have been
providing customized benefits enrollment services using the application service
provider model. In 2000, we introduced eChoice, our advanced benefits enrollment
service combining the most popular features of our various customized benefits
enrollment offerings that we can configure to meet each employer's particular
needs.

We market eChoice to organizations employing at least 5,000 people. Through
eChoice, employees can enroll in an employer's medical, dental and other health
and welfare benefits programs and can make changes to their personal information
and benefits elections, all by means of the Internet or telephone. eChoice
enables employers to remove many of the time-consuming aspects of administering
their benefits programs, while providing benefits managers with an automated
means of monitoring the enrollment process and performing certain plan
management functions. Additionally, eChoice allows employees to make enrollment
decisions privately and assures that their elections will not be subject to
human transcription error.

We generate revenues from eChoice by charging clients on a per-employee basis,
generally pursuant to multi-year contracts. We generate revenues from our other
human resources and benefits application services by charging clients an initial
set-up and development fee and monthly hosting and transactions fees, generally
pursuant to multi-year contracts. Revenue is primarily recognized on a
straight-line basis from the time the service is available for use by our
clients through the end of the service period.

CUSTOMER PREMISES SYSTEMS AND RELATED MAINTENANCE AND SUPPORT

From the early 1980s until 1993, we offered our products and services
exclusively through licensed software specifically developed for each customer,
and installed these systems at the customer's site. In 1993 we began to deliver
benefits enrollment services as an application services provider. In 1998 we
began to de-emphasize sales of customer premises systems, and in 2000 we
discontinued sales to new customers. We provide system enhancements to these
customers and customer support 7-days per week, 24-hours per day, through a
toll-free hotline, email and our

23

TALX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

website. We sold these systems under licenses and generate additional revenues
by providing ongoing maintenance and support.

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: Revenues from The Work Number are recognized in the period
that they are earned, from transaction fees charged to users for verifications
of employment history and income. Additionally, revenue for set up fees, monthly
maintenance and employer conversion fees are 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. 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. Revenue which is contingent upon achieving certain performance
criteria is recognized when those criteria are met. Human resources and benefits
application services revenue 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. Because of seasonal variations of our service offerings, a
greater number of clients have services available to them from October through
December than during any other period during the year. As a result, revenues in
our third fiscal quarter are substantially higher than in the other three
quarters of the year. In prior fiscal years, over fifty percent of annual
revenues in this revenue line have been recorded in the third fiscal quarter.
During the current fiscal year, it is anticipated that between 45 and 50 percent
of the year's Human Resources and Benefits Application Services revenue will be
recorded in the third fiscal quarter. We recognize hardware and software license
revenue upon shipment based on vendor-specific objective evidence. Revenues for
customization services of customer premises systems are recognized by the
contract method of accounting using percentage of completion for larger, more
complex systems and the completed contract method for smaller systems. Revenue
from maintenance contracts is deferred and recognized ratably over the
maintenance period. Deferred revenue represents the unearned portion of The Work
Number setup fees, as well as, Human Resources and Benefits Application
Services, UC eXpress and maintenance fees. Commissions paid are deferred and
expensed over the related service period.

INTANGIBLE ASSET VALUATIONS: 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; and James E. Frick, Inc.,
d/b/a The Frick Company, TALX acquired certain identifiable intangible assets.
These assets were recorded in accordance with the Financial Accounting Standards
Board SFAS No. 141, "Business Combinations".

Effective April 1, 2002, we have 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. Under the provisions of SFAS No.
142, any impairment loss identified upon adoption of this standard will be
recognized as a cumulative effect of a change in accounting principle. Goodwill
and intangible assets determined to

24

TALX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

have an indefinite useful life that are acquired in purchase business
combinations will not be amortized, but instead tested for impairment on an
annual basis.

CAPITALIZED SOFTWARE: Software development costs are expensed as incurred until
technological feasibility is achieved, after which they are capitalized on a
product-by-product basis. Amortization of capitalized software development costs
is computed using the straight-line method over the remaining estimated economic
life of the product, generally three years. Amortization of capitalized software
development costs starts when the product is available for general release to
clients. All capitalized software assets are reviewed as of each balance sheet
date for impairment. Upon determination of any impairment, the asset is
written-down 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 tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. In assessing the
realization of deferred tax assets, management considers 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. Management considers 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, management believes it is more likely than
not we will realize the benefits of these deductible differences. If management
were to determine that we would not be able to realize all or part of our net
deferred tax asset in the future, an adjustment to the deferred tax asset would
be charged against earnings in the period such determination was made.

The above listing is not intended to be a comprehensive list of all of our
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by accounting principles generally accepted
in the United States of America, with no need for management's judgment in their
application. There are also areas in which management's judgment in selecting
any available alternative would not produce a materially different result. See
our consolidated financial statements and notes thereto contained in our Annual
Report on Form 10-K/A for the year ended March 31, 2002 which contains
accounting policies and other disclosures required by accounting principles
generally accepted in the United States of America.

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,
cash flows and anticipated improvements in gross margin and general and
administrative expense as a percentage of revenues of the unemployment cost
management business. All statements other than statements of historical facts
included in this Form 10-Q 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 surrounding the class action litigation, the SEC investigation
and the restatement of our financial statements,

(2) our ability to effectively integrate acquired companies and capitalize
on cross-selling opportunities,

(3) our ability to successfully integrate acquisitions, including, without
limitation, managing contingent liabilities and retaining
employer-customers,

25

TALX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(4) our ability to increase the size and range of applications for The
Work Number database and successfully market current and future human
resources and benefits application services,

(5) fluctuations in The Work Number revenue due to changes in the level of
residential mortgage activity and interest rates,

(6) changes in mortgage documentation requirements in the secondary
market,

(7) our ability to maintain accurate and confidential data,

(8) future challenges to applicability of the Fair Credit Reporting Act or
any new privacy legislation or interpretation of existing laws, and

(9) risk of interruption of computer network and telephone operations.

See our Annual Report on Form 10-K/A for the year ended March 31, 2002, for a
complete description of some of our risk factors. You should read this report
completely and with the understanding that our actual results may be materially
different from what we expect. We will not 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.

RESULTS OF OPERATIONS

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

* - not meaningful.

26

TALX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

* - not meaningful.

27

TALX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 2002 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
2001

Revenues. Total revenues increased 141.3% to $33.7 million in the third quarter
of fiscal 2003 from $14.0 million in the third quarter of fiscal 2002.

Revenues from The Work Number services increased 31.4% to $9.0 million in the
third quarter of fiscal 2003 from $6.9 million in the third quarter of fiscal
2002, due to an increase in the number of employment records in the database and
related transaction volume, new clients gained from continued marketing to
employers and large verifiers and, to a lesser extent, an increase in pricing
during the preceding year.

Revenues from unemployment cost management services for the third quarter of
fiscal 2003 of $18.9 million represent revenues from our acquisition of both The
Frick Company and the unemployment cost management business of GatesMcDonald &
Company on March 27, 2002. This represents an increase of approximately 5.2%,
from $17.9 million for the prior sequential quarter, due principally to
cross-selling successes.

Revenues from human resources and benefits application services decreased 16.1%
to $4.7 million in the third quarter of fiscal 2003 from $5.5 million in the
third quarter of fiscal 2002. This resulted from a decrease in the number of
clients to whom services were available in this quarter compared to the
comparable prior year quarter, due to client attrition not being replaced by new
sales. This softening of new sales is due to the poor economic conditions which
began affecting our sales performance in the second quarter of fiscal 2002.

Revenues from customer premises systems decreased 53.5% to $281,000 in the third
quarter of fiscal 2003 from $604,000 in the third quarter of fiscal 2002. This
decrease is due to a shift in our focus away from selling in-house systems to
our human resources and benefits application services.

Revenues from maintenance and support related to the customer premises systems
decreased 7.2% to $908,000 in the third quarter of fiscal 2003 from $978,000 in
the third quarter of fiscal 2002, reflecting the support provided to a shrinking
installed base as we shift our strategy towards providing similar solutions
through application services.

We anticipate revenues from customer premises systems and maintenance and
support will continue to decrease from current levels as we have discontinued
sales to new clients and continue to emphasize The Work Number services and
unemployment cost management services.

Gross Margin. Total gross margin increased 116.1% to $18.9 million in the third
quarter of fiscal 2003 from $8.7 million in the third quarter of fiscal 2002. As
a percentage of total revenues, gross margin decreased to 55.9% in the third
quarter of fiscal 2003 from 62.4% in the third quarter of fiscal 2002.

The Work Number services gross margin increased 34.9% to $6.1 million, or 67.7%
of corresponding revenue, in the third quarter of fiscal 2003 from $4.5 million,
or 65.9% of corresponding revenue in the third quarter of fiscal 2002. The
increase in gross margin and gross margin percentage was due primarily to
revenue increases and improved leveraging of our operational infrastructure.

Unemployment cost management services gross margin was $9.2 million, or 48.6% of
corresponding revenue in the third quarter of fiscal 2003. This represents an
increase from $8.4 million, or 47.0% of corresponding revenue in the previous
sequential quarter. The increase in gross margin and gross margin percentage was
due primarily to revenue increases and improvements resulting from our efforts
to consolidate the cost structure of the acquired businesses.

Human resources and benefits application services gross margin decreased 11.3%
to $2.9 million, or 62.5% of corresponding revenue, in the third quarter of
fiscal 2003 from $3.3 million or 59.1% of corresponding revenue in the third
quarter of fiscal 2002. This decrease in gross margin is due to the lower
revenue levels discussed above. The

28

TALX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

increase in gross margin percentage is due to improved leveraging of personnel
costs within our delivery organization. Because of the seasonal variations in
our service offerings, gross margins in this revenue line are lower in the
first, second and fourth fiscal quarters and are substantially higher in our
third fiscal quarter each year. This is because fixed infrastructure and
personnel costs are incurred relatively evenly through the year, while revenues
are seasonally higher in the third fiscal quarter due to proportionally
increased benefits enrollment activity.

Customer premises systems gross margin decreased 131.8% to ($57,000), or (20.3%)
of corresponding revenue, in the third quarter of fiscal 2003 from $179,000, or
29.6% of corresponding revenue in the third quarter of fiscal 2002. The decrease
in gross margin and gross margin percentage is due to a certain level of fixed
personnel costs in place to support this business, even as revenues continued to
decline.

Maintenance and support gross margin decreased 2.1% to $735,000, or 80.9% of
corresponding revenue, in the third quarter of fiscal 2003, from $751,000, or
76.8% of corresponding revenue, in the third quarter of fiscal 2002. The
decrease in gross margin is due to lower revenues caused by a shrinking client
base. The increase in gross margin percentage is due to improved leveraging of
personnel costs.

Selling and Marketing Expenses. Selling and marketing expenses increased 132.4%
to $4.9 million in the third quarter of fiscal 2003 from $2.1 million in the
third quarter of fiscal 2002. This increase is primarily due to the addition of
our recently acquired unemployment cost management services businesses. As a
percentage of revenues, such expenses decreased to 14.6% in the third quarter of
fiscal 2003 from 15.1% in the third quarter of fiscal 2002. The decrease in
expense as a percentage of revenues is due to the greater rate of increase in
our revenues compared to personnel and related costs.

General and Administrative Expenses. General and administrative expenses
increased 243.2% to $6.8 million in the third quarter of fiscal 2003 from $2.0
million in the third quarter of fiscal 2002. This increase is primarily due to
the addition of our recently acquired unemployment cost management services
businesses. In addition, we incurred approximately $800,000 in incremental legal
and accounting fees related to our ongoing SEC investigation and related
financial statement restatements. As a percentage of revenues, such expenses
increased to 20.3% in the third quarter of fiscal 2003 from 14.2% in the third
quarter of fiscal 2002. This increase is due primarily to the newly acquired
unemployment cost management services businesses historically having higher
general and administrative expenses as a percentage of revenue compared to our
traditional businesses. We expect to see this percentage improve in future
quarters as we continue to consolidate the cost structure of the acquired
businesses. Additionally, the increase in general and administrative expenses in
our traditional businesses as a percentage of revenues is due to the revenue
levels in human resources and benefits application services, that were lower
than anticipated.

Other Income (Expense), Net. Other income (expense), net decreased to $339,000
of other expense in the third quarter of fiscal 2003 from $564,000 of other
income in the third quarter of fiscal 2002, due to a shift from a net investing
position to a net borrowing position. This is due to the financing related to
our acquisitions of the unemployment cost management services businesses.

Income Tax Expense. Our effective income tax rate increased to 38.5% in the
third quarter of fiscal 2003 from 36.3% in the third quarter of fiscal 2002.
This change reflects the effect of tax-exempt interest earned on state and
federal tax-free municipal securities during fiscal 2002.

NINE MONTHS ENDED DECEMBER 31, 2002 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
2001

Revenues. Total revenues increased 175.6% to $92.0 million in the first three
quarters of fiscal 2003 from $33.4 million in the first three quarters of fiscal
2002.

29

TALX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Revenues from The Work Number services increased 28.5% to $25.2 million in the
first three quarters of fiscal 2003 from $19.6 million in the first three
quarters of fiscal 2002, due to an increase in the number of employment records
in the database and related transaction volume, new clients gained from
continued marketing to employers and verifiers and, to a lesser extent, an
increase in pricing during the preceding year.

Revenues from unemployment cost management services for the first three quarters
of fiscal 2003 of $54.9 million represent revenues from our acquisition of both
The Frick Company and the unemployment cost management business of GatesMcDonald
& Company on March 27, 2002.

Revenues from human resources and benefits application services decreased 2.4%
to $8.0 million in the first three quarters of fiscal 2003 from $8.2 million in
the first three quarters of fiscal 2002. This resulted from a decrease in the
number of clients to whom services were available in this nine month period,
compared to the comparable prior year period, due to client attrition not being
replaced by new sales. This softening of new sales is due to the poor economic
conditions which began affecting our sales performance in the second quarter of
fiscal 2002.

Revenues from customer premises systems decreased 54.8% to $1.2 million in the
first three quarters of fiscal 2003 from $2.6 million in the first three
quarters of fiscal 2002. This decrease is due to a shift in our focus away from
selling in-house systems to our human resources and benefits application
services.

Revenues from maintenance and support related to the customer premises systems
decreased 6.4% to $2.8 million in the first three quarters of fiscal 2003 from
$2.9 million in the first three quarters of fiscal 2002, reflecting the support
provided to a shrinking installed base as we shift our strategy towards
providing similar solutions through application services.

We anticipate revenues from customer premises systems and maintenance and
support will continue to decrease from current levels as we have discontinued
sales to new clients and continue to emphasize The Work Number services and
unemployment cost management services.

Gross Margin. Total gross margin increased 176.2% to $48.3 million in the first
three quarters of fiscal 2003 from $17.5 million in the first three quarters of
fiscal 2002. As a percentage of total revenues, gross margin increased to 52.4%
in the first three quarters of fiscal 2003 from 52.3% in the first three
quarters of fiscal 2002.

The Work Number services gross margin increased 26.9% to $16.5 million, or 65.3%
of corresponding revenue, in the first three quarters of fiscal 2003 from $13.0
million, or 66.1% of corresponding revenue in the first three quarters of fiscal
2002. The increase in gross margin was due primarily to revenue increases. The
gross margin percentage decreased due to the inclusion of Ti3, which has a lower
gross margin than our traditional The Work Number services, for the three
quarters of fiscal 2003, versus only the second and third quarters of fiscal
2002. Also, costs related to personnel and infrastructure increased slightly in
the first quarter of fiscal 2003 to accommodate possible future electronic
payroll services clients.

Unemployment cost management services gross margin was $26.4 million, or 48.1%
of corresponding revenue in the first three quarters of fiscal 2003. We expect
to realize improvements in the gross margin percentage throughout the fiscal
year as we continue to consolidate the cost structure of the acquired
businesses.

Human resources and benefits application services gross margin increased 37.2%
to $2.9 million, or 36.6% of corresponding revenue, in the first three quarters
of fiscal 2003 from $2.1 million, or 26.1% of corresponding revenue in the first
three quarters of fiscal 2002. This increase in gross margin and gross margin
percentage is principally due to improved leveraging of fixed infrastructure
costs, compared to the comparable prior year period. Because of the seasonal
variations in our service offerings, gross margins in this revenue line are
lower in the first, second, and fourth fiscal quarters and are substantially
higher in our third fiscal quarter each year. This is because fixed
infrastructure and

30

TALX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

personnel costs are incurred relatively evenly through the year, while revenues
are seasonally higher in the third fiscal quarter.

Customer premises systems gross margin decreased 49.8% to $267,000, or 22.6% of
corresponding revenue, in the first three quarters of fiscal 2003 from $532,000,
or 20.4% of corresponding revenue in the first three quarters of fiscal 2002.
The decrease in gross margin is due to a certain level of fixed personnel costs
in place to support this business, even as revenues continued to decline. The
increase in gross margin percentage is due to the elimination of amortization of
capitalized software, that remained during the first quarter of fiscal 2002 as
we were shifting our business focus to The Work Number services and human
resources and benefits application services.

Maintenance and support gross margin increased 3.5% to $2.2 million, or 80.1% of
corresponding revenue, in the first three quarters of fiscal 2003, from $2.1
million, or 72.5% of corresponding revenue, in the first three quarters of
fiscal 2002. The increase in gross margin and gross margin percentage is due to
improved leveraging of personnel costs, offset by lower revenues caused by a
shrinking client base.

Selling and Marketing Expenses. Selling and marketing expenses increased 112.0%
to $14.1 million in the first three quarters of fiscal 2003 from $6.7 million in
the first three quarters of fiscal 2002. This increase is primarily due to the
addition of our recently acquired unemployment cost management services
businesses. As a percentage of revenues, such expenses decreased to 15.3% in the
first three quarters of fiscal 2003 from 19.9% in the first three quarters of
fiscal 2002. The decrease in percentage of revenues is due to the greater rate
of increase in our revenues as compared to personnel and related costs.

General and Administrative Expenses. General and administrative expenses
increased 253.6% to $18.9 million in the first three quarters of fiscal 2003
from $5.4 million in the first three quarters of fiscal 2002. This increase is
primarily due to the addition of our recently acquired unemployment cost
management services businesses. Additionally, in the third quarter of fiscal
2003 we incurred approximately $800,000 in incremental legal and accounting fees
related to our ongoing SEC investigation and related financial statement
restatements. As a percentage of revenues, such expenses increased to 20.6% in
the third quarter of fiscal 2003 from 16.0% in the third quarter of fiscal 2002.
This increase is due primarily to the newly acquired unemployment cost
management services businesses historically having higher general and
administrative expenses as a percentage of revenue compared to our traditional
businesses. We expect to see this percentage improve in future quarters as we
continue to consolidate the cost structure of the acquired businesses.
Additionally, the increase in general and administrative expenses in our
traditional businesses as a percentage of revenues is due to the revenue levels
in human resources and benefits application services, that were lower than
anticipated.

Non-Recurring Charges. During the quarter ended September 30, 2001, we
reorganized our sales and delivery operations and refocused our product lines
related to our human resources and benefit applications and customer premises
systems businesses. In conjunction with the reorganization, we reduced our
workforce by approximately 17%, closed certain regional sales offices and
wrote-down hardware inventory and capitalized software. As a result of these
actions, we incurred restructuring charges of $1.9 million associated with the
write-off of capitalized software, $349,000 related to employee severance costs
and $337,000 related to office closing costs. These items are reflected in the
line item "restructuring charge" on the statement of earnings for the nine
months ended December 31, 2001 and $240,000 and $153,000 is reflected in accrued
expenses on the balance sheet as of March 31, 2002 and December 31, 2002,
respectively. Additionally, we incurred a charge of $307,000 related to the
write-down of certain hardware inventory items. This charge is reflected as a
separate component of cost of goods sold on the statement of earnings for the
nine months ended December 31, 2001.

Other Income (Expense), Net. Other income (expense), net decreased to $1.0
million of other expense in the first three quarters of fiscal 2003 from $1.2
million of other income in the first three quarters of fiscal 2002, due to a
shift from a

31

TALX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

net investing position to a net borrowing position. This is due to the financing
related to our acquisitions of the unemployment cost management services
businesses.

Income Tax Expense. Our effective income tax rate increased to 38.4% in the
first three quarters of fiscal 2003 from 37.4% in the first three quarters of
fiscal 2002. This change reflects the effect of tax-exempt interest earned on
state and federal tax-free municipal securities during fiscal 2002.

LIQUIDITY AND CAPITAL RESOURCES

In recent years, we have financed our operations through cash flows from
operations, except as described below.

On August 8, 2001 we completed a secondary stock offering of 2,950,000 shares of
our common stock, including 200,000 shares of a selling shareholder, resulting
in gross proceeds to the Company of $83.1 million. Additionally, we incurred
$644,000 of costs related to the transaction which were offset against the
proceeds. The share amounts discussed above do not include the effect of the 10%
stock dividend declared on September 6, 2001.

Our working capital was $3.0 million at March 31, 2002 and $1.0 million at
December 31, 2002. Total working capital decreased during the nine months ended
December 31, 2002 due principally to payments made related to our March 27, 2002
acquisitions and increases in deferred revenue and the current portion of
long-term debt. At December 31, 2002, $8.8 million of current liabilities
represent deferred revenue instead of payment obligations. As a result, 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 accounts receivable increased from $12.5 million at March 31, 2002 to $15.4
million at December 31, 2002, due primarily to a high level of billings during
the last month of the quarter.

Our capital expenditures were $3.6 million during the nine months ended December
31, 2002. These capital expenditures were principally for computer equipment and
integrating the operational infrastructure for our unemployment cost management
services segment. At December 31, 2002, 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 to 24 months, as we continue to integrate the
operations of our acquisitions.

In November 2000, our board of directors authorized us to repurchase up to
400,000 shares of our stock in the open market, or through privately negotiated
transactions over the following two-year period. In November 2001, this plan was
extended to November 2004, and the number of shares was increased to one
million. We repurchased 311,000 shares during the nine months ended December 31,
2002. Cumulative shares repurchased amount to 608,500. Share amounts are
reported on a pre-dividend basis. Except for the 255,792 shares remaining in the
treasury at December 31, 2002, all shares repurchased have been reissued in
connection with employee stock option exercises and employee stock purchase plan
purchases. On September 5, 2002, our board of directors approved a new stock
repurchase plan, authorizing us to repurchase up to one million shares during
the 36 month period ending September 30, 2005, subject to market conditions and
other factors. As of December 31, 2002, no shares have been repurchased under
this plan.

During the quarter ended December 31, 2002, we continued our quarterly dividend
program, declaring a $0.03 dividend on our common stock.

In connection with the acquisitions of The Frick Company and the unemployment
cost management business of GatesMcDonald & Company, on March 27, 2002, pursuant
to a loan agreement dated as of March 27, 2002, (the "Loan Agreement"), we
obtained secured financing consisting of a $30,000,000 term loan (the "Term
Loan") and a $10,000,000 revolving credit facility (the "Revolving Credit
Facility") from LaSalle Bank National Association, as

32

TALX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

administrative agent and lender, and Southwest Bank of St. Louis, as lender, and
any other lenders that may become party to the Loan Agreement (collectively, the
"Lenders"). We used the proceeds of the Term Loan to pay a portion of the
purchase price for the acquisitions; however, we have not borrowed under the
Revolving Credit Facility. We must repay principal of the Term Loan in quarterly
installments, with the final installment due on February 27, 2005. In addition,
principal payments are required out of excess cash flow. The Revolving Credit
Facility also matures on February 27, 2005.

The Term Loan and advances under the Revolving Credit Facility bear interest at
rates we select under the terms of the Loan Agreement, including a base rate or
eurodollar rate, plus an applicable margin. Until March 27, 2003, eurodollar
rate loans will bear interest at the applicable eurodollar rate plus 2.25% and
base rate loans will bear interest at the applicable base rate. After that, the
applicable margin for eurodollar rate loans will vary from 2.00% to 2.25%, and
the applicable margin for base rate loans will remain at 0.00%, in each case
based upon our ratio of total indebtedness to EBITDA. We may make prepayments
under the Term Loan during the first twelve months after the closing date
without penalty, except that we will be obligated to pay a $600,000 prepayment
premium under certain limited circumstances. In addition, if William W. Canfield
ceases serving as our chief executive officer during the first 24 months after
closing, and we do not retain a substitute satisfactory to the Lenders within
120 days, then we are required to repay all outstanding loans, including both
the Term Loan and Revolving Credit Facility.

The Loan Agreement is secured by pledges of our stock in, and guarantees of, our
subsidiaries and security interests in substantially all of our, and our
subsidiaries', assets.

The Loan Agreement includes certain covenants, including, without limitation,
restrictions on the use of proceeds of the Term Loan and loans made under the
Revolving Credit Facility. The Term Loan was to be used solely to pay a portion
of the purchase price for the acquisitions of the The Frick Company and the
unemployment cost management business of GatesMcDonald & Company. The proceeds
of loans made under the Revolving Credit Facility may be used solely for working
capital, permitted capital expenditures, as the source for payment of our
obligations with respect to certain existing letters of credit, to pay the
transaction cost of the Loan Agreement, and to finance certain permitted
acquisitions. The Loan Agreement also requires compliance with certain financial
covenants based on our minimum net worth, minimum EBITDA, our ratio of total
indebtedness to EBITDA and our ratio of EBITDA to fixed charges. The Loan
Agreement further requires compliance with certain operating and other covenants
which limit, among other things, the incurrence of additional indebtedness by us
and our subsidiaries, the amount of capital expenditures to be made by us and
our subsidiaries, sales of assets and mergers and dissolutions, impose
restrictions on distributions to shareholders, change of control of TALX,
investments, acquisitions and liens, and which require compliance, in all
material respects, with material laws. The Loan Agreement also contains various
representations and warranties, including among other things, the accuracy of
financial statements and other information delivered to the Lenders, the absence
of changes which would have or would reasonably be likely to have a material
adverse effect (as customarily included in secured credit facilities of this
nature).

On January 27, 2003, the Company entered into an amendment to the Loan
Agreement. Our wholly-owned subsidiaries, James E. Frick, Inc., Garcia
Acquisition Sub, Inc. and Ti3, Inc., consented to the amendment as guarantors.
Among other things, the amendment modified the minimum EBITDA covenant for the
fiscal quarters ending March 31, 2003, June 30, 2003 and September 30, 2003
contained in the Loan Agreement. In addition, the Company obtained from the
Lenders a waiver of its violation of the minimum EBITDA covenant for the quarter
ended December 31, 2002.

As a condition of our Loan Agreement, we were required to enter into an
interest rate swap agreement for 50% of our outstanding Term Loan as a means of
reducing our interest rate exposure. Pursuant to this requirement, we entered
into an interest rate swap contract on June 26, 2002 for a notional amount of
$14 million, which represented 50% of our outstanding Term Loan balance on that
date. Under this contract, we pay a fixed rate of 3.45% and receive a variable
rate of LIBOR, which is equal to the LIBOR rate utilized on our Term Loan. The
notional amount of our interest rate swap contract steps down according to the
same schedule as our Term Loan, maintaining a 50% hedged position. All payment
dates and maturity dates are the same as our Term Loan. This strategy
effectively converts 50% of our Term Loan into a fixed rate instrument.

The interest rate swap and related gains and losses arising on the contract are
accounted for as a cash flow hedge in accordance with Statement of Financial
Accounting Standards ("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

33

TALX CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

recognized in income when the transactions being hedged are completed. The
ineffective portion, if any, of these hedges is recognized in income currently.

As of December 31, 2002, the fair value of the interest rate swap in the amount
of $276,000 is included in accrued expenses and other liabilities. Interest
expense accrued on the swap contract was $115,000 for the first three quarters
of fiscal 2003.

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

OTHER MATTERS

The Company is cooperating with a pending SEC investigation and is a defendant
in pending lawsuits which are described in note 9 of our Notes to Unaudited
Consolidated Financial Statements, which is incorporated by reference herein.

As described above, the Company has restated its financial statements for each
of the quarters ended June 30, 2001 through June 30, 2002 and for the fiscal
years ended March 31, 2001 and 2002. As a result of the restatement, we could
become subject to additional litigation or regulatory proceedings or both. As of
the date hereof, we are not aware of any litigation having been commenced
against us related to this restatement. However, such litigation could be
commenced against us in the future and the plaintiffs who have filed lawsuits
against us previously could amend their complaints to include claims related to
this restatement, and if so, we could not predict the outcome of any such
litigation at this time. Additionally, the lenders under our March 27, 2002 Loan
Agreement, which is described more fully above under Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources, could seek to exercise remedies which may be available to
them, such as acceleration of our loan, in the event they determine that, as a
result of the restatement discussed above or the SEC investigation discussed
above or otherwise, we have breached a covenant or representation and warranty
in the Loan Agreement. If an unfavorable result occurred in any such action, our
business and financial conditions could be harmed.

Further, we cannot predict at this time whether or not any additional regulatory
investigation by the SEC or otherwise related to this restatement will be
commenced, or if it is, the outcome of any such investigation. However, if any
such investigation were to result in a regulatory proceeding or action against
us, our business and financial condition could be harmed.

Regardless of the outcome of any litigation or regulatory proceeding, litigation
and regulatory proceedings of this type are expensive and will require that we
devote substantial resources and executive time to defend these proceedings.

As a result of the delay in filing our Form 10-Q for the quarter ended September
30, 2002, the letter "E" was appended to our trading symbol, signifying the
delay, from November 26, 2002 until January 22, 2003.

Following an appeal hearing by The Nasdaq Stock Market, we were informed on
January 17, 2003 that a Nasdaq Listing Qualifications Panel has determined to
continue the listing of our common stock. However, the Nasdaq Listing and
Hearing Review Council may on its own motion, within 45 days, review the Panel's
decision. There can be no assurance that the Nasdaq Listing and Hearing Review
Council will not object to the continued listing of our common stock.

34

TALX CORPORATION AND SUBSIDIARIES
PART I - ITEMS 3 AND 4
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND
CONTROLS AND PROCEDURES

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As discussed above, our Term Loan and advances under our Revolving Credit
Facility bear interest at rates we select under the terms of the Loan Agreement,
including a base rate or eurodollar rate, plus an applicable margin. Until March
27, 2003, eurodollar rate loans will bear interest at the applicable eurodollar
rate plus 2.25% and base rate loans will bear interest at the applicable base
rate. After that, the applicable margin for eurodollar rate loans will vary from
2.00% to 2.25%, and the applicable margin for base rate loans will remain at
0.00%, in each case based upon our ratio of total indebtedness to EBITDA.

As of December 31, 2002, we had $24 million principal outstanding on our term
loan, of which $12 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 $120,000 change to our annual interest expense, based on net
variable borrowings of $12 million.

ITEM 4. CONTROLS AND PROCEDURES

Within 90 days prior to the filing date of this report, management, including
the Company's Chairman, President and Chief Executive Officer and Vice President
and Chief Financial Officer, evaluated the effectiveness of the design and
operation of the Company's disclosure controls and procedures with respect to
the information generated for use in this Quarterly Report. Based upon, and as
of the date of that evaluation, the Chairman, President and Chief Executive
Officer and Vice President and Chief Financial Officer concluded that the
disclosure controls and procedures were effective to ensure that information
required to be disclosed in the reports the Company files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Commission's rules and forms.

There have been no significant changes in the Company's internal controls or in
other factors which could significantly affect internal controls subsequent to
the date the Company carried out its evaluation. There were no significant
deficiencies or material weaknesses identified in the evaluation and therefore,
no corrective actions were taken.

It should be noted that the Company's management, including the Chairman,
President and Chief Executive Officer and Vice President and Chief Financial
Officer, does not expect that the Company's 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.

35

TALX CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information contained in Notes 9 and 10 of our Notes to Unaudited
Consolidated Financial Statements is incorporated by reference herein.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

On January 27, 2003, the Company entered into an amendment to the Loan Agreement
described above under Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources. Our
wholly-owned subsidiaries, James E. Frick, Inc., Garcia Acquisition Sub, Inc.,
and Ti3, Inc., consented to the amendment as guarantors. Among other things, the
amendment modified the minimum EBITDA covenant for the fiscal quarters ending
March 31, 2003, June 30, 2003 and September 30, 2003 contained in the Loan
Agreement. In addition, the Company obtained from the Lenders a waiver of its
violation of the minimum EBITDA covenant for the quarter ended December 31,
2002.

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

Not applicable.

ITEM 5. OTHER INFORMATION

On November 12, 2002, the Board of Directors elected Tony G. Holcombe as a
Director of the Company. Mr. Holcombe recently joined Valutec Card Solutions, a
provider of gift, stored value and loyalty cards to the small business market,
as an investor and chief executive officer. Before joining Valutec, Mr. Holcombe
was president of Ceridian Employer Services, a division of Ceridian Corporation
and a leading provider of managed business solutions for human resources,
payroll, tax filing, benefits administration and employee effectiveness
services. Mr. Holcombe also served as president and chief executive officer of
Ceridian's Comdata business from 1997 through 1999. Before joining Ceridian, Mr.
Holcombe worked for 10 years at National Processing Company, where he became
president and chief executive officer.

On December 16, 2002, L. Keith Graves, Controller, was appointed Principal
Accounting Officer by the Board of Directors. Mr. Graves has been with TALX for
five years, most recently serving as the managing director of finance and
controller. Previously, he worked for five years at Bank of America (formerly
Boatmen's Bancshares, Inc.), where he served as vice president and controller of
the investment banking division. Before that, Mr. Graves spent three years in
the audit division of the St. Louis office of KPMG LLP. He is a CPA, and earned
his Bachelor's of Accountancy from the University of Missouri-Columbia.

James W. Canfield, the son of our Chairman, President and Chief Executive
Officer, is employed in a non-executive position with our Company as the manager
of ePayroll business development. Mr. Canfield has a current annual salary of
$90,000. During fiscal 2002 Mr. Canfield also received a bonus of $8,000 and an
award of 2,500 stock options. Both the bonus and stock option awards were
granted under standard corporate compensation plans and are consistent with
payments made to managers at Mr. Canfield's level. The Company expects that the
compensation payable to Mr. Canfield for any services rendered to the Company in
fiscal 2003, including salary and bonus, will not significantly exceed $105,000
and the number of options awarded will not significantly exceed 2,500.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) See Exhibit Index.

(b) Reports on Form 8-K

(i) On November 15, 2002, the Company filed a Current Report on Form
8-K under Item 9 to report the issuance of a press release
reporting the filing of a Form 12b-25 relating to the late filing
of our Form 10-Q for period ending September 30, 2002.

36

TALX CORPORATION AND SUBSIDIARIES
SIGNATURES

Pursuant to the requirements 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

Date: January 31, 2003 By: /s/ WILLIAM W. CANFIELD
----------------------------------
William W. Canfield
Chairman, President and
Chief Executive Officer

Date: January 31, 2003 By: /s/ L. KEITH GRAVES
----------------------------------
L. Keith Graves
Controller and Chief
Accounting Officer

37

CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER

I, William W. Canfield, certify that:

1. I have reviewed this quarterly report on Form 10-Q of TALX
Corporation;

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

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

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

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

b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;

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

a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and

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

By : /s/ William W. Canfield
----------------------------
William W. Canfield
Chairman, President and Chief Executive Officer
January 31, 2003

38

CERTIFICATIONS OF PRINCIPAL FINANCIAL OFFICER

I, Craig N. Cohen, certify that:

1. I have reviewed this quarterly report on Form 10-Q of TALX
Corporation;

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

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

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

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

b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;

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

a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and

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

By : /s/ Craig N. Cohen
-----------------------
Craig N. Cohen
Vice President and Chief Financial Officer
January 31, 2003

39

TALX CORPORATION AND SUBSIDIARIES

EXHIBIT INDEX