Use these links to rapidly review the documentTABLE OF CONTENTS ITEM 8. Financial Statements and Supplementary Data



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|(Mark One)                                  |  |                                                                                         
|------------------------------------------- |  | ----------------------------------------------------------------------------------------
|ý                                           |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended December 31, 2005
|OR                                         
|o                                           |  | 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 0-27444

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SOURCECORP, INCORPORATED(Exact name of Registrant as specified in its charter)

DELAWARE

75-2560895(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)3232 MCKINNEY AVE.,
SUITE 1000, DALLAS, TEXAS

75204(Address of principal executive offices)

(zip code)(214) 740-6500Registrant's telephone number, (including area code)
Securities registered pursuant to Section 12(b) of the Act:TITLE OF EACH

CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTEREDNone

None


Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.01 PER SHARE(Title of Class)

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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes o    No ý

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.    Yes ý    No o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes o    No ý

The aggregate market value of voting stock held by non-affiliates of the Registrant as of June 30, 2005 (the last business day of the Company's
most recently completed second fiscal quarter) was $310,747,394 million based on the last sale price of $19.82 of the Registrant's Common Stock, $.01 par value per share, on the Nasdaq National
Market on June 30, 2005.

As
of March 24, 2006, 15,683,452 shares of the Registrant's Common Stock were outstanding (excluding 518,099 shares of unvested restricted stock).

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Proxy Statement for the 2006 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days
after the end of our fiscal year ended December 31, 2005 are incorporated by reference into Part III of this Form 10-K or will be subsequently filed by amendment to
this Form 10-K.



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SOURCECORP, Incorporated
2005 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS



|         |  |                                                                                                               
|-------- |  | --------------------------------------------------------------------------------------------------------------
|PART I  
|Item 1.  |  | Business                                                                                                      
|Item 1A. |  | Risk Factors                                                                                                  
|Item 1B. |  | Unresolved Staff Comments                                                                                     
|Item 2.  |  | Properties                                                                                                    
|Item 3.  |  | Legal Proceedings                                                                                             
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                           
|PART II 
|Item 5.  |  | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer's Purchases of Equity Securities
|Item 6.  |  | Selected Financial Data                                                                                       
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                         
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                    
|Item 8.  |  | Financial Statements and Supplementary Data                                                                   
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                          
|Item 9A. |  | Controls and Procedures                                                                                       
|Item 9B. |  | Other Information                                                                                             
|PART III
|Item 10. |  | Directors and Executive Officers of the Registrant                                                            
|Item 11. |  | Executive Compensation                                                                                        
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Information            
|Item 13. |  | Certain Relationships and Related Transactions                                                                
|Item 14. |  | Principal Accounting Fees and Services                                                                        
|PART IV 
|Item 15. |  | Exhibits and Financial Statement Schedules                                                                    

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PART I

This Annual Report on Form 10-K (the "Report") contains certain forward-looking statements such as our intentions, hopes, beliefs,
expectations, strategies, predictions or any other variation thereof or comparable phraseology of our future activities or other future events or conditions within the meaning of Section 27A of
the Securities Act of 1993, as amended (the "Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby.
Investors are cautioned that all forward-looking statements involve risks and uncertainties, including, without limitation, the risks and uncertainties relating to the results of the Company's ongoing
Securities and Exchange Commission (SEC) investigation, the actual final costs of our internal investigation and the SEC investigation, the potential impairment of our ability to enter into government
contracts as a result of the conduct that was the subject of our internal investigation, the remediation costs relating to the conduct that was the subject of our internal investigation, the potential
customer impact of the results of the SEC investigation, the effect of our investigation and financial statement restatement on the trading price of our stock, the integration of our operating
companies, the management of our growth, the timing and magnitude of technological advances, the occurrences of future events that could diminish our customers' needs for our services, the change in
the degree to which companies continue to outsource business processes, the adverse outcome in any given legal proceeding or claim, the denial of insurance on a particular claim or of a party
obligated to provide indemnification being financially able to do so, the conditions to the completion of the prospective merger announced by the Company on March 8, 2006, with entities
affiliated with Apollo Management, L.P. (including stockholder approval, the absence of a material adverse change and the satisfaction of the related debt financing) being satisfied or waived, as well
as such other risks set forth under the heading Risk Factors included in this report. Although we believe that the assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and, therefore, there can be no assurance that the forward-looking statements included in this Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our
objectives and plans will be achieved.

ITEM 1.Business

General

SOURCECORP, Incorporated is a provider of business process outsourcing solutions specializing in document and information management and a provider of specialized
knowledge-based processing and/or consulting solutions. We offer clients in information-intensive industriessuch as financial services, healthcare, legal, government, and
transportationthe solutions to manage their information and document intensive business processes and the solutions to fulfill certain specialized knowledge-based processing and
consulting requirements, enabling these organizations to concentrate on their core competencies.

As
a national business process outsourcing provider, we operate approximately 72 facilities in 20 states, Washington, D.C. and Mexico, with approximately 4,800 employees at
December 31, 2005.

We
serve a diverse client base, including customers in the financial services, healthcare insurance, healthcare provider, legal and transportation/logistics industries as well as public
sector agencies. Enterprises can outsource many of their information management, distribution and specific information-intensive processes as well as certain specific knowledge-based processing and/or
specialized subject matter needs to us due to the breadth of our outsourcing capabilities and subject matter expertise.

We
believe that the business process outsourcing solutions and consulting markets are growing due to several factors, including: (i) government regulations that require lengthy
document retention

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periods
and rapid accessibility for many types of records; (ii) continuing advancements in computer, networking, facsimile, printing and other technologies that have greatly facilitated the
production and wide distribution of documents; (iii) the increasing litigiousness of society, necessitating access to relevant documents and records for extended periods of time and requiring
specialized subject matter expertise; and (iv) increased customer expectations of low cost access to records on short notice.

Our
customer profile includes enterprises, both commercial and public-sector, that have information-intensive business processes involving large volumes of documents, forms, case files
and storage, with frequent access and distribution requirements or that have other types of information needs that require specialized processing and/or subject matter expertise. We believe that these
clients will continue to increase their outsourcing for these needs in order to further focus on their core operating competencies and revenue generating activities; reduce fixed costs, including
labor and equipment costs; utilize, on a project basis, highly qualified subject matter experts without incurring the ongoing costs; and gain access to new technologies without incurring the
investments and risks of obsolescence associated with the technologies required to effectively meet these needs.

Business Strategy

Our goal is to become a leading provider in the U.S. of business process outsourcing solutions for information and document intensive vertical markets, including
healthcare insurance, financial services, healthcare provider, transportation/logistics, federal and state government, and legal industries and a leading provider of certain knowledge-based processing
and consulting services. Achieving our goal will involve extending our involvement in key business processes that we support today with additional processing and consulting capabilities. We have
implemented the following focused business strategy, which we believe will attract and retain clients:

Economies and Efficiencies.We intend to deliver superior, faster and more cost effective services than our customers can
provide for themselves.

Scope and Scale.We plan to continue to establish a range of business process outsourcing services to meet the diverse needs
of our customers by expanding existing platforms and making selected strategic acquisitions. We intend to continue to handle large volume engagements associated with information-intensive processes.

Flexible Service Delivery.We intend to continue to provide outsourced service facilities, on-site facility
management and dedicated customer operations through our network of domestic and international workforce and vendor relationships.

Information and Technology Lifecycles.We intend to continue to be involved during the stages of the information lifecycle
from mailroom operations, data capture, conversion and storage to analysis and output processing. In addition, we intend to further develop processing capabilities and expect to continue to be
involved in the technology lifecycles from paper to electronic, making use of web-based and other technologies.

Invest in Sales Resources.We intend to expand investments in sales and sales support personnel and resources to expand our
pursuit of long-term customer relationships within our key markets. We intend to increase the number of large accounts we can pursue at a given time and, over time increase our win rates
through additional client references and successful testimonials.

Emphasize Account Penetration.We intend to emphasize account penetration in two primary ways. First, we intend to continue
to sell our existing clients additional business process outsourcing solutions. Second, we intend to use our technology advances and industry specific knowledge to sell solutions to new clients.

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Invest in Technology.We intend to continue our investments in technology in order to expand our business process outsourcing
solutions, facilitate the integration of our service platforms, reduce labor costs relative to our growth, and provide our services in more efficient ways. These investments include the acquisition of
new-generation high speed scanning equipment, optical character recognition software and systems, communication systems, and other infrastructure related to our service platforms.

Internet.We intend to continue to utilize web-based technologies. Our plans include
business-to-business e-commerce enabler products to provide critical back office functions.

Retain and recruit highly qualified consultative professionals.We intend to continue our recruiting activities for highly
qualified consultative professionals in order to expand our professional economic research and litigation support services. Additionally, we intend to maintain a critical mass of consultative
professionals in order to handle multiple large, complex assignments simultaneously.

Acquisition and Divestiture Strategy

We have transitioned to an operating company supported by a strategic acquisition program. Since our inception, we have acquired 73 companies and divested 22
operating units as of December 31, 2005. Of these acquisitions, 85% were completed in the first four years following our initial public offering, in January 1996, as we established a
geographic footprint to enable us to provide services nationally. Periodically, we evaluate candidates for acquisition, as well as our operating units for possible divestiture, as a part of our
strategic plan. From time to time we also evaluate joint ventures, strategic alternatives and other avenues to help maximize shareholder value. Acquisition candidates are evaluated in conjunction with
our operating management team in order to acquire those candidates that meet certain strategic requirements. These criteria include service expansion to broaden service offerings, additional
technology, added management strength, industry expertise, expansion of our customer base and geographic need. We believe that we will continue to be a successful acquirer of other business process
outsourcing solution and knowledge management companies, nevertheless, there are numerous risks associated with our acquisition program. See "Risk Factors." We evaluate the strategic fit of our
operations in order to optimize the use of our capital and management resources. Examples of the criteria used in determining strategic fit include, but are not limited to, cash flow
generating capability, revenue and earnings growth opportunity, return on invested capital requirements, market growth potential, and expected ongoing capital requirements.

During
the first quarter of 2004, we completed a strategic evaluation of our operations based on certain criteria, such as strategic and financial fit, and future growth prospects. As a
result, on May 6, 2004, we formally committed to a plan of divestiture for certain non-strategic asset groups related to our Direct Mail operations reported in the Information
Management and Distribution segment in prior periods, and two medical records management operations reported in the Healthcare, Regulatory and Legal Compliance segment in prior periods. The asset
groups divested during 2004 were sold during the second and third quarters.

During
the first quarter of 2005, we formally committed to a plan of divestiture for a non-strategic asset group related to our litigation service operations reported in our
Healthcare, Regulatory and Legal Compliance segment. The sale of this non-strategic asset group was completed during the first quarter of 2005.

Services Offered

We provide a variety of business process outsourcing solutions and knowledge-based services and draw upon our available services and expertise to develop
solutions for our clients based on their specific needs. We aggregate our components, or service offerings, and operations into two reportable segments: (i) Information Management and
Distribution, and (ii) Healthcare, Regulatory, and Legal Compliance. See Note 18, Segment Reporting, of Notes to Consolidated Financial Statements of

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SOURCECORP,
Incorporated and subsidiaries (the "Consolidated Financial Statements") for the last three years' financial results under these segments.

Information Management and Distribution.We offer Business Process Outsourcing ("BPO") solutions that help our customers
manage theDocument In-flow,Workflow ProcessingandStatement
Out-flowof their mission critical business document processes. Our BPO solutions enable customers to automate their complex workflow processes by digitizing
extremely large volumes of documents, capturing information from the documents, hosting electronic documents on our Web-based repository, and preparing statements that customers mail or
present electronically to their end users. We offer our BPO solutions to businesses in document intensive industries, such as healthcare insurance, financial services, healthcare provider,
transportation/logistics, and federal and state government. Information Management and Distribution represented 53% of revenue during 2005.

Document In-flow:Our BPO solutions start with our ability to receive and process customer documents at more than
twenty sites located throughout the United States and multiple offshore venues. Our services include outsourced mailroom management, high-speed electronic scanning, automated data capture
using optical character recognition (OCR) software, and domestic and offshore data entry. Each day, we process millions of document pages in our highly efficient processing facilities.

Workflow Processing:Once the documents are digitized and key information is captured in a database, we can host customers'
electronic documents and enterprise workflow applications onFASTRIEVE, our Web-based document repository and workflow platform. FASTRIEVEallows customers
to quickly implement enterprise workflow applications without the capital investment and ongoing maintenance costs required
by an in-house system. Each day, thousands of users at more than thirty companies accessFASTRIEVE's secure data center to integrate their
electronic documents with workflow applications specific to their industries.FASTRIEVE's online document repository enables workflow processes
involving mortgage loan documents, healthcare claims, patient records, personnel files, tax files and other mission critical business document processes. The FASTRIEVE repository currently stores over
four billion images.

Statement Out-flow:We also process customer data to create, print, and mail statements to our customers' end
users. We operate three large statement processing and out-bound mail facilities in the Eastern, Midwest, and Western United States. Our national "footprint" allows us to efficiently
deliver statements to any mail zone in the United States. We also provide our customers with the ability to present electronic statements to their end users through our Web-based statement
repository or by email. Each day, we create, print, and mail thousands of statements including brokerage statements, bank statements, and customer invoices.

Healthcare, Regulatory, and Legal Compliance.We offer specialized knowledge-based processing and consulting services that
include medical records release services, record management services for healthcare institutions, temporary staffing for healthcare institutions, providing managed care payment compliance reviews,
class action claims administration services, and professional economic research and litigation services. Healthcare, Regulatory, and Legal Compliance represented 47% of revenue during 2005.

Medical records release servicesconsists of processing a request for a patient's medical records from a physician, insurance company,
attorney, healthcare institution, or individual. The medical records release service provider initially verifies that the release is properly authorized, coordinates the retrieval of the record,
determines the relevant parts of the record to be copied and delivers the copied records (or portions thereof) to the requesting party. Medical records release services are provided
on-site and off-site pursuant to contracts with hospitals, other large healthcare institutions and insurance companies. The medical records release service provider bills the
recipient directly and sometimes pays a fee to the hospital.

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Record management servicesconsist primarily of active or open shelf storage. Active or open shelf storage services involve the storage,
processing (i.e., indexing and formatting), retrieval, delivery and return to storage of documents in a rapid time frame. Many of these services are provided electronically through
web-enabled applications. Service fees generally include a monthly fee based on activity levels and volumes stored, with additional billing for specialized requests. To a smaller extent,
we store inactive documents.

Additional Healthcare and Compliance servicesinclude document and data conversion, archiving and imaging services for hospital radiology
departments, imaging and electronic storage of medical records for hospitals, coding and abstracting of medical records, managed care payment compliance reviews, and temporary staffing services for
hospital information management departments.

Class Action Claims Administration Servicesinclude turnkey services to administer legal settlements. Services include compiling and
managing claims databases, conducting mail campaigns for settlement communications and providing communication support for settlements through our in-bound call centers. We identify and
notify members of class action lawsuits or other groups, answer questions, track and record contact with class action or other group members, process claims, and distribute settlement funds.

Professional Economic Research and Litigation Servicesinclude the utilization of highly skilled and experienced professionals and the
application of key intellectual property and experience based proprietary data to provide help in solving client problems. We are engaged in complex, high profile and high economic risk litigation
matters to offer expert analysis and testimony. Our high level consulting services range from fair lending, labor discrimination and forensic analysis to trial support for law firms and corporations.

Tax Benefit Servicesprovide consulting and process management services around niche tax areas to a variety of industries. Working through
a network of C.P.A. firms, we provide niche tax services related to LIFO inventory accounting for auto dealerships and assist commercial property owners in optimizing their deductions for
depreciation.

Sales and Marketing

We have a broad customer base with no customer accounting for more than 9% of revenue. However, one of our industry customers accounted for approximately 8% of
gross profit for the year ended December 31, 2005. The loss of any one of our significant clients could leave us with a significantly higher level of fixed costs than is necessary to serve our
remaining clients, and could have a material adverse effect on our results of operations. Our sales efforts are accomplished on a national basis through regionally based sales teams with vertical
market focus. We continue to focus on increasing revenue from our current customer base through major account management focused on increasing service levels, selling additional services to existing
and new departments, and piloting new service offering content.

Competition

The business process outsourcing solution and consulting markets in which we compete and expect to compete are highly competitive. A significant source of
competition is the in-house capability of our target client base. There can be no assurance that these businesses will outsource more of their business processing or consulting needs or
that they will not bring in-house the services that they currently outsource. In addition, certain of our competitors are larger businesses and have greater financial resources than we do.
Certain of these competitors operate in broader geographic areas or offer a broader set of capabilities than we do, and others may choose to enter our areas of operation in the future. We intend to
continue to enter new geographic areas through internal growth and potentially through acquisitions and expect to encounter significant competition from established

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competitors
in each of such areas. As a result of this highly competitive environment, we may lose clients or have difficulty in acquiring new customers and new companies and our results of operations
may be adversely affected.

We
believe that the principal competitive factors in providing business process outsourcing or consulting services include quality, reliability and security of service, industry specific
knowledge, and price. We compete primarily on the basis of quality of service and client segment specific knowledge as well as our ability to handle large volumes and projects, and believe that we
compete favorably with respect to these factors. We continue to integrate best practice delivery processes into all of our service-delivery capabilities to improve our quality and service levels and
to increase operational efficiencies. We have also integrated the use of offshore resources and personnel in order to increase pricing competitiveness.

Employees

At December 31, 2005, we had approximately 4,200 full-time and approximately 600 part-time employees. Our employee count fluctuates
from time to time based upon the timing and duration of certain project revenue engagements. We also utilize contract labor in certain functions of our business. At December 31, 2005, we had
approximately 136 employees represented by labor unions. We consider our relations with our employees to be good.

Available Information

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on our website
(www.sourcecorp.com) as soon as reasonably practicable after they are filed with, or furnished to, the SEC.

Our Executive Officers

The following table sets forth certain information concerning each of our executive officers as of March 24, 2006:

|NAME               |  | AGE |  | POSITION                                                                           
|------------------ |  | --- |  | -----------------------------------------------------------------------------------
|Thomas C. Walker   |  | 73  |  | Chairman of the Board and Chief Development Officer                                
|Ed H. Bowman, Jr.  |  | 59  |  | President, Chief Executive Officer and Director                                    
|Barry L. Edwards   |  | 58  |  | Executive Vice President and Chief Financial Officer                               
|Charles S. Gilbert |  | 39  |  | Senior Vice President, General Counsel and Secretary                               
|Kerry Walbridge    |  | 54  |  | Senior Vice President and PresidentBusiness Process Solutions Division            
|Ronald Zazworsky   |  | 62  |  | Senior Vice President and PresidentHealthSERVEDivision                            
|Dave Delgado       |  | 45  |  | Senior Vice President and PresidentLegal Claims and Regulatory Compliance Division
|Steve Davis        |  | 38  |  | Senior Vice President and Chief Information Officer                                
|Ralph D. Burns     |  | 51  |  | Vice President of Corporate Development                                            

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Thomas
C. Walker has been our Chairman of the Board since our inception in September 1994 and has been our Chief Development Officer since November 1995. From
September 1994 until November 1995, Mr. Walker held the positions of President and Chief Executive Officer. From August 1991 to December 1994, Mr. Walker was
Vice President, Corporate Development, of Laidlaw Waste Systems, Inc., a subsidiary of Laidlaw, Inc., a waste management company, where he was responsible for its acquisition and
divestiture program in the United States and Mexico. Mr. Walker has been responsible for the acquisition or divestiture of several hundred businesses over a 30-year period.
Mr. Walker currently serves as a director of Renew Data, a privately held provider of electronic evidence services and preservation archiving. Mr. Walker holds a B.S. degree in
Industrial Engineering from Lafayette College.

Ed
H. Bowman, Jr. has been our President and Chief Executive Officer and a Director since November 1995. From 1993 to 1995, Mr. Bowman was Executive Vice President and
Chief Operating Officer of the Health Systems Group for First Data Corporation, a financial services company. Mr. Bowman was responsible for the day-to-day operations of
research and development, marketing and customer service. From 1983 to 1993, Mr. Bowman served in a number of executive positions with a leading healthcare information systems company;
responsibilities included VPInternational, VPMarketing, Senior VPCustomer Services, Group Senior VPResearch and Development, and last serving as
Executive Vice President and Chief Operating Officer with responsibility for domestic operations. Prior to 1983, Mr. Bowman was with Andersen Consulting (currently known as Accenture), where he
was elected a
Partner. Mr. Bowman holds an M.S. degree from Georgia Institute of Technology and a B.B.A. from Georgia State University. Mr. Bowman has served on the Board of the Advanced Technology
Development Center at Georgia Tech. Mr. Bowman currently serves on the Advisory Board to the President of Georgia Tech and on the Advisory Board of the Robinson School of Business at Georgia
State University.

Barry
L. Edwards has been an Executive Vice President and our Chief Financial Officer since August 2000. From November 1994 to March 2000, Mr. Edwards was
Executive Vice President and Chief Financial Officer for AMRESCO, a nationwide financial services company. He was responsible for the company's financial reporting, treasury and risk management,
corporate accounting, information technology, internal audit functions, human resources, and investor relations. From December 1978 to November 1994, Mr. Edwards was Vice
President and Treasurer of Liberty Corporation, an insurance and broadcasting holding company, where he was responsible for all aspects of finance, including SEC reporting, financing, tax, and
internal audit functions. Mr. Edwards received a B.S. degree in Finance and Economics from Lehigh University in 1969 and an M.B.A. degree from the University of Virginia Darden School Of
Business in 1972. Mr. Edwards is a board member of Ryan's Restaurant Group Inc. and Robert Harris Homes.

Charles
S. Gilbert has been a Senior Vice President, Secretary, and General Counsel since January 2001, a Vice President, Secretary and General Counsel since August 2000,
our Secretary and acting General Counsel since July 2000 and corporate counsel since April 2000. From 1991 until joining us he practiced law in the corporate securities section of
Jackson Walker LLP, Dallas, where he was elected partner. Mr. Gilbert holds a B.S. degree in Physics from The University of Texas and a J.D. from The University of Texas School of Law.

Kerry
Walbridge, age 53, has been a Division President since March 2001. From April 2000 to December 2000, Mr. Walbridge was President and CEO of eMake
Corporation, a first-to-market provider of web hosted Enterprise Resource Planning (ERP) software solutions and electronic supply chain services to the manufacturing market.
From August 1998 to April 2000, Mr. Walbridge was Senior Vice President Sales and Marketing for Outsourcing Solutions, Inc., the nation's largest provider of accounts
receivable management services. From November 1991 to June 1993 and from June 1996 to August 1998, Mr. Walbridge was a Division Vice President for Electronic Data
Systems (EDS) and

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from
April 1998 to November 1991 Mr. Walbridge was a Division Vice President for McDonnell Douglas Systems Integration. Mr. Walbridge received a B.S. in business from St.
Louis University.

Ronald
Zazworsky has been a Division President since November 2000. From October 1997 until November 2000, Mr. Zazworsky was our Senior Vice
PresidentHealthSERVE. From February 1994 until July 1997, Mr. Zazworsky was Senior Vice President at Medaphis Corporation, an outsourcer of financial and business
management services for hospitals and physician groups. From April 1992 to February 1994, Mr. Zazworsky was President and CEO at Habersham Banking
Solutions, Inc., a private check imaging software firm, where he also served on its board of directors. Prior to 1992, Mr. Zazworsky was employed at HBOC, a healthcare systems and
services organization, as Regional Vice President for eight years. Previously, Mr. Zazworsky held various sales, marketing, and management positions at IBM. Mr. Zazworsky holds a B.A.
degree from Gettysburg College and a M.B.A. degree from Emory University.

Dave
Delgado has been a Division President since January 2004. Mr. Delgado joined the Company in September 1996 as a result of SOURCECORP acquiring Zia Information
Analysis Group. From July 1999 to January 2004, Mr. Delgado was responsible for the legal consulting business segment at SOURCECORP. Prior to joining SOURCECORP,
Mr. Delgado founded and served as the President and Chief Executive Officer of Zia Information Analysis Group specializing in expert witness testimony and case management services. Prior to
founding Zia Information Analysis Group, Mr. Delgado was a Partner with Peterson Consulting, a national consulting firm specializing in economic damage and expert witness testimony.
Mr. Delgado has provided expert witness testimony in both California State Court and Federal Court. Mr. Delgado graduated from Stanford University where he majored in civil engineering
and minored in economics.

Steve
Davis has been Chief Information Officer since January 2004. From April 2002 to January 2004, Mr. Davis was Chief Technology Officer for SOURCECORP's
Business Process Solutions Division. From December 1999 until joining SOURCECORP, Mr. Davis was Executive Vice President at Michael's Stores where Mr. Davis led advanced
technology initiatives, including the launch of Michaels' first electronic commerce business and call center operations, as well as supply chain enablement programs. Mr. Davis also held various
technology management positions at IBM and led the e-Business Solutions Group for IBM's Western Geography, providing leadership for large-scale professional services and systems
integration projects. Mr. Davis has a successful 16 year track record in technology management focused on customer-oriented, high-impact technology solutions.
Mr. Davis is an honors graduate of Texas A&M University where he majored in Information Management Systems.

Ralph
D. Burns has been Vice President of Corporate Development for SOURCECORP since May of 2003. From 1999 until May 2003, Mr. Burns held several senior management roles
at EDS including Vice President of Marketing and Portfolio Management globally for E solutions, the solutions consulting division of EDS, responsible for global business strategy, M&A, Alliances,
Marketing, Communications, Portfolio Management, and Market Analyst Relations. In 1998 and 1999, Mr. Burns was Director for Cap Gemini America responsible for the Financial and
E-Commerce practices in the southwest. From 1979 until 1998, Mr. Burns held various positions at MTech (acquired by EDS in 1988) including VP Corporate Operations and VP Emerging
Business Development where he was responsible for developing new businesses areas. From 1973 until 1979, Mr. Burns held various management positions at Republic National Bank in Dallas.

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ITEM 1A.Risk Factors

IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS OR CASH FLOWS COULD BE MATERIALLY
ADVERSELY AFFECTED, THE PRICE OF OUR SECURITIES COULD DECLINE, WE MAY NOT BE ABLE TO REPAY OUR DEBT SECURITIES, IF ANY, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. YOU SHOULD ALSO REFER TO THE
OTHER INFORMATION CONTAINED IN THIS REPORT AND INCORPORATED IN THIS REPORT BY REFERENCE, INCLUDING OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES. THE RISKS DESCRIBED BELOW ARE NOT THE
ONLY ONES FACING US. ADDITIONAL RISKS NOT CURRENTLY KNOWN TO US, THAT WE CURRENTLY BELIEVE ARE IMMATERIAL OR ARE OTHERWISE NOT LISTED BELOW MAY ALSO IMPAIR OUR RESULTS OF OPERATIONS AND FINANCIAL
CONDITION.

Potential merger consummation

On March 8, 2006, the Company announced that it had entered into an Agreement and Plan of Merger, dated as of March 7, 2006 (the "Merger
Agreement"), among the Company, CorpSource Holdings, LLC ("Purchaser") and CorpSource MergerSub, Inc. ("Merger Sub"). Purchaser and Merger Sub are entities affiliated with Apollo Management,
L.P. ("Apollo"). The Merger Agreement contemplates that Merger Sub will be merged with and into the Company (the "Merger") and each outstanding share of common stock of the Company will be converted
into the right to receive $25.00 per share in cash, without interest. The consummation of the Merger is subject to various customary conditions, including adoption of the Merger Agreement by the
Company's stockholders, expiration of the antitrust waiting period, the absence of a material adverse change in the Company's business and the receipt of committed debt financing by Purchaser. No
assurance can be given that such conditions will be satisfied or waived.

The
Merger Agreement contains representations and warranties by the Company, Purchaser and Merger Sub. The representations and warranties reflect negotiations between the parties to the
Merger Agreement and, in certain cases, merely represent allocation decisions among the parties and may not be statements of fact. As such, the representations and warranties are solely for the
benefit of the parties to the Merger Agreement and may be limited or modified by a variety of factors, including: subsequent events, information included in public filings, disclosures made during
negotiations, correspondence between the parties and disclosure schedules to the Merger Agreement. Accordingly,
the representations and warranties may not describe the actual state of affairs at the date they were made or at any other time and you should not rely on them as statements of fact.

SEC investigation

On January 14, 2005, the Company received written confirmation from the SEC that the SEC had converted its informal inquiry in connection with the
Company's internal investigation and restatement into a formal investigation. The Company is continuing to fully cooperate with the SEC in connection with the investigation. The Company initially had
contacted the enforcement division of the SEC on a voluntary basis to notify the agency of the Company's understanding of the events leading to its internal investigation. We are unable to predict the
outcome of the investigation, the scope of matters that the SEC may choose to investigate in the course of this investigation or in the future, the SEC's views of the issues being investigated, or any
action that the SEC might take, including the imposition of fines, penalties, or other available remedies

11

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Pending litigation

We are party to significant litigation, which is described in more detail in "Item 3Legal Proceedings." If any of these proceedings is decided
against us, we could be subject to substantial damages or other penalties.

Customer arrangements following internal investigation

Some of the issues identified in our internal investigation may impact the degree to which some customers are willing to continue to do business with us. Further,
as some of the issues identified in our internal investigation involved contracts with State and Federal agencies, we may be subject to penalties or charges that potentially could include a suspension
or other impairment of our (or the Operating Subsidiary that was the subject of our internal investigation's) ability to enter into future arrangements with such governmental bodies. However, we
cannot predict with certainty the amount of such potential remediation costs or whether such remediation offers will be accepted.

Contract profitability factors

The pricing and other terms of our client contracts require us to make estimates and assumptions at the time we enter into these contracts that could differ from
actual results. These estimates reflect our best judgments regarding the nature of the engagement and our expected costs to provide the contracted services. Further, some of our client contracts
require significant investments in the early stages, which investments are intended to be recovered through billings over the life of the contract. Any increased or unexpected costs or unanticipated
delays in connection with the performance of these engagements, or decrease in the actual work volumes generated under the contracts, including as a result of events caused by factors outside our
control, could make these contracts less profitable or unprofitable.

Competition

The business process outsourcing services industry is highly competitive. We cannot guarantee that we will be able to compete successfully in the future. A
significant source of competition is the in-house capability of our targeted client base. We cannot assure you that these businesses will outsource more of their document and information
management needs or that such businesses will not bring in-house the services that they currently outsource. In addition, certain of our competitors have greater financial resources than
we do, operate in broader geographic areas than we do, have a greater international presence than we do, and/or offer a broader range of services in certain segments. In such an increasingly
competitive environment, we may lose clients or have difficulty in acquiring new clients and new companies.

Revenue mix impact on financial performance

Project revenue includes one-time projects in which the customer relationship is not expected to continue after project completion. Conversely,
recurring revenue is characterized by customer relationships that are generally for one year and may continue for longer. Recurring revenue is typically based on transaction volumes sent to us by our
customers and these volumes are typically not contractual or otherwise guaranteed. Project revenue margins are usually higher than our average margins and the workload can be highly volatile.
Recurring revenue typically has lower margins than project revenue but is usually more predictable. To the extent our business mix shifts from project-oriented to recurring service offerings, our
gross margins, operating income, and operating cash flow may decline.

12

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Contract termination provisions

Some of our government and other clients can terminate their contracts for any reason, provided the notification procedures stated in the contract are followed,
regardless of our performance. In addition, public sector contracts are subject to public policy and funding priorities. Some of our contracts with clients provide for termination, fee credits or
financial penalties in the event our performance is not consistent with the service levels specified in those contracts.

Impact of changes in business practices and technology

We derive our revenue primarily from document and information intensive industries. Fundamental changes in the business practices of any of these client
industries whether due to regulators, technology, the internet or other developments, could cause a material reduction in demand by our clients for the services offered by us. Any reduction in demand
could have a material adverse effect on our results of operations. The business process outsourcing service industry is characterized by technological change, evolving client needs, and emerging
technical standards. We cannot assure you that we will be able to obtain new technologies, that we will be able to effectively implement new technologies on a cost-effective or timely
basis or that such technologies will not render obsolete our role as a third party provider of business process outsourcing services.

Client concentration/investments in clients

Our success depends substantially upon retaining our significant clients. One of our customers represents 9% of our revenue and 8% of our gross profit for the
period ended December 31, 2005. Generally, we may lose clients due to a merger or acquisition, business failure, contract expiration, conversion to a competitor, or conversion to an
in-house system. We cannot guarantee that we will be able to retain long-term relationships or secure renewals of short-term relationships with our significant
clients in the future. We incur a high level of fixed costs related to certain of our business process outsourcing clients. These fixed costs result from significant investments, including computer
hardware platforms, computer software, facilities, and client service infrastructure. The loss of any one of our significant clients could leave us with a significantly higher level of fixed costs
than is necessary to serve our remaining clients.

Key personnel

Our operations depend on the continued efforts of our executive officers and on senior management of our operating companies. If any of these people are unable or
unwilling to continue in their present role, or if we are unable to attract and retain additional managers and skilled employees, our business could be adversely affected. We do not currently have key
person life insurance covering any of our executive officers. Our success also depends upon our ability to attract, retain and motivate highly skilled and qualified personnel. If we fail to attract,
train, and retain sufficient numbers of these technically-skilled people, our business, financial condition, and results of operations could be materially and adversely affected. Further, parts of our
business are individual or relationship driven. In particular, our economic research and litigation services business is highly dependant on our staff of professionals who have expertise, reputations
and client relationships critical to maintaining and developing our business.

Technology risks

The markets for our business process outsourcing services are subject to rapid technological changes and rapid changes in client requirements. To compete, we
commit substantial resources to operating multiple hardware platforms, to customizing third-party software programs, and to training client personnel and our personnel in the use of new technologies.
Future hardware, software, and

13

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other
products may be able to manipulate large amounts of documents and information more cost effectively than existing products that we use. Information processing is shifting toward client-server
and web-based systems, in which individual computers or groups of personal computers and mid-range systems replace older systems. This trend could adversely affect our business
and financial results and result in us losing clients and being unable to attract new clients. We have committed substantial resources to developing outsourcing solutions for these distributed
computing environments. We cannot guarantee that we will be successful in customizing products and services that incorporate new technology on a timely basis. We also cannot guarantee that we will
continue to be able to deliver the services and products demanded by the marketplace.

Business interruptions

Certain of our operations are performed at a single location and are dependent on continuous computer, electrical, and telephone service. As a result, any
disruption of our day-to-day operations could have a material adverse effect upon us. We cannot assure you that a fire, flood, earthquake, terrorist activities, power loss,
telephone service loss,
problems caused by computer or technology issues, or other events affecting one or more of our facilities would not disable these services. Any significant damage to any facility or other failure that
causes significant interruptions in our operations may not be covered by insurance. During 2005, we incurred losses associated with property damage and business interruption related to Hurricane
Katrina.

Acquisitions require financing

We currently intend to finance any future acquisitions by using cash and in some cases our common stock for all or a portion of the consideration to be paid. In
the event that our common stock is not at a sufficient value at the time of an acquisition, or potential acquisition candidates are unwilling to accept our common stock as consideration for the sale
of their businesses, we may be required to use more cash, if available, in order to consummate acquisitions. If we do not have sufficient cash, our growth through acquisitions could be limited unless
we are able to obtain capital through additional debt or equity financings. We cannot assure you, however, that funds available under our line of credit will be sufficient for our needs.

Financial covenants

Under our line of credit agreement, we are subject to certain reporting requirements and financial covenants, including requirements to maintain minimum levels of
net worth, a maximum ratio of funded debt to EBITDA and other financial leverage ratios. An erosion of our business could place the Company out of compliance with these covenants. Potential remedies
for the lenders include declaring all outstanding amounts immediately payable, terminating commitments and enforcing any liens; however, in the event of any future noncompliance the Company may seek a
waiver from such lenders. See Note 11, Long-term Obligations and Credit Facilities, of Notes to Consolidated Financial Statements.

Goodwill impairments

Goodwill and other intangible assets that have indefinite useful lives are not amortized but rather are evaluated at least annually for impairment. The valuation
of goodwill for impairment involves a high degree of judgment. Based on our estimates and assumptions underlying the valuation, impairment is determined by estimating the fair value of a reporting
unit and comparing that value to the reporting unit's book value. If economic events occur that cause us to revise our estimates and assumptions used in determining the fair value of our goodwill,
such revisions could result in an impairment charge that could have a material adverse impact on our financial statements during the period incurred.

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In
connection with the preparation and review of the Company's financial statements for its Annual Report on Form 10-K for the year ended December 31, 2005, we
performed as of October 31, 2005, the annual goodwill impairment test as required by SFAS No. 142. The annual test indicated the carrying value of our HealthSERVE reporting unit within
the Healthcare, Regulatory and Legal Compliance reportable segment exceeded its fair value. As a result, we recorded a pre-tax, non-cash impairment charge of approximately
$38.3 million in the fourth quarter of 2005, which is slightly greater than the amount estimated at the time the Company filed its notification of late filing on Form 12b-25
for the Company's Annual Report on Form 10-K for the year ended December 31, 2005.

Divestitures

Periodically, we evaluate the strategic fit of our operations in order to optimize the use of our capital and management resources. Examples of the criteria used
in determining strategic fit include, but are not limited to, cash flow generating capability, revenue and earnings growth opportunity, return on invested capital requirements, market growth
potential, and expected ongoing capital requirements. Service offerings determined to be non-strategic could be sold or otherwise divested. Any such divestiture activity could result in a
significant loss on disposal dependent upon many factors, such as: the expected financial performance of the service offering, the growth potential of the service offering, and the current economic
conditions at the time of divestiture.

Intellectual property infringement claims

We do not own the majority of the software that we use to run our business; instead we license this software from a number of vendors. If these vendors assert
claims that we or our clients are infringing on their software or related intellectual property, we could incur substantial costs to defend these claims. In addition, if any vendors' infringement
claims are ultimately successful, our vendors could require us: (i) to cease selling or using products or services that incorporate the challenged software or technology; (ii) to obtain
a license or additional licenses from our vendors; or (iii) to redesign our products and services that rely on the challenged software or technology.

Breach of confidentiality

A substantial portion of our business involves the handling of documents containing privacy controlled, confidential and other sensitive information. Although we
have established procedures intended to prevent any unauthorized disclosure of confidential information and, in some cases, have contractually limited our potential liability for unauthorized
disclosure of such information, we cannot assure you that unauthorized disclosures will not result in a material liability to us. Further, any such unauthorized disclosure may damage the Company's
reputation and result in a material loss of customers.

Government regulations

In our medical records release of information business, there is state legislation from time to time designed to limit the price that can be charged for copying
and distributing medical records information. Depending on the severity of such pricing legislation, there can be significant pressure on the profit margins associated with providing medical records
release services. Today, some form of pricing legislation exists in many states in the United States. Further, such pricing legislation from time to time results in putative class action lawsuits
alleging that the charge for reproducing certain medical records is not in conformity with such plaintiffs' reading of the applicable regulated charge. We are from time to time a party to such
putative class action lawsuits. The defense of these putative class action law suits can exert further pressure on related profit margins.

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HIPAA regulations

As a result of statutory authority granted pursuant to the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), the United States Department of
Health and Human Services has recently issued regulations regarding the use and disclosure of personal health information by healthcare providers, health plans, and certain other "covered entities"
operating in the healthcare industry. The HIPAA regulations require covered entities to take steps to maintain the privacy and security of personal health information. While we are not a "covered
entity" directly governed by these regulations (though in some cases the Company's group health plans may be "covered entities"), many of our customers are covered entities under the HIPAA
regulations, and these customers are required to adjust their business arrangements to comply with HIPAA. These customers will be required to enter into "business associate arrangements" with us that
conform to the requirements of HIPAA. The requirements of HIPAA, and the costs of complying with HIPAA, may adversely affect the business operations of these customers, which could have a negative
impact on our business operations. Furthermore, the requirements of the "business associate arrangements," and the changes we will have to make in our operations to comply with such agreements, will
increase our costs of operations. To the extent we are unable to comply with the provisions of such agreements, we could lose the business generated by those clients or could be subject to damages for
violation of its "business associate agreements" with those clients.

Our Board of Directors may be able to delay or prevent takeovers

On June 24, 2005, the Board of Directors of the Company approved certain amendments to the Company's Amended and Restated By-Laws. The
amendments among other things modified who can call a special meeting of stockholders or adjourn a stockholders meeting, established certain advance notice and other procedural requirements with
respect to stockholder action by written consent and stockholder actions at any stockholder meeting, and revised the provisions regarding the establishment of record dates to correspond to the
requirements of Delaware law. Such amendments might have a consequence of delaying or discouraging a proxy contest.

Our
Board of Directors is empowered to issue preferred stock without stockholder action and on June 24, 2005, the Company adopted a stockholders' rights plan (the "Rights Plan"),
which could render more difficult or discourage an attempt to obtain control of us by means of a tender offer, merger, proxy contest or otherwise. See Note 14, Stockholders' Equity, of Notes to
Consolidated Financial Statements for further information relating to the Rights Plan. Immediately prior to the execution of the Merger Agreement with the Apollo affiliates, the Company and the
related rights agent entered into an amendment to the Rights Plan that provided that neither the execution of the Merger Agreement nor the consummation of the related Merger would trigger the
provisions of the Rights Plan.

ITEM 1B.Unresolved Staff Comments

Not applicable

ITEM 2.Properties

As of December 31, 2005, we operated approximately 72 facilities in the following 20 states: Arkansas, Arizona, California, Colorado, Florida, Georgia,
Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Minnesota, Missouri, New Jersey, New York, Pennsylvania, South Carolina, Texas, Washington and Wisconsin. Except for the three facilities we own
(which are located in Maryland, Florida and Alabama) all of these facilities were leased and were principally used for operations and general administrative functions. As of December 31, 2005,
such leased facilities consisted of approximately 2.1 million square feet. In addition, our employees are in numerous client locations

16

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where
we neither own nor lease the occupied space, primarily in connection with our Healthcare, Regulatory and Legal Compliance segment. See Note 12, Lease Commitments, of Notes to Consolidated
Financial Statements for further information relating to leases.

In
order to secure our obligations under our current line of credit, we granted to Bank of America as agent and SunTrust Bank and JP Morgan Chase as co-agents, a security
interest in the capital stock of our material subsidiaries and, in the event we exceed a designated leverage ratio, a lien on substantially all of our properties and other assets. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources." See Note 11, Long-term Obligations and Credit
Facilities, of Notes to Consolidated Financial Statements.

We
believe that our properties are generally well maintained, in good condition, and adequate for our present needs. Furthermore, we believe that suitable additional or replacement space
will be available when required.

ITEM 3.Legal Proceedings

We are, from time to time, a party to litigation arising in the normal course of business. The following is a description of the most significant legal matters
that we are involved in. In the event of an adverse outcome in one or more of our legal proceedings, our business, financial condition, results of operations or cash flows could be materially
adversely affected.

Putative Securities Class Action

The Company, and the Company's CEO and CFO individually, have been named as defendants in several putative securities class actions, in response to the Company's
press releases dated October 27, 2004, in which the Company disclosed that its financial statements for certain prior periods should no longer be relied upon, and also provided updated
financial guidance. The complaints (collectively, the "Actions") were filed in the United States District Court for the Northern District of Texas, Dallas Division, with the first action being filed
November 1, 2004. The Actions are putative shareholder class action lawsuits alleging violations of Federal Securities Laws, including alleged violations of Sections 10(b) and 20(a), and
Rule 10b-5 of the Securities Exchange Act of 1934, as amended. The four Actions were transferred to a single judge in the Northern District of Texas, Dallas Division and
consolidated into a single action now styledIn re Sourcecorp, Inc. Securities Litigation,A lead plaintiff has been appointed for the
consolidated Action. In addition to the Company and its CEO and CFO, one of the Company's subsidiaries and one of the former owners of that subsidiary are named as defendants in the consolidated
Action. The consolidated Action is purportedly on behalf of all persons who purchased the Company's common stock during the period between May 3, 2001, and October 27, 2004, and seeks
unspecified damages. The Company cannot currently estimate the ultimate resolution of this contingency; however, the Company intends to vigorously defend this matter.

Purported Derivative Action and Demand Letter

A purported stockholder derivative action was filed on December 28, 2004, against certain of the Company's current and former officers and directors as
individual defendants and the Company as a nominal defendant in the 116th District Court for Dallas County, Texas (the "State Derivative Action"). The State Derivative Action alleges breach of
fiduciary duty, abuse of control, gross mismanagement, waste of assets, and unjust enrichment related to the Company's press release described above dated October 27, 2004, the subsequent
restatement of financial results, and certain other events. All of these claims are asserted derivatively on behalf of the Company and seek unspecified damages against those individuals.

Further,
the Chairman of the Company's Board of Directors received from a purported shareholder a demand letter (the "Demand Letter") based on the same set of facts as the State

17

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Derivative
Action. The Demand Letter requests the Board to take certain action, but does not seek damages against the Company. The Company has formed a special committee of the Board of Directors that
continues to evaluate the claims made in the State Derivative Action and the Demand Letter.

On
October 21, 2005, the purported shareholder who sent the Demand Letter filed a derivative and class action against certain of the Company's officers and directors as individual
defendants and the Company as a nominal defendant in the United States District Court for the Northern District of Texas, Dallas Division (the "Federal Derivative and Class Action"). The Federal
Derivative and Class Action alleges similar facts as the securities Actions, the State Derivative Action, and the Demand Letter and also includes allegations relating to the Company's
October 5, 2005 press release regarding the exploration of strategic alternatives, including the potential sale of the Company. The Federal Derivative and Class Action asserts claims under
section 304 of the Sarbanes-Oxley Act of 2002, for contribution under sections 10(b) and 21D of the Securities Exchange Act of 1934, for breach of fiduciary duty, and for abuse of control and
seeks unspecified damages, injunctive relief, and the imposition of a constructive trust against the individual defendants. The claims are asserted derivatively on behalf of the Company and on behalf
of putative classes of those who held the Company's common stock on October 5, 2005 and those who exchange their shares in a potential sale, if any, of the Company.

Pursuant
to an agreed order dated November 18, 2005, all proceedings in the Federal Derivative and Class Action were stayed pending resolution of the motions to dismiss filed in
the securities Action. On or about March 20, 2006, the plaintiff filed a motion to lift the stay so that it may amend the Federal Derivative and Class Action complaint. In papers filed with the
motion, the plaintiff stated that it was considering amending the complaint to add claims under the federal proxy laws relating, in part, to materials that would be filed following the date of the
motion in connection with the Merger Agreement announced by the Company on March 8, 2006.

Merger Agreement Related Actions

On March 8, 2006, the Company and members of its Board of Directors, as well as Apollo Management, L.P. ("Apollo") were named as defendants in a putative
class action filed in the Court of Chancery of the State of Delaware, New Castle County (the "Delaware Action"), in response to the Company's announced agreement to be acquired by affiliates of
Apollo. The Delaware Action asserts claims for breach of fiduciary duty against members of the Company's board of directors and alleges that, among other things, the consideration to be paid to the
stockholders of the Company in the merger is unfair and inadequate and was not the result of a full and fair sale process or adequate market check. The Delaware Action also asserts a claim against
Apollo for aiding and abetting such
alleged breaches of fiduciary duties. Among other things, the Delaware Action seeks unspecified damages and an injunction against the proposed merger (or rescission of the merger if it is completed).

Also
on March 8, 2006, the members of the Company's board of directors were named as defendants and the Company was named as a nominal defendant in a purported stockholder
derivative action filed in the 95th District Court for Dallas County, Texas. This action is based on similar allegations as the Delaware Action and asserts claims for breach of fiduciary duty against
members of the Company's board of directors. All of these claims are asserted derivatively on behalf of the Company and seek, among other things, unspecified damages against those individuals and an
injunction against the proposed merger (or rescission of the merger if it is completed).

Various ROI Copy Charge Matters

From time to time, various subsidiaries of the Company that perform release of information ("ROI") services become defendants to putative class action lawsuits
generally alleging that the charge

18

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for
reproducing certain medical records is not in conformity with such plaintiffs' reading of the applicable regulated charge. Such suits typically include multiple ROI companies and hospitals as
defendants and demand reimbursement for prior charges as well as for prospective pricing adjustments. The Company is currently a party to several such suits in various stages of development.

One
such suit originally styledMcShane v. Recordex Acquisition Corp. & Sourcecorp, Incorporated(and now styled Liss & Marion, PC v. Recordex Acquisition Corp.,
 & Sourcecorp, Inc.) filed February 10, 2003, in the Court of Common Pleas
Philadelphia County, Pennsylvania, alleges among other things that the Company intentionally charged more for providing copies of medical records than is permitted under Pennsylvania law. The
complaint does not specify the amount of damages sought. On June 10, 2005, the Court in this matter granted judgment in favor of the plaintiffs and on November 3, 2005, a separate
hearing on damages was held. Following such hearing, the Court assessed damages of approximately $0.5 million with interest, which the plaintiffs claim approximates $0.1 million. The
Company is assessing its appellate options and believes it is adequately reserved for this legal matter.

SEC Investigation

On January 14, 2005, the Company received written confirmation from the SEC that the SEC had converted its informal inquiry in connection with the
Company's internal investigation and restatement into a formal investigation. The Company is continuing to fully cooperate with the SEC in connection
with the investigation. The Company initially had contacted the enforcement division of the SEC on a voluntary basis to notify the agency of the Company's understanding of the events leading to its
internal investigation. The Company is unable to predict the outcome of the investigation, the scope of matters that the SEC may choose to investigate in the course of this investigation or in the
future, the SEC's views of the issues being investigated, or any action that the SEC might take, including the imposition of fines, penalties, or other available remedies.

ITEM 4.Submission of Matters to a Vote of Security Holders

During the fourth quarter of the year ended December 31, 2005, no matters were submitted to a vote of the security holders.

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PART II

ITEM 5.Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer's Purchase of Equity  Securities

Market Information

Our common stock trades on The Nasdaq Stock Market under the symbol "SRCP". The following table sets forth, for our fiscal periods indicated, the range of high
and low reported sale prices for our common stock.

High

LowFiscal Year 2004First Quarter

$
28.78

$
24.21Second Quarter

$
28.97

$
21.85Third Quarter

$
27.89

$
21.08Fourth Quarter

$
23.41

$
14.92Fiscal Year 2005First Quarter

$
22.02

$
16.48Second Quarter

$
23.06

$
16.74Third Quarter

$
23.48

$
19.25Fourth Quarter

$
26.81

$
20.30


Holders

On March 24, 2006, the last reported sale price of our common stock on the Nasdaq Stock Market was $24.34 per share. At March 24, 2006, there were
67 holders of record of our common stock and 15,683,452 shares outstanding.

Dividends

We have not declared any cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable future and
intend to retain our earnings, if any, to finance the expansion of our business and for general corporate purposes. Further, our credit facility, as well as our Merger Agreement with the Apollo
affiliates, prohibit payment of cash and similar dividends. Any payment of future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, our earnings,
financial condition, capital requirements, level of indebtedness, contractual restrictions and other factors that our Board of Directors deems relevant.

The
Company did not repurchase shares of its common stock during 2005, however, as contemplated by the Company's 2002 Long-Term Incentive Plan, on January 10, 2006,
16,726 shares were withheld as payment of tax liabilities incident to vesting of restricted stock issued in accordance with Rule 16b-3.

|Period                     |  | (a) Total Number of
Shares Purchased |  | (b) Average
Price Paid per
Share |  | (c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs |  | (d) Maximum Number of Shares (or
Approximate Dollar Value) of Shares
that May Yet Be Purchased
Under the Plans or Programs
|-------------------------- |  | ------------------------------------ |  | -------------------------------- |  | ------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------
|Oct 1, 2005 - Oct 31, 2005 |  |                                     |  |                                 |  |                                                                                     |  | $                                                                                                                         
|Nov 1, 2005 - Nov 30, 2005 |  |                                     |  |                                 |  |                                                                                     |  | $                                                                                                                         
|Dec 1, 2005 - Dec 31, 2005 |  |                                     |  |                                 |  |                                                                                     |  | $                                                                                                                         

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On September 23, 2005, the Company and certain of its subsidiaries, entered into a settlement agreement with the former owners of the
operating subsidiary that was the subject of its internal investigation and financial statement restatement. As a part of the settlement proceeds, the former owners returned 89,888 shares of the
Company's common stock with a deemed value under the settlement agreement of $20.495 per share, being approximately $1.8 million in the aggregate. The common shares were retired and recorded in
the balance sheet as a reduction of common stock and additional paid-in-capital.

ITEM 6.Selected Financial Data

Selected Financial Data

We were founded in September 1994, and we effectively began our operations on January 26, 1996, following the completion of our initial public
offering ("IPO"). We acquired, simultaneously with and as a condition to the closing of the IPO, seven founding companies.

Since
the IPO and through December 31, 2005, we have acquired 66 companies and have divested 22 operating units by sale or closure. Our results of operations, for the periods
presented, include the results of the acquired companies from the date of their respective acquisition and the results of the divestitures up to the effective date of the divestiture.

Our
Selected Financial Data have been derived from our consolidated financial statements. Arthur Andersen LLP audited our 2001 consolidated financial statements. Deloitte & Touche
LLP audited our 2002, 2003, 2004 and 2005 consolidated financial statements.

The
results of the operating unit divested in 2005 are included up to the effective date of the divestiture and are reported as discontinued operations for all periods presented as
discussed in Item 8. Financial StatementsNote 6. Discontinued Operations. Our Selected Financial Data provided below should be read in conjunction with our consolidated financial
statements and the related notes thereto and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" that appear elsewhere in this Report.

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Selected Financial Data  (In thousands, except per share data)

|                                                             |                         | Year Ended December 31, |        
|------------------------------------------------------------ | ----------------------- | ----------------------- | -------
|
|Statement of Operations Data(1):                             |                         |                         |        
|Revenue                                                      |                         | $                       | 392,657
|Cost of services exclusive of depreciation                   |                         |                         | 232,353
|Special charges(2)                                           |                         |                         | 417    
|Depreciation                                                 |                         |                         | 12,963 
|                                                             |                         |                         |        
|                                                             | Gross profit            |                         |        
|Selling, general and administrative expenses                 |                         |                         | 91,832 
|Contingent consideration overpayment(3)                      |                         |                         |       
|Special charges(2)                                           |                         |                         | 62,167 
|Goodwill impairment(4)                                       |                         |                         |       
|Amortization(5)                                              |                         |                         | 9,078  
|                                                             |                         |                         |        
|                                                             | Operating income (loss) |                         |        
|Interest and other (income) expense, net                     |                         |                         | 9,370  
|Net legal settlement(6)                                      |                         |                         |       
|                                                             |                         |                         |        
|Income (loss) from continuing operations before income taxes |                         |                         | (25,523
|Provision (benefit) for income taxes                         |                         |                         | (1,346 
|                                                             |                         |                         |        
|Income (loss) from continuing operations                     |                         |                         | (24,178
|Income (loss) from discontinued operations, net of tax(7)    |                         |                         | 3,490  
|                                                             |                         |                         |        
|Net income (loss)                                            |                         | $                       | (20,688
|                                                             |                         |                         |        
|Net income (loss) per common share                           |                         |                         |        
|                                                             | Basic:                  |                         |        
|                                                             |                         | Continuing Operations   |        
|                                                             |                         | Discontinued Operations |        
|                                                             |                         |                         |        
|                                                             |                         |                         | Total  
|                                                             |                         |                         |        
|                                                             | Diluted:                |                         |        
|                                                             |                         | Continuing Operations   |        
|                                                             |                         | Discontinued Operations |        
|                                                             |                         |                         |        
|                                                             |                         |                         | Total  
|                                                             |                         |                         |        
|Weighted average common shares outstanding                   |                         |                         |        
|                                                             | Basic                   |                         |        
|                                                             | Diluted                 |                         |        
|Balance Sheet Data:                                          |                         |                         |        
|Working capital                                              |                         | $                       | 58,534 
|Total assets                                                 |                         |                         | 457,780
|Long-term obligations, net of current maturities             |                         |                         | 116,055
|Stockholders' equity                                         |                         |                         | 268,634

---

22

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23

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ITEM 7.Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

We were founded in September 1994, to create a national, single source provider of document and information outsourcing solutions to document and
information intensive industries, including healthcare insurance, financial services, healthcare provider, transportation/logistics, federal and state government, and legal industries. We acquired the
seven founding companies (the "Founding Companies") simultaneously with the closing of our initial public offering (the "IPO") on January 26, 1996, and effectively began operations at that
time. The consideration for the Founding Companies consisted of a combination of cash and common stock of our Company.

Since
the IPO, we have acquired 66 companies and divested 22 operating units by sales or closures. We evaluate candidates for acquisition and periodically for divestiture as a part of
our strategic plan of providing customers a single solution for business process outsourcing and knowledge-based processing and consulting services. The criteria for evaluation include geographic
need, additional technology, market growth potential, industry expertise, service expansion to broaden service offerings, expansion of our customer base, revenue and earnings growth potential, and
expected sources and uses of capital.

On
May 4, 2004, we announced the acquisition of KeyPoint Consulting, LLC ("KeyPoint"). KeyPoint is an economic consulting firm with approximately 26 principals and staff, and a
network of academic affiliates. KeyPoint provides economic, financial, and forensic accounting services in matters involving complex litigation and regulation. KeyPoint's clients include companies,
law firms, and government and regulatory agencies. The acquisition of KeyPoint significantly expands our expertise in new practice areas and helps us strategically position for additional growth in
our legal consulting area. Keypoint joined our legal consulting service offering and is reported in the Healthcare, Regulatory and Legal Compliance segment. Key Point contributed $5.6 million
in revenue in 2004, or approximately 3% of total segment revenue, and was moderately accretive to 2004 earnings after consideration of related financing costs and amortization of identified
intangibles.

During
the first quarter of 2004, we completed a strategic evaluation of our operations based on certain criteria, such as strategic and financial fit, and future growth prospects. As a
result, on May 6, 2004, we formally committed to a plan of divestiture for certain non-strategic asset groups. The asset groups to be divested include the Direct Mail operations,
previously reported in our Information Management and Distribution segment, and two medical records management operations that were reported in our Healthcare, Regulatory and Legal Compliance segment.
Collectively, these asset groups incurred losses, net of tax, of $0.8 million for the full year ended December 31, 2003. During the quarter ended June 30, 2004, we completed the
sale of one of the medical records management operations. The divestiture of the other medical records management operation and the Direct Mail operations were completed during the quarter ended
September 30, 2004. See Note 6, Discontinued Operations, of the Notes to the Consolidated Financial Statements, for a more detailed discussion.

During
the first quarter of 2005, we completed the sale of an asset group that provides computer application software and services to the public sector. This asset group was related to
our litigation services operations and was previously reported in our Healthcare, Regulatory and Legal Compliance segment. This asset group incurred losses, net of tax, of $0.2 million for the
full year ended December 31, 2004.

See
Note 6, Discontinued Operations, of the Notes to the Consolidated Financial Statements, for a more detailed discussion.

24

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Business Segments

We aggregate our service offerings and operations into two reportable segments: (i) Information Management and Distribution, and (ii) Healthcare,
Regulatory, and Legal Compliance. Service offerings are aggregated when they are similar in the following areas: economic characteristics, products and services, production processes, methods for
distributing or delivering products, and type or class of customers. We evaluate segment performance based on revenue and income before income taxes. All centrally incurred corporate costs are
allocated to the segments based principally on operating income of the segments measured before the inclusion of the expense related to contingent consideration overpayments. The reporting segments
follow the same accounting policies used for our consolidated financial statements as described in the summary of significant accounting policies in the notes to our consolidated financial statements.

The
identified segments are as follows:

Information Management and Distribution.We offer Business Process Outsourcing ("BPO") solutions that help our customers
manage theDocument In-flow,Workflow ProcessingandStatement
Out-flowof their mission critical business document processes. Our BPO solutions enable customers to automate their complex workflow processes by digitizing
extremely large volumes of documents, capturing information from the documents, hosting electronic documents on our Web-based repository, and preparing statements that customers mail or
present electronically to their end users. We offer our BPO solutions to businesses in document intensive industries, such as healthcare insurance, financial services, healthcare provider,
transportation/logistics, and federal and state government. In 2005, Information Management and Distribution represented 53.0% of revenue. Project revenue accounted for 12.6% of the segment's revenue
with recurring revenue accounting for the remaining 87.4% during 2005.

Healthcare, Regulatory, and Legal Compliance.We offer specialized knowledge-based processing and consulting services that
include medical records release services, record management services for healthcare institutions, temporary staffing for healthcare institutions, providing managed care payment compliance reviews,
class action claims administration services, professional economic research and litigation services, and tax benefit services. In 2005, Healthcare, Regulatory and Legal Compliance represented 47.0% of
revenue. Project revenue accounted for 67.6% of the segment's revenue with recurring revenue accounting for the remaining 32.4% during 2005. In the fourth quarter of 2005, we recorded a
pre-tax non-cash impairment charge of approximately $38.3 million related to the HealthSERVE reporting unit within this reportable segment. The reporting unit's
long-term profitability and cash flow forecasts, associated with our 2006 annual budgeting process, were significantly lower than prior forecasts and are the primary reason for the
goodwill impairment.

Goodwill Impairment

We performed the annual goodwill impairment test as required by SFAS No. 142,Goodwill and Other Intangible
Assets,as of October 31, 2005. The annual test indicated the carrying value our HealthSERVE reporting unit within the Healthcare, Regulatory and Legal Compliance
reportable segment exceeded its fair value. As a result, the Company recorded a pre-tax non-cash impairment charge of approximately $38.3 million in the fourth quarter
of 2005.

Internal Investigation

During October 2004, the Company, with the oversight and approval of the Audit Committee of the Board of Directors, initiated an investigation of the
financial results of one of the Company's operating subsidiaries in the Information Management and Distribution reportable segment (the "Operating Subsidiary"). The findings of the investigation
concluded that the Operating Subsidiary had incorrectly recognized revenue for certain customer arrangements and omitted certain operating

25

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expenses
from its reported financial results which in turn resulted in overpayments and over accruals of contingent consideration amounts due under the earn-out provisions of the
acquisition agreement for the Operating Subsidiary. The overpayments and over accruals of contingent consideration amounts were originally recognized as additional goodwill of the acquired business.

As
described in the Company's critical accounting policies, revenue is recognizable when each of the following conditions is met: persuasive evidence of an arrangement exists, the price
is fixed or determinable, delivery has occurred or services have been rendered and collection is reasonably assured. The investigation identified certain instances where one or more of the
aforementioned revenue recognition conditions as applied to certain customer contracts were not met by the Operating Subsidiary. As a result, the revenue previously recognized that did not meet all
the mentioned revenue recognition conditions was reversed, resulting in a downward adjustment to certain asset accounts or the recognition of a customer liability or deferred revenue. Notwithstanding
the reversal of revenue, the direct costs associated with the reversed revenue continued to be reported in the period incurred.

During
the first quarter of 2005, the Company entered into an agreement with one of its customers impacted by the facts relating to the subject of the internal investigation. As a result
of the agreement, during the first quarter of 2005, the Company recognized remediation revenue of $4.1 million related to revenue reversals; however, such revenue did not contribute to the
Company's operating cash flow in the current year.

Additionally,
during the first quarter of 2005, agreements from other customers impacted by the facts relating to the subject of the internal investigation were received and the
customers agreed to apply certain balances, classified as long-term customer liability and/or deferred revenue, against current trade accounts receivable the Company had outstanding from
such customers. The net amount applied against trade accounts receivable during 2005 related to these agreements was approximately $1.6 million.

During
the second quarter of 2005, the Company entered into agreements with two additional customers impacted by the facts relating to the subject of the internal investigation. As a
result of the agreements, during the second quarter of 2005, the Company recognized remediation revenue of
$2.7 million related to revenue reversals; however, such revenue did not contribute to the Company's operating cash flow in the current year.

During
the third quarter of 2005, the Company entered into an agreement with an additional customer impacted by the facts relating to the subject of the internal investigation. As a
result of the agreement, during the third quarter of 2005, the Company recognized remediation revenue of $1.4 million related to revenue reversals; however, such revenue did not contribute to
the Company's operating cash flow in the current year. Additionally, the customer agreed to apply certain balances, classified as deferred revenue, against current trade accounts receivable such
customer had outstanding with the Company of approximately $0.1 million. At December 31, 2005, this customer has a remaining credit due from the Company of approximately
$0.3 million. The remaining credit may, at the discretion of the customer, be applied against future trade accounts receivable balances and is reported in the consolidated balance sheets as
accounts payable and accrued liabilities.

At
December 31, 2005, approximately $1.9 million remains accrued related to other customers impacted by the facts relating to the subject of the internal investigation.
These balances were previously reported as Long-Term Customer Liability and Deferred Revenue in prior periods but were reclassified during the third quarter of 2005 to accounts payable and
accrued liabilities in the consolidated balance sheets as the Company expects the remaining balances to be settled within the next twelve months. These balances will be recognized in accordance with
the agreements negotiated and finalized with each applicable customer.

26

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Merger Agreement

On March 8, 2006, the Company announced that it had entered into an Agreement and Plan of Merger, dated as of March 7, 2006 (the "Merger
Agreement"), among the Company, CorpSource Holdings, LLC ("Purchaser") and CorpSource MergerSub, Inc. ("Merger Sub"). Purchaser and Merger Sub are entities affiliated with Apollo Management,
L.P. ("Apollo"). The Merger Agreement contemplates that Merger Sub will be merged with and into the Company (the "Merger") and each outstanding share of common stock of the Company will be converted
into the right to receive $25.00 per share in cash, without interest. The consummation of the Merger is subject to various customary conditions, including adoption of the Merger Agreement by the
Company's stockholders, expiration of the antitrust waiting period, the absence of a material adverse change in the Company's business and the receipt of committed debt financing by Purchaser. No
assurance can be given that such conditions will be satisfied or waived.

The
Merger Agreement contains representations and warranties by the Company, Purchaser and Merger Sub. The representations and warranties reflect negotiations between the parties to the
Merger
Agreement and, in certain cases, merely represent allocation decisions among the parties and may not be statements of fact. As such, the representations and warranties are solely for the benefit of
the parties to the Merger Agreement and may be limited or modified by a variety of factors, including: subsequent events, information included in public filings, disclosures made during negotiations,
correspondence between the parties and disclosure schedules to the Merger Agreement. Accordingly, the representations and warranties may not describe the actual state of affairs at the date they were
made or at any other time and you should not rely on them as statements of fact.

Results of Operations

The following table sets forth certain items as shown in "Item 6. Selected Financial Data" expressed as a percentage of total revenue for the periods indicated:

Year Ended December 312003

2004

2005Revenue

100.0
%
100.0
%
100.0
%Cost of services(1)

58.5

60.1

56.3Depreciation

3.4

3.3

3.4Gross profit

38.1

36.6

40.3Selling, general and administrative expenses(2)

26.2

28.7

29.4Contingent consideration overpayment

1.9

2.7

0.2Goodwill impairment





9.2Amortization

0.1

0.3

0.2Operating income

9.9

4.9

1.3Interest and other (income) expense, net

0.9

1.2

1.2Net legal settlement





(7.4
)Income from continuing operations before income taxes

9.0

3.7

7.5Provision for income taxes

3.6

0.9

5.1Income from continuing operations

5.4

2.8

2.4Income (loss) from discontinued operations, net of taxes

(0.3
)
(0.7
)
0.0Net income

5.1
%
2.1
%
2.4
%


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27

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Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

|                                             |  | Year Ended December 31, |        
|-------------------------------------------- |  | ----------------------- | -------
|
|
|Revenue                                      |  | $                       | 415,885
|Gross Profit                                 |  |                         | 167,606
|SG&A                                         |  |                         | 122,495
|Operating income                             |  |                         | 5,202  
|Income from continuing operations before tax |  |                         | 31,146 
|Income from continuing operations            |  |                         | 9,880  

Revenue

Our revenue possesses both project and recurring characteristics. Project revenue includes one-time projects in which the customer relationship is not
expected to continue after project completion. Project revenue margins are usually higher than our average margins and the workload can be highly volatile. Project revenue is typically based on time
and material arrangements and predominately occurs within our Healthcare, Regulatory, and Legal Compliance segment. Recurring revenue is characterized by customer relationships that are generally for
one year and may continue for longer. Recurring revenue is typically based on transaction volumes sent to us by our customers at an agreed upon fixed rate per unit. Our customers' volumes are
generally not contractually or otherwise guaranteed. Recurring revenue typically possesses lower margins than project revenue but is usually more predictable. Project revenue accounted for
$160.0 million or 38.5% of revenue in 2005 compared to $135.7 million or 35.6% of revenue in 2004.

Our
operations generated revenues of $415.9 million in 2005, an increase of $34.2 million or 9.0% compared to 2004. During the second quarter of 2004, we acquired KeyPoint
Consulting, LLC ("KeyPoint") as a part of our Healthcare, Regulatory and Legal Compliance segment. KeyPoint contributed approximately $3.9 million to the year over year revenue increase. In
addition, as previously discussed, during 2005, we recognized remediation revenue of $8.1 million related to revenue reversals
in previous years. After excluding the positive revenue variance related to the KeyPoint acquisition and the remediation revenue, our remaining operations achieved revenue growth of 5.9% during 2005.
This revenue growth resulted primarily from strong volumes in our information management service offering and in our project oriented class action claims administration service offering that
contributed approximately $16.9 million and $11.5 million, respectively.

Revenues
within our Information Management and Distribution segment increased 13.3% from $194.5 million in 2004, to $220.3 million in 2005. The increase in segment revenues
was primarily the result of: (i) increased volumes from existing customers and new business wins converted to revenue during 2005 of approximately $16.9 million, particularly in our
healthcare payer, federal and state government and mortgage vertical markets, (ii) the previously discussed remediation revenues of $8.1 million related to revenue reversals in previous
years, and (iii) slightly higher revenues in our statement processing service offering of $0.8 million.

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Revenues
within our Healthcare, Regulatory and Legal Compliance segment increased 4.5% from $187.2 million in 2004, to $195.5 million in 2005. As mentioned previously, the
acquisition of KeyPoint contributed approximately $3.9 million to the year over year increase. Also contributing to the revenue increase were higher volumes of medium to large size projects
(i.e. projects with total revenue greater than $500k) in our class action claims administration service offering, which increased approximately $11.5 million or 35.5%. Offsetting increases in
segment revenues were lower volumes of approximately $0.7 million related to our medical record coding staffing services and lower revenues of approximately $6.1 million in our medical
records release services attributable to lower volumes and certain collectibility issues and revenue losses related to Hurricane Katrina of approximately $1.4 million.

Gross profit

Gross profit increased 19.9% from $139.7 million, or 36.6% of revenue in 2004, to $167.6 million, or 40.3% of revenue in 2005. Gross margin
increased 370 basis points primarily due to: (i) the previously discussed remediation revenues of $8.1 million contributing 120 basis points, (ii) lower production personnel cost
as a percentage of revenue contributing 400 basis points, and (iii) increased volumes within our class action claims administration service offering, which typically produces higher margins.
Gross margin improvement resulting from personnel costs occurred in our information management service offering due to productivity and quality initiatives which included: introduction of Lean/Six
Sigma quality initiatives, implementation of high speed scanning technology to replace labor intensive low speed scanners, implementation of pay for performance compensation strategies, and increased
utilization of offshore labor.

Factors
partially offsetting the gross margin improvements were higher facilities related expenses (an increase of 30 basis points), increased outside services primarily associated with
offshore production (an increase of 90 basis points) and higher depreciation expense (an increase of 20 basis points).

Selling, general and administrative expenses

SG&A increased 11.6% from $109.7 million, or 28.7% of revenue in 2004, to $122.5 million, or 29.4% of revenue in 2005. The increase in SG&A expense
relates primarily to: (i) $1.7 million of incremental SG&A related to the Keypoint acquisition which was acquired during the second quarter of 2004, (ii) $1.1 million of
accounting and related fees associated with ongoing Sarbanes Oxley compliance related activity and (iii) $11.9 million of higher personnel related cost. We have experienced higher
personnel related costs as a result of the following: (i) investment in management and sales resources within our class action claims administration service offering, (ii) investment in
technology and sales resources within our information management service offering, and (iii) higher incentive compensation related to recent new business win successes and improved year over
year performance at the operating level. Partially offsetting the increase in SG&A were lower legal expenses of $3.6 million related primarily to the settlement of a significant legal matter in
our Information Management and Distribution segment during the first quarter of 2004.

Income from continuing operations before income taxes

Income from continuing operations before income taxes increased from $14.3 million in 2004 to $31.1 million in 2005. The increase was primarily the
result of: (i) net settlement income of $30.9 million related to the agreement with the former owners of the Company's operating subsidiary that was the subject of the Company's internal
investigation and financial restatement discussed above, (ii) contingent consideration overpayments expensed in the prior year of $10.2 million compared to an adjustment of
$0.8 million in the current year, and (iii) the factors impacting gross profit and SG&A discussed above, partially offset by the pre-tax non-cash goodwill
impairment charge of $38.3 million discussed above. The contingent consideration expense adjustment in the current year represents an adjustment to previously reported contingent consideration
overpayments. This adjustment had no

29

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impact
on current year operating cash flow. Interest expense increased $1.1 million compared to the prior year quarter due primarily to a higher interest rate environment. Each 100 basis point
increase in interest rates results in incremental annual interest expense of approximately $0.3 million at current debt levels.

Provision for income taxes

Full year income tax expense related to continuing operations was $21.3 million resulting in an effective tax rate of approximately 68%. The higher
effective tax rate relates primarily to the non-cash goodwill impairment charge recorded during the fourth quarter. Of the $38.3 million pre-tax goodwill impairment
charge, approximately $25.4 million was non-deductible for tax purposes.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

|                                             |  | Year Ended December 31, |        
|-------------------------------------------- |  | ----------------------- | -------
|
|
|Revenue                                      |  | $                       | 381,645
|Gross Profit                                 |  |                         | 139,741
|SG&A                                         |  |                         | 109,717
|Operating income                             |  |                         | 18,868 
|Income from continuing operations before tax |  |                         | 14,268 
|Income from continuing operations            |  |                         | 10,699 

Revenue

Our operations generated revenues of $381.6 million for in 2004, an increase of $7.2 million or 1.9% compared to 2003. During the second quarter of
2004, we acquired KeyPoint Consulting, LLC ("KeyPoint") as a part of our Healthcare, Regulatory, and Legal Compliance segment. KeyPoint contributed approximately $5.6 million to the revenue
increase.

Revenue
within our Information Management and Distribution segment increased 3.9% from $187.2 million in 2003 to $194.5 million in 2004. Project revenue accounted for 10.5%
of segment revenue in 2004 compared to 12.3% in 2003. The increase in segment revenue was primarily the result of higher volumes from existing customers and volumes from new customer contracts in our
Information Management service offering. Also contributing to the increase in segment revenue were higher volumes in our statement processing service offering which increased 7.4%, or
$2.4 million, during 2004.

Revenue
within our Healthcare, Regulatory and Legal Compliance segment was essentially flat year over year. However, the acquisition of KeyPoint contributed approximately
$5.6 million of revenue in 2004. Excluding the contribution from KeyPoint in 2004, revenue declined approximately 3.0%. The decline was primarily the result of lower volumes in our legal
consulting service offering and in our medical coding and records release of information service offerings. Volumes in our legal consulting service offering were lower due to three significant
projects in production during the 2003. Increased market competition was a primary driver for the decline in medical coding and release of information. Partially offsetting the declines discussed
above were higher project volumes in our class action claims administration service offering, which increased approximately 7%, or $2.3 million.

30

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Gross profit

Gross profit decreased 2.1% from $142.8 million, or 38.1% of revenue, in 2003 to $139.7 million, or 36.6% of revenue, in 2004. Factors impacting
gross profit and gross margin are discussed below.

Contributing
to the decline in gross profit were higher facilities related expenses of approximately $4.3 million related to the opening of new production facilities, mainly to
support growth initiatives within our Information Management and Distribution segment, and higher bad debt expense of approximately $2.0 million as 2003 reflected unusually large collections of
accounts receivable balances outstanding greater than ninety days.

As
discussed above in "Internal Investigation", certain revenue generated at an operating subsidiary in our Information Management and Distribution segment has been reversed, resulting
in a downward adjustment to certain asset accounts or the recognition of a customer liability or deferred revenue, if the customer has paid the invoices related to the reversed revenue.
Notwithstanding the reversal of revenue, the costs associated with the adjusted revenue continues to be reported in the period incurred. As a result of the reversed revenue, gross margin was
negatively impacted 1.0% in 2003 and 0.7% in 2004.

Partially
offsetting the declines in gross margin discussed above were lower personnel related costs, as a percentage of revenue. Personnel related costs decreased from 45.0% in the
prior year to 44.0% in the current year due primarily to our productivity and technology initiatives, such as high speed scanners, offshore production and pay-for-performance
compensation plans, and expense of $1.1 million incurred in 2003 related to an unusually large medical claim.

Selling, general and administrative expenses

SG&A increased 11.8% from $98.1 million, or 26.2% of revenue, in 2003 to $109.7 million, or 28.7% of revenue in 2004. The increase in SG&A expense
is largely attributable to: (i) the costs associated with the settlement of a significant legal matter in the Information Management and Distribution segment during the first quarter of 2004 of
approximately $2.1 million, (ii) legal and accounting costs of $2.0 million associated with the investigation of the financial results of one of our operating subsidiaries,
(iii) an increase in deferred compensation expense related to restricted stock of approximately $1.8 million and other personnel related expense of approximately $3.6 million,
(iv) higher travel and marketing costs of approximately $0.8 million, (v) higher hardware and software maintenance costs of approximately $0.6 million, and
(vi) higher professional fees associated with Sarbanes Oxley compliance activity of approximately $1.2 million.

Income from continuing operations before income taxes

Income from continuing operations before income taxes decreased from $33.5 million in 2003 to $14.3 million in 2004. The decrease was largely the
result of the factors impacting gross margin and SG&A discussed above. In addition, as discussed above, revenue recognition and expense omission issues at an operating subsidiary affected previously
paid contingent consideration payments related to the acquisition of the operating subsidiary. As a result, payments made under the provisions of the Earn-out Agreements that otherwise
would not have been made have been expensed in the periods paid resulting in expense of $7.2 million and $10.2 million in 2003 and 2004, respectively. Finally, 2004 includes a net loss
of $0.9 million on the disposition of property, plant and equipment compared to a gain of $0.1 million in 2003.

Interest
expense was lower by approximately $0.2 million in 2004 due the expiration of the interest rate swap on March 31, 2003 and a more favorable interest rate
environment during 2004. Interest income in 2003 included a one-time payment of $0.2 million related to a $2.3 million income tax receivable that was also collected during
2003.

31

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Provision for income taxes

We reported provision for income taxes in the amount of $3.6 million during 2004. This amount included a benefit of $1.8 million related to
favorable resolution of certain open tax issues as well as the expiration of statutes of limitations on certain strategic tax positions and an additional benefit of approximately $0.3 million
related to increased state tax credits. Collectively, the benefit from income taxes had the affect of lowering our effective tax rate to 24.7% during 2004 from 40% during 2003.

Fluctuations in Quarterly Results of Operations

Revenue from our services shows no overall significant seasonal variations; however, some seasonality exists at the operating unit level. Further, service revenue
can vary from period to period due to the impact of specific projects and the level of transaction volumes sent to us by our customers. Quarterly results may also vary as a result of the timing of
acquisitions and the timing and magnitude of costs related to such acquisitions.

Liquidity and Capital Resources

At December 31, 2005, we had $36.8 million of working capital, including $2.3 million of cash. Working capital at December 31, 2004
was $34.1 million, including $3.7 million of cash. Net cash provided by operating activities from continuing operations for the year ended December 31, 2005 was
$64.0 million compared to $29.6 million for the same period in 2004. Factors contributing to the increase in operating cash flow from continuing operations consist of: (i) receipt
of approximately $28.2 million in cash related to the settlement with the former owners of the Company's operating subsidiary that was the subject of the Company's internal investigation and
financial restatement, (ii) the contingent consideration overpayment in the prior year of $10.2 million and (iii) increase in the deferred income tax provision of
$9.8 million primarily associated with the settlement. Partially offsetting the factors discussed above were an increase in accounts receivable related to year over year revenue growth,
excluding remediation revenue, and changes in accounts payable and accrued liabilities of $12.7 million.

Excluding
the positive effects of remediation revenue, days sales outstanding decreased from 45 business days at December 31, 2004 to 44 business days at December 31, 2005

For
the year ended December 31, 2005, investing activities from continuing operations consisted of acquisitions of property, plant and equipment of $13.8 million and net
acquisition related payments of $4.4 million, partially offset by divestiture proceeds of $2.3 million. Divestiture proceeds consisted of: (i) $0.2 million associated with
the sale of a non-strategic asset group related to our litigation services operations during the first quarter of 2005, (ii) the collection in the second quarter of
$0.6 million of contingent purchase proceeds related to the divestiture of a medical records management operation completed during the third quarter of 2004, and (iii) the receipt of
approximately $1.5 million associated with the divestiture of the direct mail business in the third quarter of 2004. Additionally, pursuant to the terms of the UIS acquisition agreement,
approximately $4.3 million of contingent consideration was paid in cash to the former shareholders during the three months ended June 30, 2005 and approximately $1.0 million of
additional contingent consideration remains accrued. The accrued additional consideration is included in other current liabilities in the consolidated balance sheets and was paid in cash in the first
quarter of 2006.

Net
cash used for financing activities from continuing operations was $49.4 million for the year ended December 31, 2005. We made payments of $282.3 million on our
line of credit, net of proceeds borrowed from our line of credit of $232.5 million and cash paid for debt issuance costs of $0.2 million. The settlement proceeds of $28.2 million
discussed above were used to pay down debt. Additionally, net proceeds from common stock issuances in 2005 were $0.7 million. We utilize our line of credit to

32

---



fund
general operating requirements of the Company as well as fund significant investments such as acquisitions or capital expenditures.

At
December 31, 2004, we had $34.1 million of working capital, including $3.7 million of cash. Working capital at December 31, 2003 was $36.6 million,
including $2.1 million of cash. Net cash provided by operating activities from continuing operations for the year ended December 31, 2004 was $29.6 million compared to
$52.3 million for the same period in 2003. Factors contributing to the decline in operating cash flow from continuing operations consist of: (i) lower earnings in 2004,
(ii) slower cash collections during 2004 resulting in $8.4 million of lower cash provided by operating activities, (iii) the payment of significant legal settlements during in
2004 totaling $7.5 million, (iv) higher annual incentive compensation payments compared to 2003, (v) the receipt of income tax refunds of $2.3 million in 2003, and
(vi) higher contingent consideration overpayments in the amount of $3.0 million related to the Operating Subsidiary under investigation, as more fully described above in "Internal
Investigation" and in Note 3 to the consolidated financial statements.

For
the year ended December 31, 2004, investing activities from continuing operations consisted of acquisitions of property, plant and equipment of $17.1 million and net
acquisition related payments of $17.5 million of which $13.7 million relates to the acquisition of KeyPoint Consulting LLC and $3.8 million represents the settlement of contingent
consideration and other acquisition related payments. Partially offsetting the capital expenditures and cash paid for acquisitions was divestiture proceeds of $6.8 million, related to the
divestiture of our Direct Mail operations and two medical records management operations.

Net
cash provided by financing activities from continuing operations was $2.2 million for the year ended December 31, 2004. Borrowings from our line of credit of
$301.0 million were partially offset by payments on our line of credit of $287.0 million. Additionally, net proceeds from common stock issuances of $0.5 million were more than
offset by payments of $11.9 million related to shares repurchased.

At
December 31, 2003, we had $36.6 million of working capital, including $2.1 million of cash. Cash flows provided by operating activities for the year ended
December 31, 2003 were $52.3 million compared to $55.8 million for the year ended December 31, 2002. Days sales outstanding improved 2 days to 41 business days at
December 31, 2003 compared to 43 business days at December 31, 2002

For
the year ended December 31, 2003, investing activities consisted primarily of additions to property, plant and equipment of $16.3 million and acquisition-related
payments of $3.0 million. During 2003, we made investments in 30 high-speed scanning systems in order to increase productivity in our Information Management service offering and
expanded our production facilities through the addition of 3 major facilities in Burbank, CA; Denver, CO; and Irving, TX. Acquisition-related payments consisted primarily of settlements of contingent
consideration obligations on past acquisitions.

Net
cash used for financing activities was $36.9 million for the year ended December 31, 2003. We made payments for common stock repurchases of $20.7 million. In
April 2001, our Board of Directors authorized the repurchase of up to $30 million of our outstanding common stock. Under this program, share repurchases may be made from time to time on
the open market as market conditions warrant. Repurchased shares will be retired and restored to the status of authorized but unissued shares of the Company. During 2003, we activated the share
repurchase program and repurchased 1,306,979 shares at an average cost of $15.84 per share (including 75,000 shares repurchased during the three months ended December 31, 2003 at an average
price of $23.89 per share). Additionally, we made payments of $246.0 million on our line of credit, net of proceeds borrowed from our line of credit of $229.7 million.

On
September 29, 2005, the Company amended its revolving credit facility. Under the amended and restated credit agreement (the "2005 Credit Agreement"), with Bank of America as
agent and SunTrust Bank and JP Morgan Chase as co-agents, the Company may borrow on a revolving credit

33

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basis
loans in an aggregate outstanding principal amount up to $100 million, subject to certain customary financial covenants and ratios. Additionally, the 2005 Credit Agreement contains an
accordion provision for an additional $50 million.

The
annual interest rate applicable to borrowings under the 2005 Credit Agreement is, at the Company's option, (i) pricing equaling the higher of (a) the Federal Funds
Rate plus 1/2 of 1% and (b) the prime rate as set by Bank of America or (ii) grid pricing ranging from 0.75% to 1.00% plus LIBOR based on the ratio of funded debt to
earnings before interest, taxes, depreciation and amortization ("EBITDA") (as defined in the credit agreement). The outstanding principal balance of revolving credit loans is due and payable on
September 29, 2008.

In
January 2000, we registered on Form S-4 (Registration No. 333-92981) 3,012,217 shares of common stock for issuance in connection with our
acquisition program (the "Acquisition Shelf"), of which 1,359,852 shares were available as of December 31, 2005; however, such registration statement may require amendment prior to use.

The
following table summarizes our total contractual cash obligations as of December 31, 2005 (in thousands):

Payments Due by PeriodContractual Obligation

Total

Less than 1
Year

1 to 3
Years

4 to 5
Years

After 5
YearsLong-Term Debt

$
37,822

$


$
37,822

$


$
Capital Lease Obligations


230


128


75


27


Operating Leases


61,282


17,621


26,614


10,566


6,481Total Contractual Cash Obligations

$
99,334

$
17,749

$
64,511

$
10,593

$
6,481


As
of December 31, 2005, we have outstanding irrevocable letters of credit totaling approximately $13.0 million. Letters of credit in the amount of approximately
$8.0 million serves as security for the
Company's self-insured workmen's compensation program. A letter of credit in the amount of $5.0 million serves as a guarantee for performance under a contract with New York State
Workers Compensation Board.

As
of December 31, 2005, the availability under the 2005 Credit Agreement was approximately $49.0 million and we are in compliance with all loan covenants.

We
expect to pay approximately $1.0 million to $1.5 million in interest in 2006.

Critical Accounting Policies

Management's Discussion and Analysis of Financial Condition and Results of Operations are based on the related consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the financial statements requires the use of estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses.

We
have identified the following critical accounting policies that, as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and
operations involved, could result in material changes to our financial condition or results of operations under different conditions or using different assumptions. We apply a consistent methodology
at the end of each quarter to determine our account balances that require judgmental analysis.

Revenue Recognition.We recognize our revenue as it becomes realized or realizable and earned according to the criteria
provided by Staff Accounting Bulletin 104,Revenue Recognition. Revenue recognition occurs once persuasive evidence of an arrangement exists, delivery
has occurred or services

34

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have
been rendered, the sales price is fixed or otherwise determinable, and collection is reasonably assured. Our revenue-earnings activities possess both project and recurring customer relationships.

Recurring
revenue is characterized by customer relationships that are generally for one year and may continue for longer. Recurring revenue is typically based on the transaction volumes
provided by our customer at an agreed upon fixed rate per unit. Our customer's volumes are typically not contractual or otherwise guaranteed. Revenue recognition occurs once work is completed and
delivery has occurred or
services have been rendered. Recurring revenue represents the remaining 61.5% of total 2005 revenues and typically occurs within our Information Management and Distribution segment.

Project
revenue includes one-time projects in which the customer relationship is not expected to continue after project completion. Project revenue is typically based on time
and material arrangements. Revenue recognition occurs at the contractual rates as the labor hours and direct expenses are incurred. Project revenue represents approximately 38.5% of total 2005
revenues and typically occurs within our Healthcare, Regulatory, and Legal Compliance segment.

Revenue
recognition policies related to offerings within the our Information Management and Distribution segment are based upon objective criteria that do not require significant
estimates or uncertainties. For example, business process outsourcing services are recognized proportionally as services are rendered, based on specific, objective criteria under the contracts for the
number of accounts or transactions processed. Accordingly, revenues recognized under these methods do not require the use of significant estimates that are susceptible to change.

Revenue
recognition policies within our Healthcare, Regulatory, and Legal Compliance segment are based upon objective criteria that do not require significant estimates or uncertainties.
For example, transaction volumes and time and costs under time and material and cost reimbursable arrangements are based on specific, objective criteria under the contracts. The following outlines
specific revenue recognition policies related to certain offerings within this segment:

Medical records release servicesrevenue is recognized upon completion of the processing of the requested medical records.
Revenue recognition for this service is based on an agreed upon and in some cases, a regulated rate applied to the number of records processed. When a fee is paid to the hospital, the revenue related
to that fee is reported on a net basis in accordance with Emerging Issues Task Force ("EITF") 99-19,Reporting Revenue Gross as a Principal versus Net as an
Agent,due to the fact that: (a) the primary obligation in the arrangement is borne partially by both SOURCECORP and the hospital; (b) SOURCECORP has no
discretion with respect to the supplier of the medical record; and (c) SOURCECORP is not involved in the determination of product or service specifications.

Record management servicesrevenue is recognized as storage services are provided based on linear feet of documents stored
times a monthly rate for shelf storage and based on a monthly per image rate for images stored electronically. We recognize fees for processing, retrieval, delivery and return to storage as revenue
upon completion of the service at the agreed upon rate applied to the unit count of items serviced.

Additional healthcare and compliance servicesrevenue is recognized for document and data conversion services as the services
are provided based upon an agreed upon rate per patient file applied to the number of files processed. Storage and archiving fees are recognized as revenue as the services are provided based upon an
agreed upon monthly rate per file stored or otherwise archived. Revenue related to coding and abstracting of medical records and staffing services is recognized as the services are provided based on
an agreed upon rate applied to the billable hours worked and eligible out-of-pocket expenses defined by the service agreement. The out-of-pocket expense
component is recognized as revenue and cost of services on a gross basis in accordance with EITF Issue 01-14,Income Statement Characterization of Reimbursements
Received for "Out-of-Pocket" Expenses Incurred.Revenue related to compliance reviews is based primarily on an agreed upon percentage (or

35

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commission)
of amounts identified and recovered from the third party payers as a fee for services provided. Revenue is recognized upon successful recovery of underpayments to our clients by their
managed care and commercial payers at the agreed upon percentage (or commission).

Class action claims administration servicesrevenue is recognized as these services are provided based on the agreed upon rate
applied to the number of hours spent providing services related to administering the legal settlements and expenses incurred. The out-of-pocket expense component is recognized
as revenue and cost of services on a gross basis in accordance with EITF Issue 01-14,Income Statement Characterization of Reimbursements Received for
"Out-of-Pocket" Expenses Incurred.In addition, revenue related to the design and implementation of comprehensive notification plans is based on an
agreed upon percentage (i.e. commission) of the cost to place the media communication. Revenue is recognized at the time of public delivery of the notification through the various media outlets at the
agreed upon percentage (or commission).

Professional economic research and litigation servicesrevenue is recognized as these services are provided based on
consulting hours worked at agreed upon rates at the time services are rendered and expenses are incurred. The out-of-pocket expense component is recognized as revenue and cost
of services on a gross basis in accordance with EITF Issue 01-14,Income Statement Characterization of Reimbursements Received for
"Out-of-Pocket" Expenses Incurred.

As
a part of providing services to our customers, we incur incidental expenses commonly referred to as "out-of-pocket" expenses. These expenses include items such
as airfare, hotels, and mileage and are often reimbursable by our customers. When reimbursable, we record both revenue and direct cost of services in accordance with the provisions of Emerging Issues
Task Force ("EITF") Issue 01-14,Income Statement Characterization of Reimbursements Received for "Out-of-Pocket" Expenses
Incurred.

Unearned
income, included in other current liabilities, represents payments from our customers in advance of services being provided. Advanced payments are deferred as unearned income
when received and recognized as revenue as services are rendered.

Allowance for Doubtful Accounts.The allowance for doubtful accounts is established and maintained based on our estimate of
accounts receivable collectibility. Management estimates collectibility by specifically analyzing accounts receivable aging and other historical factors that affect collections. Such factors include
the historical trends of write-offs and recovery of previously written-off accounts, the financial strength of the customer and projected economic and market conditions. The
evaluation of these factors involves subjective judgments and changes in these factors may significantly impact our consolidated financial statements.

Long-Lived Assets and Intangibles Impairment.As required by SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets,management continually evaluates whether events and circumstances indicate
that the carrying value of long-lived assets and intangible assets may not be recoverable. When events require, management performs the valuation by comparing the estimated undiscounted
future cash flows over the remaining life of the long-lived assets and intangibles to the carrying amount of the asset being evaluated. An impairment loss is recognized if the carrying
amount of assets being evaluated exceeds the expected future undiscounted cash flow based on the difference between the carrying value and fair value. At December 31, 2005, no events were
evident that required valuation for potential impairment.

Goodwill Impairment.On January 1, 2002, we adopted SFAS No. 142,Goodwill and Other
Intangible Assets.This statement states that goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually
for impairment. The impairment test is based on fair value rather than undiscounted cash flows. Additionally, goodwill and other intangible assets are tested at a reporting unit level rather than the
individual operating unit level. A reporting unit is either at the operating segment level or one reporting level below and could consists

36

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of
several service offerings aggregated into a single reporting unit. Service offerings are aggregated when they are similar in the following areas: economic characteristics, products and services,
production processes, methods for distributing or delivering products, and type or class of customers. Valuation methods used in determining fair value include an analysis of the cash flows that the
reporting units can be expected to generate in the future (Income Approach) and the fair value of a reporting unit as compared to similar publicly traded companies (Market Approach). In preparing
these valuations management utilizes estimates to determine fair value of the reporting units. These estimates include future cash flows, growth rates, capital needs, and projected earning margins
among other factors. The annual test in 2005 indicated the carrying value of the Company's HealthSERVE reporting unit within the Healthcare, Regulatory and Legal Compliance reportable segment exceeded
its fair value. As a result, the Company recorded a pre-tax non-cash impairment charge of approximately $38.3 million in the fourth quarter. Estimates utilized in future
calculations could differ from estimates used in the current period. Future years' estimates that are unfavorable compared to current estimates could cause an impairment of goodwill and other
intangible assets. Due to the fact that we are primarily a services company, our business acquisitions typically result in significant amounts of goodwill and other intangible assets. Therefore, an
impairment charge resulting from goodwill or other intangible assets could result in a material adverse impact on our financial statements during the period incurred.

Self-Insurance Liabilities and Reserves.We are self-insured for workmen's compensation liabilities
and a significant portion of our employee medical costs. We account for our self-insurance programs based on actuarial estimates of the amount of loss inherent in that period's claims,
including losses for which claims have not been reported. These loss estimates rely on actuarial observations of ultimate loss experience for similar historical events. We limit our risk by carrying
stop-loss policies for significant claims incurred for both workmen's compensation liabilities and medical costs.

Other Loss Contingencies.We record liabilities when it is probable that a liability has been incurred and the amount of the
loss is reasonably estimable in accordance with SFAS No. 5,Accounting for Contingencies. Disclosure is required when there is a reasonable
possibility that the ultimate loss will exceed the recorded provision. Contingent liabilities are often resolved over long periods of time. Estimating probable losses requires analysis of multiple
forecasts that often depend on judgments about potential actions by third parties such as regulators. Our loss contingencies consist primarily of estimates related to the probable outcome of current
litigation. See Note 17, Commitments and Contingencies, of Notes to Consolidated Financial Statements.



In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123(R),Share-Based
Payment, which eliminates the alternative to account for employee stock options under APB Opinion 25 and requires the fair value of all share-based payments to employees,
including the fair value of grants of employee stock options, be recognized in the income statement, generally over the vesting period.

In
March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 107, which provides additional implementation guidance for
SFAS 123R. Among other things, SAB 107 provides guidance on share-based payment valuations, income statement classification and presentation, capitalization of costs and related income tax
accounting.

SFAS 123R
provides for adoption using either the modified prospective or modified retrospective transition method. The Company will adopt SFAS 123R on January 1,
2006 using the modified prospective transition method in which compensation cost is recognized beginning January 1, 2006 for all share-based payments granted on or after that date and for all
awards granted to employees prior to January 1, 2006 that remain unvested on that date. The Company will continue to use the Black-Scholes option pricing model to determine the fair value of
stock option awards.

37

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Adoption
of SFAS 123R's fair value method will have an effect on results of operations, although it will not have a material impact on the Company's overall financial position.

In
March 2005, the FASB issued Interpretation No. 47,Accounting for Conditional Asset Retirement Obligations,to clarify
that the term conditional asset retirement obligation as used in FASB Statement No. 143 is a legal obligation to perform an asset retirement activity in which the timing and (or) method of
settlement are conditional on a future event that the enterprise may or may not have control over. This Interpretation requires recognition of a liability for the fair value of a conditional asset
retirement obligation when incurred if the liability's fair value can be reasonably determined. This Interpretation is effective no later than the end of the fiscal years ending after
December 15, 2005. The adoption of this Interpretation did not have a material impact on the Company's consolidated financial statements.

ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk

We are subject to interest rate risk on our term loans and revolving credit facility. Interest rates are fixed on the capitalized lease obligations. A 100 basis
point increase in short-term interest rates would result in approximately $0.3 million of additional expense in 2006 based on our expected average balance outstanding under the
credit facility during 2006.

38

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ITEM 8.Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS



|                                                                                   
|-----------------------------------------------------------------------------------
|SOURCECORP, INCORPORATED AND SUBSIDIARIES                                          
|Management's Report on Internal Control Over Financial Reporting                   
|Reports of Independent Registered Public Accounting Firm                           
|Consolidated Balance SheetsAt December 31, 2004 and 2005                          
|Consolidated Statements of OperationsYears ended December 31, 2003, 2004 and 2005 
|Consolidated Statements of Stockholders' EquityAt December 31, 2003, 2004 and 2005
|Consolidated Statements of Cash FlowsYears ended December 31, 2003, 2004 and 2005 
|Notes to Consolidated Financial Statements                                         

39

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MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To
the Board of Directors and Shareholders of SOURCECORP Incorporated:

The
management of SOURCECORP, Incorporated ("SOURCECORP") is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f).SOURCECORP's internal control system was designed to
provide reasonable assurance to the company's management and board of directors regarding the preparation and fair presentation of published financial statements.

All
internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. Because of the inherent limitations of disclosure controls, including the possibility of collusion or improper management override of
controls, no matter how comprehensive or well designed such controls are, management may not in all cases be alerted to material information relating to the company (including its consolidated
subsidiaries) required to be included in the Company's SEC filings.

SOURCECORP's management, including its principal executive officer and principal financial officer, assessed the effectiveness of the
Company's internal control over financial reporting as of December 31, 2005. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) inInternal ControlIntegrated Framework. Management's evaluation of the design and operating effectiveness
of our internal control over financial reporting identified a material weakness resulting from deficiencies in the operating effectiveness of controls at a significant operating location within the
Healthcare, Regulatory and Legal Compliance reportable segment. The material weakness is not pervasive toSOURCECORP'soverall control environment.

The
material weakness is the aggregated result of the following significant deficiencies identified in the operating unit's internal controls related to revenue:



Because
of this material weakness in internal control over financial reporting at a significant operating location within the Healthcare, Regulatory and Legal Compliance reportable
segment, management, including its principal executive officer and principal financial officer, concluded that, as of December 31, 2005, the Company's internal control over financial reporting
was not effective based on the criteria set forth by COSO.

A
"material weakness" is defined as a significant deficiency or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or detected. A "significant deficiency" is defined as a control deficiency, or combination of control deficiencies, that adversely affects
the Company's ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America
such that there is more

40

---



than
a remote likelihood that a misstatement of the Company's annual or interim financial statements that is more than inconsequential will not be prevented or detected.

SOURCECORP's independent registered public accounting firm, Deloitte & Touche LLP, has issued an audit report on our assessment of
the Company's internal control over financial reporting, which is included herein.

|SOURCECORP Incorporated
Dallas, Texas
March 31, 2006 |  |                                         
|---------------------------------------------------- |  | ----------------------------------------
|/s/ED H. BOWMAN, JR.                                 |  | /s/BARRY L. EDWARDS                     
|Ed H. Bowman, Jr. Chief Executive Officer            |  | Barry L. Edwards Chief Financial Officer

41

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
SOURCECORP, Incorporated
Dallas, Texas

We
have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that SOURCECORP, Incorporated and subsidiaries
(the "Company") did not maintain effective internal control over financial reporting as of December 31, 2005 because of the effect of the material weakness identified in management's assessment
based on criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

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

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

Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A
material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected. The following material weakness has been identified as the result of the aggregation of significant deficiencies in internal control
related to revenue at a

42

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significant
operating location within the Healthcare, Regulatory and Legal Compliance reportable segment, and included in management's assessment:



This
material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated balance sheet as of December 31, 2005
and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended, of the Company, and this report does not affect our report on such financial
statements.

In
our opinion, management's assessment that the Company did not maintain effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all
material respects, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our
opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over
financial reporting as of December 31, 2005, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2005 and
the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended, of the Company and our report dated March 31, 2006 expressed an unqualified
opinion on those financial statements.

DELOITTE &
TOUCHE LLP

Dallas,
Texas
March 31, 2006

43

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
SOURCECORP, Incorporated
Dallas, Texas

We
have audited the accompanying consolidated balance sheets of SOURCECORP, Incorporated and subsidiaries (the "Company") as of December 31, 2005 and 2004, and the related
consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of SOURCECORP, Incorporated and subsidiaries as of
December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting
principles generally accepted in the United States of America.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over
financial reporting as of December 31, 2005, based on the criteria established inInternal ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 31, 2006 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an adverse opinion on
the effectiveness of the Company's internal control over financial reporting.

DELOITTE &
TOUCHE LLP

Dallas,
Texas
March 31, 2006

44

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SOURCECORP, INCORPORATED AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        (IN THOUSANDS, EXCEPT SHARE DATA)

|                                                |                                                                                                                                                                                                               | December 31,                               |        
|----------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------
|
|ASSETS                                          |                                                                                                                                                                                                               |                                            |        
|CURRENT ASSETS:                                 |                                                                                                                                                                                                               |                                            |        
|                                                | Cash and cash equivalents                                                                                                                                                                                     |                                            | $      
|                                                | Accounts and notes receivable, net                                                                                                                                                                            |                                            |        
|                                                | Inventories                                                                                                                                                                                                   |                                            |        
|                                                | Deferred income taxes                                                                                                                                                                                         |                                            |        
|                                                | Income tax receivable                                                                                                                                                                                         |                                            |        
|                                                | Prepaid expenses and other current assets                                                                                                                                                                     |                                            |        
|                                                | Assets of discontinued operations                                                                                                                                                                             |                                            |        
|                                                |                                                                                                                                                                                                               |                                            |        
|                                                |                                                                                                                                                                                                               | Total current assets                       |        
|PROPERTY, PLANT AND EQUIPMENT,net               |                                                                                                                                                                                                               |                                            | 39,603 
|GOODWILL                                        |                                                                                                                                                                                                               |                                            | 326,139
|INTANGIBLES,net                                 |                                                                                                                                                                                                               |                                            | 4,904  
|NON QUALIFIED RETIREMENT PLAN ASSETS            |                                                                                                                                                                                                               |                                            | 8,870  
|OTHER NONCURRENT ASSETS                         |                                                                                                                                                                                                               |                                            | 2,654  
|                                                |                                                                                                                                                                                                               |                                            |        
|                                                |                                                                                                                                                                                                               | Total assets                               |        
|                                                |                                                                                                                                                                                                               |                                            |        
|LIABILITIES AND STOCKHOLDERS' EQUITY            |                                                                                                                                                                                                               |                                            |        
|CURRENT LIABILITIES:                            |                                                                                                                                                                                                               |                                            |        
|                                                | Accounts payable                                                                                                                                                                                              |                                            | $      
|                                                | Accrued liabilities                                                                                                                                                                                           |                                            |        
|                                                | Accrued compensation and benefits                                                                                                                                                                             |                                            |        
|                                                | Customer deposits                                                                                                                                                                                             |                                            |        
|                                                | Other current liabilities                                                                                                                                                                                     |                                            |        
|                                                | Current maturities of long-term obligations                                                                                                                                                                   |                                            |        
|                                                | Income tax payable                                                                                                                                                                                            |                                            |        
|                                                | Liabilities of discontinued operations                                                                                                                                                                        |                                            |        
|                                                |                                                                                                                                                                                                               |                                            |        
|                                                |                                                                                                                                                                                                               | Total current liabilities                  |        
|LONG-TERM OBLIGATIONS,net of current maturities |                                                                                                                                                                                                               |                                            | 87,547 
|DEFERRED INCOME TAXES                           |                                                                                                                                                                                                               |                                            | 13,210 
|LONG-TERM CUSTOMER LIABILITY                    |                                                                                                                                                                                                               |                                            | 4,147  
|DEFERRED REVENUE                                |                                                                                                                                                                                                               |                                            | 8,010  
|NON QUALIFIED RETIREMENT PLAN OBLIGATIONS       |                                                                                                                                                                                                               |                                            | 8,870  
|OTHER LONG-TERM OBLIGATIONS                     |                                                                                                                                                                                                               |                                            | 2,077  
|                                                |                                                                                                                                                                                                               |                                            |        
|                                                |                                                                                                                                                                                                               | Total liabilities                          |        
|COMMITMENTS AND CONTINGENCIES                   |                                                                                                                                                                                                               |                                            |        
|STOCKHOLDERS' EQUITY:                           |                                                                                                                                                                                                               |                                            |        
|                                                | Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued or outstanding                                                                                                                 |                                            |        
|                                                | Series A Cumulative Participating Preferred stock, no par value, 50,000 shares authorized, no shares issued or outstanding                                                                                    |                                            |        
|                                                | Common stock, $.01 par value, 26,000,000 shares authorized, 15,703,586 and 15,659,348 shares issued and 15,666,916 and 15,622,678 shares outstanding at December 31, 2004 and December 31, 2005, respectively |                                            |        
|                                                | Additional paid-in-capital                                                                                                                                                                                    |                                            |        
|                                                | Retained earnings                                                                                                                                                                                             |                                            |        
|                                                |                                                                                                                                                                                                               |                                            |        
|                                                |                                                                                                                                                                                                               |                                            | 297,218
|LessTreasury stock, at cost, 36,670 shares     |                                                                                                                                                                                                               |                                            | (501   
|LessDeferred compensation                      |                                                                                                                                                                                                               |                                            | (4,296 
|                                                |                                                                                                                                                                                                               |                                            |        
|                                                |                                                                                                                                                                                                               | Total stockholders' equity                 |        
|                                                |                                                                                                                                                                                                               |                                            |        
|                                                |                                                                                                                                                                                                               | Total liabilities and stockholders' equity |        
|                                                |                                                                                                                                                                                                               |                                            |        

The accompanying notes are an integral part of these consolidated financial statements.

45

---



SOURCECORP, INCORPORATED AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        (IN THOUSANDS, EXCEPT SHARE DATA)

|                                                       |                      | Year Ended December 31,                               |                        
|------------------------------------------------------ | -------------------- | ----------------------------------------------------- | -----------------------
|
|REVENUE                                                |                      | $                                                     | 374,381                
|COST OF SERVICES EXCLUSIVE OF DEPRECIATION             |                      |                                                       | 218,967                
|DEPRECIATION                                           |                      |                                                       | 12,617                 
|                                                       |                      |                                                       |                        
|                                                       |                      | Gross profit                                          |                        
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES           |                      |                                                       | 98,121                 
|CONTINGENT CONSIDERATION OVERPAYMENT                   |                      |                                                       | 7,223                  
|GOODWILL IMPAIRMENT                                    |                      |                                                       |                       
|AMORTIZATION                                           |                      |                                                       | 355                    
|                                                       |                      |                                                       |                        
|                                                       |                      | Operating income                                      |                        
|OTHER (INCOME) EXPENSE:                                |                      |                                                       |                        
|                                                       | Interest expense     |                                                       |                        
|                                                       | Interest income      |                                                       |                        
|                                                       | Net legal settlement |                                                       |                        
|                                                       | Other expense, net   |                                                       |                        
|                                                       |                      |                                                       |                        
|                                                       |                      | Income from continuing operations before income taxes |                        
|PROVISION FOR INCOME TAXES                             |                      |                                                       | 13,410                 
|                                                       |                      |                                                       |                        
|INCOME FROM CONTINUING OPERATIONS                      |                      |                                                       | 20,099                 
|INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX |                      |                                                       | (1,018                 
|                                                       |                      |                                                       |                        
|NET INCOME                                             |                      | $                                                     | 19,081                 
|                                                       |                      |                                                       |                        
|NET INCOME (LOSS) PER COMMON SHARE                     |                      |                                                       |                        
|                                                       | BASIC                |                                                       |                        
|                                                       |                      |                                                       | Continuing Operations  
|                                                       |                      |                                                       | Discontinued Operations
|                                                       |                      |                                                       |                        
|                                                       |                      |                                                       |                        
|                                                       |                      |                                                       |                        
|                                                       | DILUTED              |                                                       |                        
|                                                       |                      |                                                       | Continuing Operations  
|                                                       |                      |                                                       | Discontinued Operations
|                                                       |                      |                                                       |                        
|                                                       |                      |                                                       |                        
|                                                       |                      |                                                       |                        
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING             |                      |                                                       |                        
|                                                       | BASIC                |                                                       |                        
|                                                       |                      |                                                       |                        
|                                                       | DILUTED              |                                                       |                        
|                                                       |                      |                                                       |                        

The
accompanying notes are an integral part of these consolidated financial statements.

46

---





SOURCECORP, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(IN THOUSANDS)

|                                                                        |  | Common Stock |   |   |     | Accumulated
Other
Comprehensive
Income (Loss) |   |         |   |   |      |   |   |         |   |  
|----------------------------------------------------------------------- |  | ------------ | - | - | --- | --------------------------------------------- | - | ------- | - | - | ---- | - | - | ------- | - | -
|
|
|Balance, January 1, 2003                                                |  | 17,421       |   | $ | 175 |                                               | $ | 206,843 |   | $ | (329 | ) | $ | 87,237  |   | $
|Common stock released from escrow in connection with acquisitions       |  | 20           |   |   |    |                                               |   | (94     | ) |   |     |   |   |        |   |  
|Common stock earned and held in escrow related to business acquisitions |  |             |   |   |    |                                               |   | 532     |   |   |     |   |   |        |   |  
|Exercise of awards and related tax benefit                              |  | 16           |   |   |    |                                               |   | 368     |   |   |     |   |   |        |   |  
|Common shares retired                                                   |  | (1,307       | ) |   | (13 | )                                             |   | (15,600 | ) |   |     |   |   | (5,086  | ) |  
|Grants of restricted stock                                              |  |             |   |   |    |                                               |   | 2,950   |   |   |     |   |   |        |   |  
|Amortization of deferred compensation                                   |  |             |   |   |    |                                               |   |        |   |   |     |   |   |        |   |  
|Interest rate swap, net of $219 tax                                     |  |             |   |   |    |                                               |   |        |   |   | 329  |   |   |        |   |  
|Net income                                                              |  |             |   |   |    |                                               |   |        |   |   |     |   |   | 19,081  |   |  
|                                                                        |  |              |   |   |     |                                               |   |         |   |   |      |   |   |         |   |  
|Comprehensive income                                                    |  |             |   |   |    |                                               |   |        |   |   |     |   |   |        |   |  
|                                                                        |  |              |   |   |     |                                               |   |         |   |   |      |   |   |         |   |  
|Balance, December 31, 2003                                              |  | 16,150       |   |   | 162 |                                               |   | 194,999 |   |   |     |   |   | 101,232 |   |  
|Common stock issued in connection with acquisitions                     |  | 10           |   |   |    |                                               |   | 255     |   |   |     |   |   |        |   |  
|Common stock released from escrow in connection with acquisitions       |  | 20           |   |   |    |                                               |   | 6       |   |   |     |   |   |        |   |  
|Exercise of awards and related tax benefit                              |  | 21           |   |   |    |                                               |   | 512     |   |   |     |   |   |        |   |  
|Common shares retired                                                   |  | (478         | ) |   | (5  | )                                             |   | (5,924  | ) |   |     |   |   | (5,955  | ) |  
|Treasury shares retired                                                 |  | (19          | ) |   |    |                                               |   | (241    | ) |   |     |   |   | (240    | ) |  
|Grants of restricted stock, net of forfeitures                          |  |             |   |   |    |                                               |   | 4,318   |   |   |     |   |   |        |   |  
|Amortization of deferred compensation                                   |  |             |   |   |    |                                               |   |        |   |   |     |   |   |        |   |  
|Net income                                                              |  |             |   |   |    |                                               |   |        |   |   |     |   |   | 8,099   |   |  
|                                                                        |  |              |   |   |     |                                               |   |         |   |   |      |   |   |         |   |  
|Comprehensive income                                                    |  |             |   |   |    |                                               |   |        |   |   |     |   |   |        |   |  
|                                                                        |  |              |   |   |     |                                               |   |         |   |   |      |   |   |         |   |  
|Balance, December 31, 2004                                              |  | 15,704       |   |   | 157 |                                               |   | 193,925 |   |   |     |   |   | 103,136 |   |  
|Exercise of awards and related tax benefit                              |  | 35           |   |   |    |                                               |   | 778     |   |   |     |   |   |        |   |  
|Common shares retired as part of a legal settlement                     |  | (90          | ) |   |    |                                               |   | (1,805  | ) |   |     |   |   |        |   |  
|Restricted stock vesting                                                |  | 10           |   |   |    |                                               |   |        |   |   |     |   |   |        |   |  
|Grants of restricted stock, net of forfeitures                          |  |             |   |   |    |                                               |   | 4,786   |   |   |     |   |   |        |   |  
|Amortization of deferred compensation                                   |  |             |   |   |    |                                               |   |        |   |   |     |   |   |        |   |  
|Net income                                                              |  |             |   |   |    |                                               |   |        |   |   |     |   |   | 9,887   |   |  
|                                                                        |  |              |   |   |     |                                               |   |         |   |   |      |   |   |         |   |  
|Comprehensive income                                                    |  |             |   |   |    |                                               |   |        |   |   |     |   |   |        |   |  
|                                                                        |  |              |   |   |     |                                               |   |         |   |   |      |   |   |         |   |  
|Balance, December 31, 2005                                              |  | 15,659       |   | $ | 157 |                                               | $ | 197,684 |   | $ |     |   | $ | 113,023 |   | $
|                                                                        |  |              |   |   |     |                                               |   |         |   |   |      |   |   |         |   |  

The accompanying notes are an integral part of these consolidated financial statements.

47

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SOURCECORP, INCORPORATED AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        (IN THOUSANDS EXCEPT SHARE DATA)

|                                                                                                         |                                                                                                                | Year Ended December 31,                                                          |                                          
|-------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | -----------------------------------------
|
|OPERATING ACTIVITIES:                                                                                    |                                                                                                                |                                                                                  |                                          
|Income from continuing operations                                                                        |                                                                                                                | $                                                                                | 20,099                                   
|Adjustments to reconcile income from continuing operations to net cash provided by operating activities: |                                                                                                                |                                                                                  |                                          
|                                                                                                         | Depreciation and amortization                                                                                  |                                                                                  |                                          
|                                                                                                         | Deferred tax provision                                                                                         |                                                                                  |                                          
|                                                                                                         | Stock based compensation expense                                                                               |                                                                                  |                                          
|                                                                                                         | (Gain) loss on sale of property, plant and equipment                                                           |                                                                                  |                                          
|                                                                                                         | Goodwill impairment                                                                                            |                                                                                  |                                          
|                                                                                                         | Net non-cash income related to common stock component of legal settlement and other                            |                                                                                  |                                          
|Change in operating assets and liabilities:                                                              |                                                                                                                |                                                                                  |                                          
|                                                                                                         | Accounts receivable and notes receivable                                                                       |                                                                                  |                                          
|                                                                                                         | Inventories, prepaid expenses and other assets                                                                 |                                                                                  |                                          
|                                                                                                         | Accounts payable, accrued liabilities and other                                                                |                                                                                  |                                          
|                                                                                                         |                                                                                                                |                                                                                  |                                          
|                                                                                                         |                                                                                                                | Net cash provided by operating activities from continuing operations             |                                          
|                                                                                                         |                                                                                                                | Net cash provided by (used in) operating activities from discontinued operations |                                          
|                                                                                                         |                                                                                                                |                                                                                  |                                          
|                                                                                                         |                                                                                                                |                                                                                  | Net cash provided by operating activities
|INVESTING ACTIVITIES:                                                                                    |                                                                                                                |                                                                                  |                                          
|                                                                                                         | Net proceeds received from divestitures                                                                        |                                                                                  |                                          
|                                                                                                         | Proceeds from sale of property, plant and equipment                                                            |                                                                                  |                                          
|                                                                                                         | Purchase of property, plant and equipment                                                                      |                                                                                  |                                          
|                                                                                                         | Cash paid for acquisitions, net of cash acquired                                                               |                                                                                  |                                          
|                                                                                                         |                                                                                                                |                                                                                  |                                          
|                                                                                                         |                                                                                                                | Net cash used in investing activities from continuing operations                 |                                          
|                                                                                                         |                                                                                                                | Net cash used in investing activities from discontinued operations               |                                          
|                                                                                                         |                                                                                                                |                                                                                  |                                          
|                                                                                                         |                                                                                                                |                                                                                  | Net cash used in investing activities    
|FINANCING ACTIVITIES:                                                                                    |                                                                                                                |                                                                                  |                                          
|                                                                                                         | Proceeds from common stock issuance, net                                                                       |                                                                                  |                                          
|                                                                                                         | Cash paid for common stock repurchased and retired                                                             |                                                                                  |                                          
|                                                                                                         | Proceeds from long-term obligations                                                                            |                                                                                  |                                          
|                                                                                                         | Principal payments on long-term obligations                                                                    |                                                                                  |                                          
|                                                                                                         | Cash paid for debt issuance costs                                                                              |                                                                                  |                                          
|                                                                                                         |                                                                                                                |                                                                                  |                                          
|                                                                                                         |                                                                                                                | Net cash (used in) provided by financing activities from continuing operations   |                                          
|                                                                                                         |                                                                                                                |                                                                                  |                                          
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                                     |                                                                                                                |                                                                                  | (1,120                                   
|CASH AND CASH EQUIVALENTS, beginning of year                                                             |                                                                                                                |                                                                                  | 3,217                                    
|                                                                                                         |                                                                                                                |                                                                                  |                                          
|CASH AND CASH EQUIVALENTS, end of year                                                                   |                                                                                                                | $                                                                                | 2,097                                    
|                                                                                                         |                                                                                                                |                                                                                  |                                          
|SUPPLEMENTAL DATA:                                                                                       |                                                                                                                |                                                                                  |                                          
|                                                                                                         | Cash paid for:                                                                                                 |                                                                                  |                                          
|                                                                                                         |                                                                                                                | Income taxes, net of income tax refunds                                          |                                          
|                                                                                                         |                                                                                                                | Interest                                                                         |                                          
|NONCASH INVESTING AND FINANCING TRANSACTIONS:                                                            |                                                                                                                |                                                                                  |                                          
|                                                                                                         | Assets acquired through financing and capital lease arrangements                                               |                                                                                  | $                                        
|                                                                                                         | Accrued capital expenditures                                                                                   |                                                                                  | $                                        
|                                                                                                         | Fair value of assets acquired in business acquisitions                                                         |                                                                                  | $                                        
|                                                                                                         | Liabilities assumed in business acquisitions                                                                   |                                                                                  | $                                        
|                                                                                                         | Restricted stock grant (164,300, 182,550 and 251,959 shares, respectively)                                     |                                                                                  | $                                        
|                                                                                                         | Restricted stock forfeitures (0, 14,550 and 1,000 shares, respectively)                                        |                                                                                  | $                                        
|                                                                                                         | Common stock issued related to business acquisitions (20,268, 30,324 and 0 shares, respectively)               |                                                                                  | $                                        
|                                                                                                         | Common stock retired related to business acquisitions (0, 19,358 and 0 shares, respectively)                   |                                                                                  | $                                        
|                                                                                                         | Common stock earned and held in escrow related to business acquisitions (20,268, 0 and 0 shares, respectively) |                                                                                  | $                                        
|                                                                                                         | Interest rate swap, net of tax                                                                                 |                                                                                  | $                                        

The accompanying notes are an integral part of these consolidated financial statements.

48

---





SOURCECORP, INCORPORATED AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Organization and Basis of Presentation

SOURCECORP, Incorporated (the "Company") was founded in September 1994, to create a leading provider of document and information outsourcing solutions for
document and information intensive industries, including: financial services, government, legal, healthcare, and transportation. The Company acquired seven document management services businesses (the
"Founding Companies") simultaneously with the closing of the initial public offering ("IPO") on January 26, 1996, and effectively began operations at that time. The consideration for the
Founding Companies consisted of a combination of cash and common stock of the Company.

After
the IPO and through December 1998, the Company acquired nine companies in transactions that were accounted for as poolings-of-interests.

Subsequent
to the IPO and through December 31, 2005, the Company has acquired 57 additional companies in transactions accounted for as purchases and has divested of 22 operating
units by sale or closure. The results of operations include the results of these acquisitions from the date of their respective acquisitions and the results of the divestitures up to the effective
date of divestiture. The operating units divested as part of the 2004 divestiture plan and the operating unit divested in 2005 have been reclassified as discontinued operations for all periods
presented.

2.     Summary of Significant Accounting Policies

Revenue Recognition

Revenue is recognized as it becomes realized or realizable and earned according to the criteria provided by Staff Accounting Bulletin 104, Revenue
Recognition. Revenue recognition occurs once persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered,
the sales price is fixed or otherwise determinable, and collection is reasonably assured.

Revenue
recognition policies related to offerings within the Company's Information Management and Distribution segment are based upon objective criteria that do not require significant
estimates or uncertainties. For example, business process outsourcing services are recognized proportionally as services are rendered, based on specific, objective criteria under the contracts for the
number of accounts or transactions processed. Accordingly, revenues recognized under these methods do not require the use of significant estimates that are susceptible to change.

Revenue
recognition policies within the Company's Healthcare, Regulatory, and Legal Compliance segment are based upon objective criteria that do not require significant estimates or
uncertainties. For example, transaction volumes and time and costs under time and material and cost reimbursable arrangements are based on specific, objective criteria under the contracts. The
following outlines specific revenue recognition policies related to certain offerings within this segment:



49

---





50

---





Allowance for Doubtful Accounts

The allowance for doubtful accounts is established and maintained based on the Company's estimate of accounts receivable collectibility. Management estimates
collectibility by specifically analyzing accounts receivable aging and other historical factors that affect collections. Such factors include the historical trends of write-offs and
recovery of previously written-off accounts, the financial strength of the customer and projected economic and market conditions. The evaluation of these factors involves subjective
judgments and changes in these factors may significantly impact the Consolidated Financial Statements.

Goodwill

Goodwill is not amortized but rather is tested at least annually for impairment. The impairment test is based on fair value compared to the recorded value at a
reporting unit level. Reporting units are defined as an operating segment or one level below. Valuation methods used in determining fair value include an analysis of the cash flows that the reporting
units can be expected to generate in the future ("Income Approach") and the fair value of a reporting unit as compared to similar publicly traded companies ("Market Approach"). In preparing these
valuations, management utilizes estimates to determine fair value of the reporting units. These estimates include future cash flows, growth rates, capital needs and projected margins, among other
factors. The Company performs the annual test for impairment as of October 31, each year.

Estimates
utilized in future calculations could differ from estimates used in the current period. Future years' estimates that are unfavorable compared to current estimates could cause
an impairment of goodwill.

Other Loss Contingencies

The Company records liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable in accordance with SFAS
No. 5,Accounting for Contingencies. Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the
recorded provision. Contingent liabilities are often resolved over long periods of time. Estimating probable losses requires analysis of multiple forecasts that often depend on judgments about
potential actions by third parties, such as regulators. The Company's loss contingencies consist primarily of estimates related to the probable outcome of current litigation.

Long-Lived Assets and Intangibles Impairment

Management continually evaluates whether events and circumstances indicate that the carrying value of long-lived assets and intangibles may not be
recoverable. When events require, management makes the valuation by comparing the estimated undiscounted future cash flows over the remaining life of the long-lived assets and intangibles
to the carrying amount of the asset being evaluated. An impairment loss equal to the difference in carrying value and fair value is recognized if the carrying amount of assets being evaluated exceeds
the expected future undiscounted cash flow. Management believes at December 31, 2005, no events existed that required evaluation of potential impairment.

51

---



Cash and Cash Equivalents

The Company considers highly liquid investments with original maturities of three months or less to be cash equivalents. Cash equivalents are carried at cost,
which approximates market value.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are depreciated over the lesser of the estimated useful life or the lease term. Repair and maintenance costs are expensed as incurred.

Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred income taxes are recognized for tax consequences of temporary differences by
applying enacted statutory tax rates applicable in future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.

Net Income (Loss) Per Share

Basic net income (loss) per share has been computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period.
Diluted net income (loss) per share has been computed by dividing net income (loss) by the weighted average number of common shares and potentially dilutive common shares outstanding for the period.
See Note 14, Stockholders' Equity.

Use of Estimates in Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Consolidation

The accompanying consolidated financial statements and related notes to consolidated financial statements include the accounts of SOURCECORP, Incorporated and its
subsidiaries. All significant intercompany balances and transactions have been eliminated.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents approximate fair value due to the short maturities of these instruments. The carrying amount of
long-term debt approximates fair value due to interest rates that approximate current market rates for instruments of similar size and duration.

Treasury Stock

Treasury stock transactions are accounted for under the cost method. At December 31, 2004 and 2005, the Company had 36,670 shares in treasury.

52

---



Stock Based Compensation

The Company has elected to follow Accounting Principles Board Opinion ("APB") No. 25,Accounting for Stock Issued to
Employees. Under APB No. 25, compensation expense is recorded when the exercise price of employee stock options is less than the fair value of the underlying stock on
the measurement date. The Company has adopted the disclosure-only provisions of SFAS No. 148,Accounting for Stock-Based CompensationTransition
and Disclosure, as discussed in Note 14, Stockholders' Equity.

Awards
of restricted stock are granted at the market price of the common stock on the date of grant. The Company records deferred compensation based on the market value of the stock at
the date of issuance and the deferred compensation is being amortized to expense over the vesting period of the restricted stock.

Stock
option and warrant awards are granted at the market price of the common stock on the date of grant. Accordingly, no compensation expense has been recognized for stock options and
warrants. Had compensation expense been determined based upon the fair value at grant dates for stock options and warrants consistent with the method of SFAS No. 123, Accounting for Stock Based
Compensation, the Company's net income and earnings per share would have been as follows (in thousands, except per share
data):

Year Ended December 31,2003

2004

2005Net income as reported

$
19,081

$
8,099

$
9,887Add: Compensation expense included in reported net income, net of tax effect


374


1,410


1,886Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax effect


(3,251
)

(5,470
)

(2,579
)Proforma net income

$
16,204

$
4,039

$
9,194Earnings per share:Reported basic earnings per share

$
1.16

$
0.51

$
0.63Proforma basic earnings per share

$
0.98

$
0.25

$
0.59Reported diluted earnings per share

$
1.15

$
0.50

$
0.61Proforma diluted earnings per share

$
0.98

$
0.25

$
0.57


The
fair value of the stock options and warrants was estimated on the date of the grant using the Black-Scholes option pricing model using the following assumptions:

Year Ended December 31,2003

2004

2005Weighted-average risk-free interest rate

2.4
%
3.3
%
N/AWeighted-average dividend yield

0.0
%
0.0
%
N/AWeighted-average volatility

44.2
%
41.5
%
N/AWeighted-average expected life

4.0 years

4.0 years

N/A


53

---



On
December 18, 2004, the Compensation Committee of the Board of Directors approved, and the Board of Directors ratified, the acceleration of the vesting of certain options and
warrants (specifically options and warrants issued in 2002 or earlier, and only those options and warrants that by their terms would not vest before June 30, 2005), provided that the holders
were employed by the Company as of December 31, 2004. The action was taken as a method to provide a further incentive to option holders to maximize shareholder value without creating an
immediate windfall (as substantially all of such options and warrants had exercise prices above $30 per share). In taking such action, the Compensation Committee and the Board were mindful that the
accounting treatment of stock options and warrants was anticipated to change in the second half of 2005 (which date has changed to the first quarter of 2006), requiring the expensing of unvested stock
options and warrants. As such, the Compensation Committee and the Board were mindful that accelerating the vesting of such options and warrants would avoid an expense in future periods that did not
provide any direct associated benefit to individuals and that could otherwise negatively impact the Company's reported results in future periods. This action resulted in the acceleration of vesting of
364,100 stock options and warrants at a weighted-average strike price of $30.38 during the fourth quarter of 2004. Although this action established a new measurement date for the stock options and
warrants under the intrinsic value method, there was no compensation expense associated with the vesting acceleration as the strike price related to the accelerated stock options and warrants was
above the fair market value of the Company's common stock on December 17, 2004. As a result of the acceleration, the 2004 pro forma expense disclosure shown above includes approximately
$2.1 million, net of tax, of additional expense related to the acceleration.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123(R),Share-Based
Payment, which eliminates the alternative to account for employee stock options under APB Opinion 25 and requires the fair value of all share-based payments to employees,
including the fair value of grants of employee stock options, be recognized in the income statement, generally over the vesting period.

In
March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 107, which provides additional implementation guidance for
SFAS 123R. Among other things, SAB 107 provides guidance on share-based payment valuations, income statement classification and presentation, capitalization of costs and related income
tax accounting.

SFAS 123R
provides for adoption using either the modified prospective or modified retrospective transition method. The Company adopted SFAS 123R on January 1, 2006
using the modified prospective transition method in which compensation cost is recognized beginning January 1, 2006 for all share-based payments granted on or after that date and for all awards
granted to employees prior to January 1, 2006 that remain unvested on that date. The Company will continue to use the Black-Scholes option pricing model to determine the fair value of stock
option awards. The impact on the Company's results of operations for the year ending December 31, 2006 is expected to be approximately $0.4 million, not including the impact of any
additional grants in 2006.

Adoption
of SFAS 123R's fair value method will have an effect on results of operations, although it will not have a material impact on the Company's overall financial position.
Had SFAS 123R been adopted in prior periods, the effect would have approximated the SFAS 123 pro forma net income and earnings per share disclosures as shown above.

54

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In
March 2005, the FASB issued Interpretation No. 47,Accounting for Conditional Asset Retirement Obligations, to clarify
that the term conditional asset retirement obligation as used in FASB Statement No. 143 is a legal obligation to perform an asset retirement activity in which the timing and (or) method of
settlement are conditional on a future event that the enterprise may or may not have control over. This Interpretation requires recognition of a liability for the fair value of a conditional asset
retirement obligation when incurred if the liability's fair value can be reasonably determined. This Interpretation is effective no later than the end of the fiscal years ending after
December 15, 2005. The adoption of this Interpretation did not have a material impact on the Company's consolidated financial statements.

3.     Internal Investigation

During October 2004, the Company, with the oversight and approval of the Audit Committee of the Board of Directors, initiated an investigation of the
financial results of one of the Company's operating subsidiaries in the Information Management and Distribution reportable segment (the "Operating Subsidiary"). The findings of the investigation
concluded that the Operating Subsidiary had incorrectly recognized revenue for certain customer arrangements and omitted certain operating expenses from its reported financial results which in turn
resulted in overpayments and over accruals of contingent consideration of approximately $7.2 million, $10.2 million and $0.8 million, for the years ended December 31, 2003,
2004 and 2005, respectively, due under the earn-out provisions of the acquisition agreement for the Operating Subsidiary. The overpayments and over accruals of contingent consideration
amounts were originally recognized as additional goodwill of the acquired business.

As
described in the Company's critical accounting policies, revenue is recognizable when each of the following conditions is met: persuasive evidence of an arrangement exists, the price
is fixed or determinable, delivery has occurred or services have been rendered and collection is reasonably assured. The investigation identified certain instances where one or more of the
aforementioned revenue recognition conditions as applied to certain customer contracts were not met by the Operating Subsidiary. As a result, the revenue previously recognized that did not meet all
the mentioned revenue recognition conditions was reversed, resulting in a downward adjustment to certain asset accounts or the recognition of a customer liability or deferred revenue.

During
the first quarter of 2005, the Company entered into an agreement with one of its customers impacted by the facts relating to the subject of the internal investigation. As a result
of the agreement, during the first quarter of 2005, the Company recognized remediation revenue of $4.1 million related to revenue reversals; however, such revenue did not contribute to the
Company's operating cash flow in the current year.

Additionally,
during the first quarter of 2005, agreements from other customers impacted by the facts relating to the subject of the internal investigation were received and the
customers agreed to apply certain balances, classified as long-term customer liability and/or deferred revenue, against current trade accounts receivable the Company had outstanding from
such customers. The net amount applied against trade accounts receivable during 2005 related to these agreements was approximately $1.6 million.

During
the second quarter of 2005, the Company entered into agreements with two additional customers impacted by the facts relating to the subject of the internal investigation. As a
result of the agreements, during the second quarter of 2005, the Company recognized remediation revenue of $2.7 million related to revenue reversals; however, such revenue did not contribute to
the Company's operating cash flow in the current year.

55

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During the third quarter of 2005, the Company entered into an agreement with an additional customer impacted by the facts relating to the subject of the internal
investigation. As a result of the agreement, during the third quarter of 2005, the Company recognized remediation revenue of $1.4 million related to revenue reversals; however, such revenue did
not contribute to the Company's operating cash flow in the current year. Additionally, the customer agreed to apply certain balances, classified as deferred revenue, against current trade accounts
receivable such customer had outstanding with the Company of approximately $0.1 million. At December 31, 2005, this customer has a remaining credit due from the Company of approximately
$0.3 million. The remaining credit may, at the discretion of the customer, be applied against future trade accounts receivable balances and is reported in the consolidated balance sheets as
accounts payable and accrued liabilities.

At
December 31, 2005, approximately $1.9 million remains accrued related to other customers impacted by the facts relating to the subject of the internal investigation.
These balances were previously reported as Long-Term Customer Liability and Deferred Revenue in prior periods but were reclassified during the third quarter of 2005 to accounts payable and
accrued liabilities in the consolidated balance sheets as the Company expects the remaining balances to be settled within the next twelve months. These balances will be recognized in accordance with
the agreements negotiated and finalized with each applicable customer.

4.     Legal Settlement

On September 23, 2005, the Company and certain of its subsidiaries, entered into a settlement agreement with the former owners of the operating subsidiary
that was the subject of its internal investigation and financial restatement. In the settlement agreement, the former owners agreed to pay the Company a total of $30 million, consisting of:
(i) $20 million in cash, (ii) 89,888 shares of the Company's common stock valued at approximately $1.8 million, and (iii) an approximate $8.2 million future
payment obligation secured by parcels of real estate and payable within 90 days of such settlement.

During
September 2005, the Company received the $20 million in cash and the 89,888 shares of the Company's common stock from the former owners. The common shares were
retired and were recorded in the consolidated balance sheets as a reduction of common stock and additional paid-in-capital. In addition, as a result of the settlement
agreement, the
Company was released from approximately $1.2 million of related liabilities identified and recorded in connection with the financial restatement. During December 2005, the Company
collected the $8.2 million future payment obligation.

The
items discussed above were recorded, net of associated legal fees of approximately $0.3 million, in the consolidated statements of operations as other (income) expense and are
reported under the caption "Net legal settlement". There are no further amounts due related to the settlement agreement.

5.     Reserves and Other Loss Contingencies

Self-Insurance Liabilities and Reserves

The Company is self-insured for workmen's compensation liabilities and a significant portion of its employee medical costs. The Company accounts for
its self-insurance programs based on actuarial estimates of the amount of loss inherent in that period's claims, including losses for which claims have not been reported. These loss
estimates rely on actuarial observations of ultimate loss experience for similar historical events. The Company limits its risk by carrying stop-loss policies for significant claims
incurred for both workmen's compensation liabilities and medical costs. The Company's exposure under

56

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the
stop-loss policies for workmen's compensation and medical costs is limited based on fixed dollar amounts. For workman's compensation, the fixed dollar amount of stop-loss
coverage is $500,000 per occurrence. For medical costs, the fixed dollar amount of stop-loss coverage was $100,000 per covered participant for the fiscal plan year ended June 30,
2005, with a lifetime limit of liability per covered participant of $1,900,000. The Company's stop-loss policy for medical costs expired on June 30, 2005. The stop-loss
policy was renewed for one year, effective July 1, 2005. The fixed dollar amount of stop-loss coverage under the new policy is $200,000 per covered participant with a lifetime limit
of liability per covered participant of $1,800,000.

Accrual
balances related to workmen's compensation and medical costs, included in accrued compensation and benefits in the consolidated balance sheet, are as follows (in thousands):

December 31,2004

2005Workmen's Compensation

$
2,407

$
2,288Employee Medical Insurance


2,229


1,734$
4,636

$
4,022


Other Loss Contingencies

The Company records liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable in accordance with SFAS
No. 5,Accounting for Contingencies. Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the
recorded provision. Contingent liabilities are often resolved over long periods of time. Estimating probable losses requires analysis of multiple forecasts that often depend on judgments about
potential actions by third parties such as regulators. The Company's loss contingencies consist primarily of estimates related to the probable outcome of current litigation. See Note 17
Commitments and Contingencies.

6.     Discontinued Operations

The consolidated statements of operations include income (loss) from discontinued operations, net of tax, related to the divestitures in 2005 and 2004 as
discussed below.

2005 Divestiture

During the first quarter of 2005, the Company formally committed to a plan of divestiture for a non-strategic asset group related to its litigation
service operations reported in the Healthcare, Regulatory and Legal Compliance segment in prior periods. During 2004, the operation contributed approximately $3.7 million of revenue and loss
before income taxes of approximately $0.3 million. The Company concluded the asset group meets the requirements for discontinued operations accounting treatment as outlined in SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" during the quarter ended March 31, 2005. As such,
the operating assets and liabilities of this operation are presented in the consolidated balance sheet as Assets and Liabilities of Discontinued Operations and the results associated with this
operation are presented in the consolidated statement of operations as Income (Loss) from Discontinued Operations, net of tax.

During
the first quarter of 2005, the Company completed the sale of this non strategic asset group, resulting in the recognition of a pre-tax loss of approximately
$0.9 million. In connection with this

57

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transaction,
the Company received approximately $0.2 million of cash proceeds and a promissory note of approximately $0.1 million.

Summarized
selected financial information for the 2005 divestiture discussed above is as follows (in thousands):

|                                             |                                                       | Year Ended December 31, |      
|-------------------------------------------- | ----------------------------------------------------- | ----------------------- | -----
|
|REVENUE                                      |                                                       | $                       | 3,778
|COST OF SERVICES                             |                                                       |                         | 3,098
|DEPRECIATION                                 |                                                       |                         | 72   
|                                             |                                                       |                         |      
|                                             | Gross profit                                          |                         |      
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |                                                       |                         | 887  
|                                             |                                                       |                         |      
|                                             | Operating loss                                        |                         |      
|OTHER (INCOME) EXPENSE:                      |                                                       |                         |      
|                                             | Interest and other (income) expense, net              |                         |      
|                                             | Loss on sale of asset group                           |                         |      
|                                             |                                                       |                         |      
|                                             | Loss from discontinued operations before income taxes |                         |      
|PROVISION (BENEFIT) FOR INCOME TAXES         |                                                       |                         | (116 
|                                             |                                                       |                         |      
|NET LOSS FROM DISCONTINUED OPERATIONS        |                                                       | $                       | (175 
|                                             |                                                       |                         |      

The
assets and liabilities of the discontinued operation are stated separately in the consolidated balance sheets. The major asset and liability categories are as follows (in thousands):

|                                                               |                                                                       | December 31,
2004                           
|-------------------------------------------------------------- | --------------------------------------------------------------------- | --------------------------------------------
|ASSETS OF DISCONTINUED OPERATIONS                             
|CURRENT ASSETS:                                                |                                                                       |                                             
|                                                               | Accounts and notes receivable, net of allowance for doubtful accounts |                                             
|                                                               | Prepaid expenses and other current assets                             |                                             
|                                                               |                                                                       |                                             
|                                                               |                                                                       | Total current assets                        
|PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation |                                                                       |                                             
|                                                               |                                                                       |                                             
|                                                               | Total assets of discontinued operations                               |                                             
|                                                               |                                                                       |                                             
|LIABILITIES OF DISCONTINUED OPERATIONS                        
|CURRENT LIABILITIES:                                           |                                                                       |                                             
|                                                               | Accounts payable and accrued liabilities                              |                                             
|                                                               |                                                                       |                                             
|                                                               |                                                                       | Total liabilities of discontinued operations
|                                                               |                                                                       |                                             

2004 Divestitures

During the first quarter of 2004, the Company completed a strategic evaluation of its operations based on certain criteria, such as strategic and financial fit,
and future growth prospects. As a result, on May 6, 2004, the Company formally committed to a plan of divestiture for certain non-strategic asset groups related to its Direct Mail
operations reported in the Information Management and Distribution segment in prior periods, and two medical records management operations reported in the Healthcare,

58

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Regulatory
and Legal Compliance segment in prior periods. The Direct Mail operations and the two medical records management operations are accounted for as discontinued operations. As such, the
operating assets and liabilities of these operations are presented in the consolidated balance sheet as Assets and Liabilities of Discontinued Operations and the results associated with these
operations are presented in the consolidated statement of operations as Income (Loss) from Discontinued Operations, net of tax.

During
the second quarter of 2004, the Company completed the sale of one of the medical records management operations, which resulted in approximately $0.7 million of cash
proceeds and a pre-tax gain on disposal of approximately $0.5 million. Additionally, the Company recognized a pre-tax loss on disposal related to the Direct Mail
operations of approximately $2.2 million.

During
the third quarter of 2004, the Company completed the sale of the Direct Mail operations and the remaining medical records management operation, resulting in the recognition of a
net pretax gain of $0.4 million. In connection with these transactions, the Company received approximately $6.1 million of cash proceeds, net of transaction costs, approximately
$1.5 million of 12 percent secured subordinated notes, which the Company fully reserved, related to the Direct Mail operations, and $0.6 million of contingent consideration
related to a contract renewal at the medical records management operation.

During
the fourth quarter of 2004, the contingency surrounding the contract renewal at the medical records management operation was resolved. As such, the Company recognized additional
consideration of $0.6 million offset by approximately $0.1 million of incremental loss related to finalizing the consideration related to the divestiture.

During
2005, the Company received approximately $1.4 million in proceeds related to the collection of the subordinated notes receivable associated with the disposition of the
Company's Direct Mail operations. Due to the uncertainty of collection, income associated with the notes receivable was not recorded at the time of the divestiture resulting in income from
discontinued operations in 2005.

Summarized
selected financial information for the 2004 divestitures discussed above is as follows (in thousands except per share data):

|                                               |                                                                | Year Ended December 31, |       
|---------------------------------------------- | -------------------------------------------------------------- | ----------------------- | ------
|
|REVENUE                                        |                                                                | $                       | 39,613
|COST OF SERVICES                               |                                                                |                         | 29,850
|DEPRECIATION                                   |                                                                |                         | 1,690 
|                                               |                                                                |                         |       
|                                               | Gross profit (loss)                                            |                         |       
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES   |                                                                |                         | 9,524 
|                                               |                                                                |                         |       
|                                               | Operating income (loss)                                        |                         |       
|OTHER (INCOME) EXPENSE:                        |                                                                |                         |       
|                                               | Interest and other (income) expense, net                       |                         |       
|                                               | Loss (gain) on sale of asset groups                            |                         |       
|                                               |                                                                |                         |       
|                                               | Income (loss) from discontinued operations before income taxes |                         |       
|PROVISION (BENEFIT) FOR INCOME TAXES           |                                                                |                         | (562  
|                                               |                                                                |                         |       
|NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS |                                                                | $                       | (843  
|                                               |                                                                |                         |       

59

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7.     Allowance for Doubtful Accounts and Notes Receivable

The activity in the allowance for doubtful accounts and notes receivable is as follows (in thousands):

|                             |  | Balance at
Beginning
Of Year |        | Balance
Acquired |   | Charged to
Costs and
Expenses |  | Write-offs |       | Balance at
End of Year
|---------------------------- |  | ---------------------------- | ------ | ---------------- | - | ----------------------------- |  | ---------- | ----- | ----------------------
|Year ended December 31, 2003 |  | $                            | 11,853 |                  | $ |                              |  | $          | (101  | )                     
|Year ended December 31, 2004 |  | $                            | 6,805  |                  | $ | 17                            |  | $          | 5,856 |                       
|Year ended December 31, 2005 |  | $                            | 9,332  |                  | $ |                              |  | $          | 3,202 |                       

8.     Property, Plant and Equipment

Property, plant and equipment consist of the following (in thousands):

Estimated
Useful
Lives
in Years

December 31,2004

2005Land

N/A

$
911

$
911Buildings and improvements

7-18


3,159


3,239Leasehold improvements

1-8


8,283


9,498Vehicles

5-7


1,958


1,631Machinery and equipment

5-15


23,650


25,001Computer equipment and software

3-7


41,565


43,400Furniture and fixtures

5-15


5,243


5,55184,769


89,231LessAccumulated depreciation




(45,166
)

(49,292
)$
39,603

$
39,939


9.     Other Current Liabilities

Other current liabilities consist of the following (in thousands):

December 31,2004

2005Unearned revenue

$
1,530

$
3,663Accrued contingent consideration


5,387


1,025Accrued professional fees


1,144


1,156$
8,061

$
5,844


10.   Business Combinations

2004 Acquisition

On April 15, 2004, the Company acquired 100% of the membership interests of KeyPoint Consulting LLC ("KeyPoint"), located in Emeryville and Los Angeles,
California. KeyPoint is an economic consulting firm with approximately 26 principals and staff, and a network of academic

60

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affiliates.
KeyPoint provides economic, financial, and forensic accounting services in matters involving complex litigation and regulation. KeyPoint's clients include companies, law firms, and
government and regulatory agencies. The acquisition of KeyPoint significantly expands the Company's expertise in new practice areas and helps strategically position the Company for additional growth
in its legal consulting area reported in the Healthcare, Regulatory, and Legal Compliance segment. Key Point contributed $5.6 million in revenue in 2004, or approximately 2.9% of total segment
revenue, and was moderately accretive to 2004 earnings after consideration of related financing costs and amortization of identified intangibles.

The
aggregate consideration paid during the second quarter of 2004 for KeyPoint consisted of $13.7 million in cash. An additional $1.5 million in cash was paid during the
third quarter of 2004, in accordance with the acquisition agreement. The allocation of the purchase price is set forth below (in thousands):

Total consideration

$
15,020Less Estimated Fair Value of Identifiable Assets:Cash


(1,427
)Receivables


(864
)Prepaid expenses


(21
)Property, plant and equipment, net


(112
)Total Assets


(2,424
)Plus Estimated Fair Value of Liabilities:Accounts payable and accrued expenses


294Accrued compensation


233Deferred tax liability


32Other liabilities


1,076Total Liabilities


1,635Goodwill and other intangibles

$
14,231


Of
the $14.2 million of goodwill and other intangibles recorded from the acquisition, approximately $0.3 million was assigned to customer relationships with a useful life
of eight months and approximately $1.9 million was assigned to non-compete agreements with a useful life of four years. The remaining goodwill of $12.0 million will be tested
annually for impairment. Approximately $4.6 million of the goodwill is deductible for tax purposes.

61

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Goodwill and Intangibles

The changes in the carrying value of goodwill and intangibles are as follows (in thousands):

Goodwill:

|                                                       |                                     | Information
Management and
Distribution |         | Healthcare,
Regulatory and
Legal Compliance |   | Total   |        
|------------------------------------------------------ | ----------------------------------- | --------------------------------------- | ------- | ------------------------------------------- | - | ------- | -------
|Net balance as of January 1, 2004                      |                                     | $                                       | 162,007 |                                             | $ | 145,906 |        
|Goodwill acquired (excluding contingent consideration) |                                     |                                         |        |                                             |   | 12,067  |        
|Additional accrued consideration and adjustments       |                                     |                                         | 5,653   |                                             |   | 506     |        
|                                                       |                                     |                                         |         |                                             |   |         |        
|                                                       | Net balance as of December 31, 2004 |                                         |         | 167,660                                     |   |         | 158,479
|Goodwill impairment                                    |                                     |                                         |        |                                             |   | (38,295 | )      
|Adjustments related to past acquisitions               |                                     |                                         | (1,724  | )                                           |   | (19     | )      
|                                                       |                                     |                                         |         |                                             |   |         |        
|                                                       | Net balance as of December 31, 2005 |                                         | $       | 165,936                                     |   | $       | 120,165
|                                                       |                                     |                                         |         |                                             |   |         |        

Intangibles:

2004

2005Gross Carrying
Value

Accumulated
Amortization

Gross Carrying
Value

Accumulated
AmortizationCustomer relationships

$
4,283

$
(1,084
)
$
4,283

$
(1,350
)Non-compete agreements


2,321


(616
)

2,321


(1,175
)Total

$
6,604

$
(1,700
)
$
6,604

$
(2,525
)


Aggregate
amortization expense related to intangibles for the years ended December 31, 2003, 2004 and 2005 was approximately $0.4 million, $1.0 million and
$0.8 million, respectively. Estimated amortization expense for the periods ending December 31, 2006 through December 31, 2016 is presented in the table below.

Years Ending December 31,

Estimated
Amortization
Expense(in thousands)2006

$
8252007


7372008


3842009


2672010


267Thereafter


1,599Total

$
4,079


In
connection with the preparation and review of the Company's financial statements for its Annual Report on Form 10-K for the year ended December 31, 2005, the
Company, as of October 31, 2005, performed the annual goodwill impairment test as required by SFAS No. 142. The annual test indicated the carrying value of the Company's HealthSERVE
reporting unit within the Healthcare, Regulatory and Legal Compliance reportable segment exceeded its fair value. As a result, the Company recorded a pre-tax non-cash
impairment charge of approximately $38.3 million in the fourth quarter of

62

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2005.
Of the $38.3 million pre-tax impairment charge, approximately $25.4 million was non-deductible for tax purposes.

Long-term
profitability and cash flow forecasts associated with the Company's 2006 annual budgeting process are significantly lower than prior forecasts and are the primary
reason for the goodwill impairment.

At
December 31, 2005, net aggregate goodwill deductible for tax purposes was approximately $102.7 million.

Due
to the fact that the Company is primarily a services company, its business acquisitions typically result in significant amounts of goodwill and other intangibles. Therefore, an
impairment charge resulting from goodwill and other intangibles could result in a material adverse impact on the Company's financial statements during the period incurred.

Contingent Consideration

Management's evaluation of the cumulative earnings of acquired companies through December 31, 2004 indicated that an acquired company had met specified
earnings targets beyond a reasonable doubt. As a result, at December 31, 2004, in connection with the 2002 purchase of United Information Services, Inc. ("UIS"), approximately
$5.3 million of additional consideration remained accrued and was classified as other current liabilities in the consolidated balance sheet. Pursuant to the terms of the UIS purchase agreement,
approximately $4.3 million of additional contingent consideration was paid in cash to the former shareholders during 2005, and approximately $1.0 million of additional contingent
consideration remains accrued and was settled in cash during the first quarter of 2006.

As
of December 31, 2004, all periods applicable for earnout targets of past acquisitions are completed.

Acquisition Related Receipts/Payments

The Company made net acquisition related payments of $3.0 million in cash during the year ended December 31, 2003 and released 20,268 shares of
common stock from escrow at a price of $13.96 per share at March 31, 2003. In addition, the Company received reimbursements of approximately $1.1 million of purchase price related to a
past acquisition, unrelated to the Company's internal investigation discussed in Note 3, recorded as a reduction to goodwill, in the Information Management and Distribution segment and made
other acquisition related payments of approximately $0.3 million.

During
the year ended December 31, 2004, the Company paid net consideration of approximately $3.4 million in cash and 30,324 shares of common stock at an average price of
$26.12 per share related to contingent consideration agreements of past acquisitions. Additionally, the Company paid $13.7 million, net of cash acquired, related to the KeyPoint acquisition and
the associated transaction costs and $0.3 of additional purchase proceeds related to the purchase agreement of a past acquisition.

Unaudited Pro Forma Financial Data

Pro forma financial information is not presented as the acquisition in 2004 was not material.

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11.   Long-term Obligations and Credit Facilities

Long-term Obligations

Long-term obligations consist of the following (in thousands):

December 31,2004

2005Line of credit, expiring September 2008, interest at prime rate plus applicable margin or LIBOR plus applicable margin (3.92% to 4.17% at December 31, 2004 and 5.09% to 5.13875% at December 31, 2005)

$
82,490

$
33,420Industrial Revenue Bonds, repaid in 2005


1,650


All other obligations


3,665


4,632Total


87,805


38,052LessCurrent maturities of long-term obligations


(258
)

(128
)Total long-term obligations

$
87,547

$
37,924


On
September 29, 2005, the Company amended its revolving credit facility. Under the amended and restated credit agreement (the "2005 Credit Agreement"), with Bank of America as
agent and SunTrust Bank and JP Morgan Chase as co-agents, the Company may borrow on a revolving credit basis loans in an aggregate outstanding principal amount up to $100 million,
subject to certain customary financial covenants and ratios. Additionally, the 2005 Credit Agreement contains an accordion provision for an additional $50 million.

The
annual interest rate applicable to borrowings under the 2005 Credit Agreement is, at the Company's option, (i) pricing equaling the higher of (a) the Federal Funds
Rate plus 0.50% and (b) the prime rate as set by Bank of America or (ii) grid pricing ranging from 0.75% to 1.00% plus LIBOR based on the ratio of funded debt to earnings before
interest, taxes, depreciation and amortization ("EBITDA") (as defined in the credit agreement). The outstanding principal balance of revolving credit loans is due and payable on September 29,
2008.

At
December 31, 2005, the Company has outstanding irrevocable letters of credit totaling approximately $13.0 million. Letters of credit in the amount of approximately
$8.0 million serves as security for the Company's self-insured workmen's compensation program. A letter of credit in the amount of $5.0 million serves as a guarantee for
performance under a contract with New York State Workers Compensation Board.

The
weighted average interest rate on long-term obligations during 2004 and 2005 was 3.7% and 5.4%, respectively.

The
2005 Credit Agreement contains certain reporting requirements and financial covenants, including requirements that the Company maintain minimum levels of net worth, a maximum ratio
of funded debt to EBITDA and other financial ratios, and prohibits the payment of cash and similar dividends.

As
of December 31, 2005, the Company is in compliance with loan covenants. As of December 31, 2005, the availability under the 2005 Credit Agreement was approximately
$49.0 million.

During
the fourth quarter of 2005, the Company paid the Industrial Revenue Bonds in full. There were no penalties or fees incurred for terminating the agreement prior to the maturity
date.

64

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Maturities of Long-Term Obligations

As of December 31, 2005, maturities of long-term obligations are as follows (in thousands):

Years Ending December 31,2006

$
1282007


432008


37,8542009


232010


4Thereafter


Total

$
38,052


12.   Lease Commitments

The Company leases various office buildings, machinery, equipment and vehicles. Future minimum lease payments under capital leases, included in
long-term obligations, and noncancelable operating leases are as follows (in thousands):

Years Ending December 31,

Capital
Leases

Operating
Leases2006

$
132

$
17,6212007


40


14,7992008


33


11,8152009


25


7,4102010


4


3,156Thereafter





6,482Total minimum lease payments


234

$
61,283LessAmounts representing interest


(20
)Net minimum lease payments


214LessCurrent portion of obligations under capital leases


(120
)Long-term portion of obligations under capital leases

$
94


Rent
expense for all operating leases for the years ended December 31, 2003, 2004 and 2005 was approximately $21.1 million, $23.1 million, and $25.3 million,
respectively.

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13.   Income Taxes

The provision for federal and state income taxes consists of the following (in thousands):

Year Ended December 31,2003

2004

2005FederalCurrent

$
5,344

$
(644
)
$
7,055Deferred


5,043


2,280


12,274StateCurrent


931


220


1,699Deferred


1,414


(23
)

1,319$
12,732

$
1,833

$
22,347


The
provision amounts above include approximately ($678,000) ($1,731,000) and $1,081,000 of income tax (benefit) expense related to discontinued operations in 2003, 2004 and 2005,
respectively.

The
differences in income taxes provided and the amounts determined by applying the federal statutory tax rate to income before income taxes result from the following (in thousands):

Year Ended December 31,2003

2004

2005Tax at statutory rate

$
11,134

$
3,478

$
11,282Add (deduct)State income taxes


1,703


207


1,630Tax credits


(633
)

(358
)

(473
)Nondeductible expenses


421


375


9,390Reduction of estimated income tax accruals





(1,331
)

(1,432
)Other


107


(538
)

1,950$
12,732

$
1,833

$
22,347


The
reduction of estimated income tax accruals relates primarily to the favorable resolution of certain federal and state tax contingencies.

66

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The
components of deferred income tax liabilities and assets are as follows (in thousands):

December 31,2004

2005Deferred income tax liabilitiesProperty, plant and equipment

$
(11,937
)
$
(25,644
)Goodwill and intangibles


(5,388
)

(3,263
)Other, net


(2,202
)

(1,856
)Total deferred income tax liabilities


(19,527
)

(30,763
)Deferred income tax assetsAllowance for doubtful accounts


3,349


4,835Accrued liabilities


2,671


3,151Tax credit carryforwards


1,052


1,446Other reserves, net


4,517


3,860Total deferred income tax assets


11,589


13,292Valuation allowance





(758
)Total net deferred income tax liabilities

$
(7,938
)
$
(18,229
)Net deferred income tax assetscurrent

$
5,272

$
7,835Net deferred income tax liabilitieslong-term


(13,210
)

(26,064
)$
(7,938
)
$
(18,229
)


Gross
deferred tax assets at December 31, 2005 were reduced by a valuation allowance of approximately $0.8 million related to certain capital loss carryforwards and state
tax credit carryforwards that will more likely than not expire unutilized.

14.   Stockholders' Equity

Stockholders' Rights Plan

On June 24, 2005, the Company adopted a stockholders' rights plan, (the "Rights Plan"). Under the Rights Plan, each holder of the Company's common stock,
at the close of business on July 4, 2005, received a dividend distribution of one Right for each share of common stock held. Except as provided below, each Right entitles stockholders to buy
one one-thousandth of a share ("Share Fraction") of Series A Cumulative Participating Preferred Stock of the Company at an exercise price of $90.00, subject to adjustment in certain
circumstances, e.g. for stock splits or stock dividends. Each preferred Share Fraction is designed to be equivalent in voting and dividend rights to one share of common stock.

If
any person or group acquires 15% or more of the Company's common stock (other than pursuant to a tender or exchange offer for all common stock at a price and on terms approved by the
Board of
Directors), each Right will entitle its holder to purchase, at the Right's exercise price, common stock of the Company having a market value of twice the Right's exercise price. This amounts to the
right to buy the Company common stock at half price. Rights owned by the party triggering the exercise of Rights will not be exercisable.

In
addition, if after any person or group has become a 15%-or-more stockholder, the Company is involved in a merger or other business combination transaction with
another person in which its shares of common stock are changed or converted, or sells 50% or more of its assets or earning power to

67

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another
person, each Right will entitle its holder to purchase, at the Right's exercise price, shares of common stock of such other person having a market value of twice the Right's exercise price.

The
Rights will be exercisable and will trade separately from the shares of common stock only if a person or group, with certain exceptions, acquires 15% or more the Company's common
stock or commences a tender or exchange offer that would result in such person or group owning 15% or more of the Company's common stock. Prior to that, the Rights will not trade separately from the
common stock. The Company may redeem the Rights for $0.001 per Right prior to the time any person or group acquires 15% or more of the Company's common stock. All Rights expire on June 24,
2015.

Stock-Based Compensation

In 2002, the Board of Directors and Shareholders of the Company approved the 2002 Long-Term Incentive Plan (the "2002 Plan"), which is described
below. The 2002 Plan replaced the 1995 Stock Option Plan, as amended (the "1995 Plan"). Grants outstanding under the 1995 Plan will continue to be subject to the provisions of the 1995 Plan; no
additional awards will be granted under the 1995 Plan.

The
2002 Plan authorizes awards of options to purchase common stock and may include incentive stock options ("ISOs") and/or non-qualified stock options ("NQSOs"), stock
appreciation rights, restricted stock, deferred stock, bonus stock and awards in lieu of cash obligations, dividend equivalents and other stock-based awards. In addition, the Company issued warrants
(the "Warrants") to certain key employees and employees of its subsidiaries. The Company refers to awards under the 2002 Plan and the 1995 Plan collectively as "Awards" and refers to warrants granted
from time to time as Warrants.

The
Board of Directors has appointed a committee (the "Committee"), which is composed of independent, non-employee directors, to administer the 2002 Plan. Persons eligible to
receive awards under the plan include directors, officers and employees of the Company and its subsidiaries, and persons who provide consulting services to the Company deemed by the Committee to be of
substantial value to the Company, persons who have been offered employment by the Company or its subsidiaries, and persons employed by an entity that the Committee reasonably expects to become a
subsidiary of the Company. Awards granted under the plan may, at the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other award
granted under the Plan or any other plan of the Company, any subsidiary or any business entity to be acquired by the Company or one of its subsidiaries. The Committee determines vesting in awards
granted under the plan. Historically, when the Company has issued Warrants, it has been either at the recommendation of the Compensation Committee or the full Board. Each of the 1995 Plan, the 2002
Plan and individual grants of Warrants have been previously approved by the Company's stockholders.

The
total number of shares of common stock that may be subject to outstanding awards shall not exceed 16% of the total number of shares of common stock outstanding at the effective time
of such grant (or 650,000, whichever is greater), plus an additional 600,000 shares. The number of shares of common stock that may be issued upon the exercise of ISOs cannot exceed 650,000. To date,
the Company has not issued any ISOs. In addition, during any calendar year, no participant may be granted awards that may be settled by delivery of more than 500,000 shares of common stock, or, in the
case of awards that may be settled in cash, by payment of cash that exceeds the fair market value of 500,000 shares of common stock, determined either at the time of grant or at the time of payment,
whichever is greater.

During
2003, the Company awarded 164,300 shares of restricted stock under the 2002 Plan. The restricted shares were issued at no cost to the recipients; therefore, the Company recorded
deferred

68

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compensation
of approximately $2.9 million based on the market value of the stock at the date of issuance. Subsequent to the grant date, certain forfeitures of restricted stock occurred
resulting in a total award of 154,000 shares and total deferred compensation of $2.8 million. The deferred compensation charge is being amortized to expense over the vesting period of a
three-year period ending July 1, 2006, with acceleration of the vesting period occurring if a certain stock price or performance target is achieved.

During
2004, the Company awarded 182,550 shares of restricted stock under the 2002 Plan. The restricted shares were issued at no cost to the recipients; therefore, the Company recorded
deferred compensation of approximately $4.6 million based on the market value of the stock at the date of issuance. Subsequent to the grant date, certain forfeitures of restricted stock
occurred resulting in a total award of 177,300 shares and total deferred compensation of $4.5 million. The deferred compensation charge is being amortized to expense over the vesting period of
the restricted stock. The restricted shares vest on January 10, 2007 and May 26, 2007, with acceleration of the vesting period for certain shares occurring if certain performance targets
are achieved.

During
2005, the Company awarded 251,959 shares of restricted stock under the 2002 Plan. The restricted shares were issued at no cost to the recipients; therefore, the Company recorded
deferred compensation of approximately $4.8 million based on the market value of the stock at the date of issuance. The deferred compensation charge is being amortized to expense over the
vesting period of the restricted stock. The restricted shares vest on May 23, 2008, August 2, 2008 and December 18, 2009, with acceleration of the vesting period for certain
shares occurring if certain performance targets are achieved.

No
acceleration of the vesting period related to restricted stock awards has occurred as of December 31, 2005.

Deferred
compensation amortized to expense, included in selling, general and administrative expenses in the consolidated statements of operations, related to the restricted stock grants
discussed above is as follows (in thousands):

Year Ended December 31,2003

2004

2005May 2003 grant

$
623

$
940

$
949January 2004 grant





1,106


1,040May 2004 grant





303


426May 2005 grant








648August 2005 grant








9September 2005 grant








8Total

$
623

$
2,349

$
3,080


In
addition, during 2005, the Company recognized approximately $12 thousand of compensation expense related to a stock option modification associated with a former employee.

At
December 31, 2005, there were no outstanding grants of stock appreciation rights, deferred stock, bonus stock and awards in lieu of cash obligations, dividend equivalents or
other stock-based awards under the 2002 Plan.

The
Company had 2,028,204 Option Awards and 1,042,094 Warrants outstanding at December 31, 2005. These Awards and Warrants generally have 10-year expirations with
certain Awards granted to

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---



non-employee
directors having 5-year expirations. At December 31, 2004 and 2005, approximately 636,626 and 589,601 shares, respectively, were available for issuance.

Data
concerning stock option and warrant awards activity is as follows:

Option and Warrant Awards OutstandingShares

Weighted Average
Exercise Price(in thousands)Balance, January 1, 2003

3,602

$
27.71Granted

249

$
17.68Exercised

(17
)
$
21.59Forfeited

(340
)
$
27.83Balance, December 31, 2003

3,494

$
27.04Granted

35

$
26.51Exercised

(22
)
$
22.49Forfeited

(274
)
$
30.33Balance, December 31, 2004

3,233

$
26.80Granted



$
Exercised

(36
)
$
18.94Forfeited

(127
)
$
26.02Balance, December 31, 2005

3,070

$
26.93Exercisable, December 31, 2003

2,099

$
27.59Exercisable, December 31, 2004

2,581

$
27.66Exercisable, December 31, 2005

2,948

$
27.25


The
weighted-average grant-date fair value of option awards granted during 2003 and 2004 was approximately $6.63 and $9.71, respectively. There were no options granted in
2005.

The
following table summarizes information about Option and Warrant Awards granted under the Plans that were outstanding at December 31, 2005:

|             |  | Option and Warrant Awards Outstanding |  | Option and Warrant Awards Exercisable
|------------ |  | ------------------------------------- |  | -------------------------------------
|
|$14.14-21.12 |  | 216,900                               |  | 7.28                                 
|$21.75-23.70 |  | 509,666                               |  | 3.30                                 
|$23.75-26.38 |  | 774,667                               |  | 4.96                                 
|$26.40-29.25 |  | 627,440                               |  | 3.27                                 
|$30.38-30.38 |  | 645,125                               |  | 4.95                                 
|$31.00-36.19 |  | 296,500                               |  | 4.34                                 

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Common Stock Repurchase Program

During 2003, the Company activated the $30.0 million stock repurchase program authorized by the Board of Directors in April 2001 and purchased
1,306,979 shares of its common stock at a cost of approximately $20.7 million. During the second quarter of 2004, the Company purchased an additional 361,415 shares of its common stock at a
cost of approximately $9.3 million completing the authorized repurchase program. These shares were retired and returned to the status of authorized but unissued shares of the Company.

During
the third quarter of 2004, the Board of Directors authorized the purchase of an additional $20.0 million of shares from time to time on the open market as conditions
warrant. During the third and fourth quarters of 2004, the Company purchased 117,524 shares of its common stock at a cost of approximately $2.6 million. The repurchased shares were recorded in
the accompanying balance sheet as a reduction in common stock for the par value of the shares, in additional paid-in-capital in the amount of $1.5 million and in
retained earnings in the amount of $1.1 million. These shares were retired and returned to the status of authorized but unissued shares of the Company.

Net Income (Loss) Per Share

Basic and diluted net income per share were computed in accordance with SFAS No. 128,Earnings Per Share.
The differences between basic weighted average common shares and diluted weighted average common shares and potentially dilutive common shares are as follows (in thousands):

Year Ended December 31,2003

2004

2005Basic weighted average common shares outstanding

16,452

15,893

15,655Weighted average options, warrants, and restricted stock

98

310

421Other contingent consideration

15

14

Diluted weighted average common shares outstanding

16,565

16,217

16,076


At
December 31, 2003, 2004 and 2005 approximately 2,569,000, 2,997,000 and 2,294,000 respectively, of common shares were not included in the diluted earnings per share calculation
because they were anti-dilutive. These common shares may be dilutive in future earnings per share calculations.

15.   Employee Benefit Plans

The Company maintains a defined contribution plan (the "401(k) plan") that covers the Company's employees and the employees of the majority of its subsidiaries.
The employees must be at least 21 years of age and are eligible for the plan on the first of the month following 90 days of service. Contributions to the 401(k) plan consist of employee
pre-tax contributions determined as a percentage of each participating employee's compensation. The Company may make contributions to the 401(k) plan at the discretion of the Board of
Directors. The Company experienced a reduction to expense of $0.3 million related to the 401(k) plan for the year ended December 31, 2003. No costs were incurred related to the 401(k)
plan for the years ended December 31, 2004 and 2005. The Company offers no post-employment or post-retirement benefits.

Certain
of the operating companies have separate qualified defined contribution employee benefit plans (the "Plans"), the majority of which allow for voluntary pre-tax
contributions by employees. The subsidiaries pay all general and administrative expenses of the Plans and, in some cases, the subsidiaries make matching and discretionary contributions to the Plans.
The subsidiaries offer no post-employment

71

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or
post-retirement benefits. The expense incurred related to the Plans was approximately $0.1 million in each of the years ended December 31, 2003 and 2004. No costs were
incurred related to the Plans for the year ended December 31, 2005.

The
Company formerly maintained a Non-Qualified Retirement Plan ("Rabbi Trust") that permitted eligible officers and certain highly compensated employees to defer a portion
of their compensation on a pre-tax basis. In May 2005, the Board of Directors approved the termination of the Non-Qualified Retirement Plan, effective July 1,
2005. Distributions to Non-Qualified Retirement Plan participants were completed during the third quarter of 2005. At December 31, 2004, the consolidated balance sheets included a
noncurrent asset and an offsetting long-term obligation of approximately $8.9 million each, related to the Non-Qualified Retirement Plan. The Company incurred costs of
$0.1 million and $0.3 million related to the Non-Qualified Retirement Plan for the years ended December 31, 2003 and 2004, respectively. No costs were incurred related
to the Non-Qualified Retirement plan for the year ended December 31, 2005.

16.   Related Party Transactions

Leasing Transactions

Certain operating companies lease their operating facilities from selling parties who remained as employees. These leases are for various lengths and annual
amounts. The rental expense for these operating leases for the years ended December 31, 2003, 2004 and 2005 was approximately $1.6 million, $1.2 million and $0.6 million,
respectively. None of these arrangements are with any of the Company's directors or executive officers.

17.   Commitments and Contingencies

Litigation

The Company is, from time to time, a party to litigation. The following is a description of the most significant legal matters that the Company is involved in. In
the event of an adverse outcome in one or more of the legal proceedings our business, financial condition, results of operations or cash flows could be materially adversely affected.

Putative Securities Class Action

The Company, and the Company's CEO and CFO individually, have been named as defendants in several putative securities class actions, in response to the Company's
press releases dated October 27, 2004, in which the Company disclosed that its financial statements for certain prior periods should no longer be relied upon, and also provided updated
financial guidance. The complaints (collectively, the "Actions") were filed in the United States District Court for the Northern District of Texas, Dallas Division, with the first action being filed
November 1, 2004. The Actions are putative shareholder class action lawsuits alleging violations of Federal Securities Laws, including alleged violations of Sections 10(b) and 20(a), and
Rule 10b-5 of the Securities Exchange Act of 1934, as amended. The four Actions were transferred to a single judge in the Northern District of Texas, Dallas Division and
consolidated into a single action now styledIn re Sourcecorp, Inc. Securities Litigation. A lead plaintiff has been appointed for the
consolidated Action. In addition to the Company and its CEO and CFO, one of the Company's subsidiaries and one of the former owners of that subsidiary are named as defendants in the consolidated
Action. The consolidated Action is purportedly on behalf of all persons who purchased the Company's common stock during the period between May 3, 2001, and October 27,

72

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2004,
and seeks unspecified damages. The Company cannot currently estimate the ultimate resolution of this contingency; however, the Company intends to vigorously defend this matter.

Purported Derivative Action and Demand Letter

A purported stockholder derivative action was filed on December 28, 2004, against certain of the Company's current and former officers and directors as
individual defendants and the Company as a nominal defendant in the 116th District Court for Dallas County, Texas (the "State Derivative Action").
The State Derivative Action alleges breach of fiduciary duty, abuse of control, gross mismanagement, waste of assets, and unjust enrichment related to the Company's press release described above dated
October 27, 2004, the subsequent restatement of financial results, and certain other events. All of these claims are asserted derivatively on behalf of the Company and seek unspecified damages
against those individuals.

Further,
the Chairman of the Company's Board of Directors received from a purported shareholder a demand letter (the "Demand Letter") based on the same set of facts as the State
Derivative Action. The Demand Letter requests the Board to take certain action, but does not seek damages against the Company. The Company has formed a special committee of the Board of Directors that
continues to evaluate the claims made in the State Derivative Action and the Demand Letter.

On
October 21, 2005, the purported shareholder who sent the Demand Letter filed a derivative and class action against certain of the Company's officers and directors as individual
defendants and the Company as a nominal defendant in the United States District Court for the Northern District of Texas, Dallas Division (the "Federal Derivative and Class Action"). The Federal
Derivative and Class Action alleges similar facts as the securities Actions, the State Derivative Action, and the Demand Letter and also includes allegations relating to the Company's
October 5, 2005 press release regarding the exploration of strategic alternatives, including the potential sale of the Company. The Federal Derivative and Class Action asserts claims under
section 304 of the Sarbanes-Oxley Act of 2002, for contribution under sections 10(b) and 21D of the Securities Exchange Act of 1934, for breach of fiduciary duty, and for abuse of
control and seeks unspecified damages, injunctive relief, and the imposition of a constructive trust against the individual defendants. The claims are asserted derivatively on behalf of the Company
and on behalf of putative classes of those who held the Company's common stock on October 5, 2005 and those who exchange their shares in a potential sale, if any, of the Company.

Pursuant
to an agreed order dated November 18, 2005, all proceedings in the Federal Derivative and Class Action were stayed pending resolution of the motions to dismiss filed in
the securities Action. On or about March 20, 2006, the plaintiff filed a motion to lift the stay so that it may amend the Federal Derivative and Class Action complaint. In papers filed with the
motion, the plaintiff stated that it was considering amending the complaint to add claims under the federal proxy laws relating, in part, to materials that would be filed following the date of the
motion in connection with the Merger Agreement announced by the Company on March 8, 2006.

Merger Agreement Related Actions

On March 8, 2006, the Company and members of its Board of Directors, as well as Apollo Management, L.P. ("Apollo") were named as defendants in a putative
class action filed in the Court of Chancery of the State of Delaware, New Castle County (the "Delaware Action"), in response to the Company's announced agreement to be acquired by affiliates of
Apollo. The Delaware Action asserts

73

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claims
for breach of fiduciary duty against members of the Company's board of directors and alleges that, among other things, the consideration to be paid to the stockholders of the Company in the
merger is unfair and inadequate and was not the result of a full and fair sale process or adequate market check. The Delaware Action also asserts a claim against Apollo for aiding and abetting such
alleged breaches of fiduciary duties. Among other things, the Delaware Action seeks unspecified damages and an injunction against the proposed merger (or rescission of the merger if it is completed).

Also
on March 8, 2006, the members of the Company's board of directors were named as defendants and the Company was named as a nominal defendant in a purported stockholder
derivative action filed in the 95th District Court for Dallas County, Texas. This action is based on similar allegations as the Delaware Action and asserts claims for breach of fiduciary duty against
members of the Company's board of directors. All of these claims are asserted derivatively on behalf of the Company and seek, among other things, unspecified damages against those individuals and an
injunction against the proposed merger (or rescission of the merger if it is completed).

Various ROI Copy Charge Matters

From time to time, various subsidiaries of the Company that perform release of information ("ROI") services become defendants to putative class action lawsuits
generally alleging that the charge for reproducing certain medical records is not in conformity with such plaintiffs' reading of the applicable regulated charge. Such suits typically include multiple
ROI companies and hospitals as defendants and demand reimbursement for prior charges as well as for prospective pricing adjustments. The Company is currently a party to several such suits in various
stages of development.

One
such suit originally styledMcShane v. Recordex Acquisition Corp. & Sourcecorp, Incorporated(and now styled Liss & Marion, PC v. Recordex Acquisition Corp.,
 & Sourcecorp, Inc.) filed February 10, 2003, in the Court of Common Pleas
Philadelphia County, Pennsylvania, alleges among other things that the Company intentionally charged more for providing copies of medical records than is permitted under Pennsylvania law. The
complaint does not specify the amount of damages sought. On June 10, 2005, the Court in this matter granted judgment in favor of the plaintiffs and on November 3, 2005, a separate
hearing on damages was held. Following such hearing, the Court assessed damages of approximately $0.5 million with interest, which the plaintiffs claim approximates $0.1 million. The
Company is assessing its appellate options and believes it is adequately reserved for this legal contingency.

SEC Investigation

On January 14, 2005, the Company received written confirmation from the SEC that the SEC had converted its informal inquiry in connection with the
Company's internal investigation and restatement into a formal investigation. The Company is continuing to fully cooperate with the SEC in connection with the investigation. The Company initially had
contacted the enforcement division of the SEC on a voluntary basis to notify the agency of the Company's understanding of the events leading to its internal investigation. The Company is unable to
predict the outcome of the investigation, the scope of matters that the SEC may choose to investigate in the course of this investigation or in the future, the SEC's views of the issues being
investigated, or any action that the SEC might take, including the imposition of fines, penalties, or other available remedies.

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Contract-related Contingencies

The Company has certain contingent liabilities that arise in the ordinary course of providing services to its customers. These contingencies are generally the
result of contracts that require the Company to comply with certain performance measurements or the delivery of certain services by a specified deadline. The Company believes that the ultimate
liability, if any, incurred under these contract provisions will not have a material adverse effect on the Company's consolidated financial condition, results of operations or cash flows.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents and trade receivables.
The Company maintains cash and cash equivalents and certain other financial instruments at various major financial institutions across many geographic areas. Credit risk on trade receivables is
minimized as a result of the large number of entities comprising our client base and their dispersion across many industries and geographic areas.

18.   Segment Reporting

The Company aggregates its service offerings and operations into two reportable segments: (i) Information Management and Distribution, and
(ii) Healthcare, Regulatory, and Legal Compliance. The Company's reportable segments are organized around customer types and service offerings possessing similar economic characteristics.
Management evaluates segment performance based on revenue and income before income taxes. All centrally incurred corporate costs are allocated to the segments based principally on operating income of
the reportable segments measured before the inclusion of the expense related to the contingent consideration overpayments discussed in Note 3. The reporting segments follow the same accounting
policies used for the Company's consolidated financial statements as described in the summary of significant accounting policies.

The
identified segments are as follows:

Information Management and Distribution.This segment offers Business Process Outsourcing ("BPO") solutions that help its
customers manage theDocument In-flow,Workflow Processingand Statement Out-flowof their mission critical
business document processes. This segment's BPO solutions enable customers to automate their
complex workflow processes by digitizing extremely large volumes of documents, capturing information from the documents, hosting electronic documents on the Company's Web-based repository,
and preparing statements that customers mail or present electronically to their end users. In 2005, Information Management and Distribution represented 53.0% of revenue. During 2005, revenue in the
Information Management and Distribution segment consisted of approximately $192.5 million of recurring revenue and approximately $27.8 million of project revenue.

Healthcare, Regulatory, and Legal Compliance.This segment offers specialized knowledge-based processing and consulting
services that include medical records release services, record management services for healthcare institutions, temporary staffing for healthcare institutions, providing managed care payment
compliance reviews, class action claims administration services, and professional economic research and litigation services. In 2005, Healthcare, Regulatory, and Legal Compliance represented 47.0% of
revenue. During 2005, revenue in the Healthcare, Regulatory and Legal Compliance segment consisted of approximately $132.2 million of project revenue and approximately $63.3 million of
recurring revenue. In the fourth quarter of 2005, the Company recorded a pre-tax non-cash impairment

75

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charge
of approximately $38.3 million related to the HealthSERVE reporting unit within this reportable segment. The reporting unit's long-term profitability and cash flow forecasts,
associated with the Company's 2006 annual budgeting process, were significantly lower than prior forecasts and are the primary reason for the goodwill impairment.

The
Company measures segment profit as income from continuing operations before taxes. Information on the segments follows (in thousands):

|                                                             |  | Year Ended December 31, 2005
|------------------------------------------------------------ |  | ----------------------------
|
|Revenue                                                      |  | $                           
|Depreciation and amortization                                |  |                             
|Goodwill impairment                                          |  |                             
|Operating income (loss)                                      |  |                             
|Interest expense                                             |  |                             
|Income (loss) from continuing operations before income taxes |  |                             
|Total assets                                                 |  |                             

|                                                             |  | Year Ended December 31, 2004
|------------------------------------------------------------ |  | ----------------------------
|
|Revenue                                                      |  | $                           
|Depreciation and amortization                                |  |                             
|Operating income (loss)                                      |  |                             
|Interest expense                                             |  |                             
|Income (loss) from continuing operations before income taxes |  |                             
|Total assets                                                 |  |                             

|                                                      |  | Year Ended December 31, 2003
|----------------------------------------------------- |  | ----------------------------
|
|Revenue                                               |  | $                           
|Depreciation and amortization                         |  |                             
|Operating income                                      |  |                             
|Interest expense                                      |  |                             
|Income from continuing operations before income taxes |  |                             
|Total assets                                          |  |                             

During
the year ended December 31, 2004, the Company realigned certain operations in order to leverage management expertise, reduce costs, maximize profitability and better align
these operations with other operating units of similar core competencies. The realignment resulted in certain operations being transferred from the Information Management and Distribution reportable
segment to the Healthcare, Regulatory, and Legal Compliance reportable segment. The Company has reclassified prior period amounts to be consistent with the current year segment reporting.

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During
the years ended December 31, 2003, 2004 and 2005, capital expenditures were approximately $13.6 million, $13.8 million and $10.1 million, respectively,
in the Information Management and Distribution segment and approximately $2.7 million, $3.3 million and $5.2 million, respectively, in the Healthcare, Regulatory, and Legal
Compliance segment.

19.   Quarterly Information (Unaudited)

|                                                             |         | SOURCECORP, Incorporated |       
|------------------------------------------------------------ | ------- | ------------------------ | ------
|
|
|Total revenue                                                |         | $                        | 95,816
|Gross profit                                                 |         |                          | 36,223
|Income (loss) from continuing operations before income taxes |         |                          | 4,291 
|Income (loss) from continuing operations                     |         |                          | 2,575 
|Net income (loss)                                            |         |                          | 2,065 
|Net income (loss) per common share                          |         |                          |       
|                                                             | Basic   |                          |       
|                                                             |         | Continuing Operations    |       
|                                                             |         | Total Operations         |       
|                                                             | Diluted |                          |       
|                                                             |         | Continuing Operations    |       
|                                                             |         | Total Operations         |       
|Weighted average common shares outstanding                  |         |                          |       
|                                                             | Basic   |                          |       
|                                                             | Diluted |                          |       

As of October 31, 2005, the Company performed the annual goodwill impairment test as required by SFAS No. 142. The annual test
indicated the carrying value of the HealthSERVE reporting unit within the Healthcare, Regulatory and Legal Compliance reportable segment exceeded its fair value. As a result, the Company recorded a
pre-tax non-cash impairment charge of approximately $38.3 million in the fourth quarter of 2005.

20.   Subsequent Event

On March 8, 2006, the Company announced that it had entered into an Agreement and Plan of Merger, dated as of March 7, 2006 (the "Merger
Agreement"), among the Company, CorpSource Holdings, LLC ("Purchaser") and CorpSource MergerSub, Inc. ("Merger Sub"). Purchaser and Merger Sub are entities affiliated with Apollo Management,
L.P. ("Apollo"). The Merger Agreement contemplates that Merger Sub will be merged with and into the Company (the "Merger") and each outstanding share of common stock of the Company will be converted
into the right to receive $25.00 per share in cash, without interest. The consummation of the Merger is subject to various customary conditions, including adoption of the Merger Agreement by the
Company's stockholders, expiration of the antitrust waiting period, the absence of a material adverse change in the Company's business and the receipt of committed debt financing by Purchaser.

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ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

ITEM 9A.Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures.Our management, with the participation of our Chief
Executive Officer, or CEO, and Chief Financial Officer, or CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act) as of December 31, 2005. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls
and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applied its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Based on this evaluation, our CEO and CFO concluded that, as of December 31, 2005, our disclosure controls and
procedures were not effective as of that date, for the reasons described below.

During
2004, the Company determined that a consolidation of certain operations, providing release of information services in the healthcare industry, into one centralized location could
provide increased stockholder value by reducing costs and increasing efficiencies. Centralization was also determined to be the most effective way to meet the compliance requirements of Sarbanes Oxley
Section 404. This complex process involved consolidating nine separate decentralized operating entities under the control of the management of a significant operating location within the
Healthcare, Regulatory and Legal Compliance reportable segment.

At
December 31, 2005, efforts to consolidate the operating entities were ongoing, including a number of changes to the control environment. The magnitude and complexity of these
changes contributed to the control deficiencies in the operating effectiveness of controls at the location.

Management
identified a material weakness resulting from the aggregation of the following significant deficiencies identified in the operating unit's internal controls related to
revenue:



The
material weakness is not pervasive toSOURCECORP'soverall control environment.

Management
believes that substantial progress has been made to remediate the significant deficiency discussed above relating to inadequate segregation of duties and information system
access restriction for finance and accounting personnel. Such progress includes:



78

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To
address the failure to fully remediate a significant deficiency identified in the prior year related to the operating effectiveness of controls related to the completeness and
validity of revenue, manual processes are being implemented to further support the validity of revenue recognition through the complete and timely reconciliation of revenue to the production systems.
The Company also intends to evaluate automated processes for future implementation to further strengthen these controls.

To
address the failure of other revenue recognition controls, remediation efforts are focused on the evaluation and implementation of additional process level control procedures to help
ensure the Company has robust controls that address proper revenue recognition. For example, the Company is in the process of implementing (i) procedures to evidence the distribution of
policies and procedures for customer invoicing and (ii) proper monitoring of invoice sequencing.

The
ability of the Company to prevent and detect fraud, related to revenue, is heavily dependent upon the operating effectiveness of its process level controls and proper segregation of
duties, including information system access. Therefore, the Company will be able to partially rely on proper information systems access restrictions and adequately designed segregation of duties, when
the issues identified above are fully addressed. In addition, remediation of the controls identified related to the completeness and validity of revenue recognition and of other revenue controls, at
the significant operating location, will also be relied upon to meet revenue related fraud objectives. Therefore, the remediation efforts as noted above will strengthen the operating effectiveness of
controls related to the prevention and detection of fraud and improper revenue recognition.

(b)Management's report on Internal Control over Financial Reporting and Attestation of Independent Registered Public Accounting
Firm.The report of our management regarding internal control over financial reporting and the attestation report of our independent registered public accounting
firm are included in Item 8 of this Annual Report on Form 10-K.

(c)Changes in Internal Control over Financial Reporting.

With
the exception of the changes noted above, no additional changes in internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act) occurred during the fiscal quarter ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.

ITEM 9B.Other Information

None.

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PART III

ITEM 10.Directors and Executive Officers of the Registrant

Information called for by Item 10 will be set forth under the captions "Election of Directors" "Corporate Governance" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in our 2006 Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year ended December 31, 2005, and which is
incorporated herein by this reference, or will be subsequently filed by amendment to this Form 10-K.

ITEM 11.Executive Compensation

Information called for by Item 11 will be set forth under the caption "Executive Compensation" in our 2006 Proxy Statement, which will be filed not later than
120 days after the end of our fiscal year ended December 31, 2005, and which is incorporated herein by this reference, or will be subsequently filed by amendment to this
Form 10-K.

ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information called for by Item 12 will be set forth under the captions "Equity Compensation Plan Information" and "Security Ownership of Certain Beneficial Owners
and Management", respectively, in our 2006 Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year ended December 31, 2005, and which is
incorporated herein by this reference, or will be subsequently filed by amendment to this Form 10-K.

ITEM 13.Certain Relationships and Related Transactions

Information called for by Item 13 will be set forth under the caption "Certain Relationships and Related Transactions" in our 2006 Proxy Statement, which will be
filed not later than 120 days after the end of our fiscal year ended December 31, 2005, and which is incorporated herein by this reference, or will be subsequently filed by amendment to
this Form 10-K.

ITEM 14.Principal Accounting Fees and Services

Information called for by Item 14 will be set forth under the caption "Independent Accountants" in our 2006 Proxy Statement, which will be filed not later than
120 days after the end of our fiscal year ended December 31, 2005, and which is incorporated herein by this reference, or will be subsequently filed by amendment to this
Form 10-K.

PART IV

ITEM 15.Exhibits and Financial Statement Schedules

The following documents are being filed as part of this Report:

(a)(1)Consolidated Financial Statements

See
Index to Consolidated Financial Statements on page 39.

All
other schedules are omitted because they are not applicable, not required or the required information is in the Financial Statements or the Notes thereto.

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(a)(3)    The
following Exhibits are filed as part of this Report as required by Item 601 of Regulation S-K. The Exhibits designated by an asterisk are
management contracts and compensatory plans and arrangements required to be filed as Exhibits to this Report.

|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            |  | Agreement and Plan of Merger among SOURCECORP, Incorporated, Corpsource Holdings, LLC and Corpsource Mergersub, Inc. dated as of March 7, 2006 (Incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K filed March 8, 2006)                                                                                                                                                                                                                                                                                                                                                                                                   
|2.2            |  | Certificate of Ownership and Merger filed with the Secretary of State of Delaware effective February 14, 2002 merging SourceCorp Incorporated with and into the Registrant and changing the name of the Registrant to SOURCECORP, Incorporated
(Incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K filed February 15, 2002)                                                                                                                                                                                                                                                                                              
|3.1            |  | Restated Certificate of Incorporation of SOURCECORP, Incorporated (Incorporated by reference to Exhibit 99.3 to Amendment No. 1 to the Company's Registration Statement on Form 8-A filed on February 15, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                                             
|3.2            |  | Certificate of Designation of Series A Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed June 27, 2005)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|3.3            |  | Amended and Restated By-Laws (Incorporated by reference to Exhibit 3.2 to the Company's Form 8-K filed on June 27, 2005)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|3.4            |  | Amended and Restated By-Laws of SOURCECORP, Incorporated (Incorporated by reference to Exhibit 99.4 to Amendment No. 1 to the Company's Registration Statement on Form 8-A filed on February 15, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.1            |  | Specimen certificate for the Common Stock, par value $.01 per share, of the Registrant. (Incorporated by reference to Exhibit 99.1 to Amendment No. 1 to the Company's Registration Statement on Form 8-A filed on February 15,
2002)                                                                                                                                                                                                                                                                                                                                                                                                                       
|4.2            |  | Amendment to Rights Agreement dated as of March 7, 2006 (Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed March 8, 2006)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.3            |  | Form of Rights Agreement dated as of June 26, 2005, between SOURCECORP, Incorporated and American Stock Transfer and Trust Company with includes as Exhibit A the form of Certificate of Designations of Series A Participating
Preferred Stock, as Exhibit B the form of Right Certificate and as Exhibit C the Summary of Rights to Purchase Series A Participating Preferred Stock, is incorporated herein by reference to Exhibit 4.1 to the Company's
Registration Statement on Form 8-A filed with the Securities and Exchange Commission on June 27, 2005 (Incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed on June 27, 2005)
|10.1*          |  | F.Y.I. Incorporated 1995 Stock Option Plan (Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12, 1996)                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.2*          |  | SOURCECORP, Incorporated 2002 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q filed August 14, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.3           |  | Form of Indemnification Agreement between Registrant and each director (Incorporated by reference to Exhibit 10.8 to Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12,
1996)                                                                                                                                                                                                                                                                                                                                                                                                                                   
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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|10.4   |  | Agreement between New York State Workers' Compensation Board and QCSInet Acquisition Corp., dated January 21, 1998 (Incorporated by reference to Exhibit 10.38 to the Company's Form 8-K filed on March 20, 1998)
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.5   |  | Warrant No. 6 issued to Mary D. Baker, dated October 27, 1998 (Incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 filed on December 29, 1998)                          
|10.6   |  | Warrant No. 7 issued to Sharon Kelly, dated October 27, 1998 (Incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 filed on December 29, 1998)                           
|10.7   |  | Warrant No. 8 issued to C. Stuart Haworth, dated October 27, 1998 (Incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-8 filed on December 29, 1998)                      
|10.8   |  | Warrant No. 9 issued to Janet Thornton, dated October 27, 1998. (Incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form S-8 filed on December 29, 1998)                        
|10.9   |  | Warrant No. 10 issued to Stephen D. Swartz, dated October 27, 1998. (Incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-8 filed on December 29, 1998)                    
|10.10  |  | Warrant No. 11 issued to Hossein Borhani, dated October 27, 1998. (Incorporated by reference to Exhibit 4.8 to the Company's Registration Statement on Form S-8 filed on December 29, 1998)                      
|10.11  |  | Warrant No. 12 issued to George Desloge, dated October 27, 1998. (Incorporated by reference to Exhibit 4.9 to the Company's Registration Statement on Form S-8 filed on December 29, 1998)                       
|10.12  |  | Warrant No. 13 issued to Paul White, dated October 27, 1998. (Incorporated by reference to Exhibit 4.10 to the Company's Registration Statement on Form S-8 filed on December 29, 1998)                          
|10.13  |  | Warrant No. 14 issued to Kaye Hall, dated October 27, 1998. (Incorporated by reference to Exhibit 4.11 to the Company's Registration Statement on Form S-8 filed on December 29, 1998)                           
|10.14* |  | Warrant No. 16 issued to Ronald Zazworsky, dated May 19, 1999. (Incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 filed on September 17, 1999)                        
|10.15* |  | Warrant No. 17 issued to Joe A. Rose, dated May 19, 1999. (Incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 filed on September 17, 1999)                             
|10.16  |  | Warrant No. 18 issued to Margot T. Lebenberg, dated May 19, 1999. (Incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form S-8 filed on September 17, 1999)                     
|10.17* |  | Warrant No. 21 issued to Thomas C. Walker, dated May 19, 1999. (Incorporated by reference to Exhibit 4.9 to the Company's Registration Statement on Form S-8 filed on September 17, 1999)                        
|       |  |                                                                                                                                                                                                                  

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|10.18* |  | Warrant No. 22 issued to Ed H. Bowman, Jr., dated May 19, 1999. (Incorporated by reference to Exhibit 4.10 to the Company's Registration Statement on Form S-8 filed on September 17, 1999)  
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.19* |  | Special Warrant No. 24 issued to Joe A. Rose, dated May 19, 1999. (Incorporated by reference to Exhibit 4.11 to the Company's Registration Statement on Form S-8 filed on September 17, 1999)
|10.20  |  | Warrant No. 25 issued to Jeffrey T. Pelcher, dated January 12, 2000. (Incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)  
|10.21  |  | Warrant No. 26 issued to Barrie Robertson, dated February 25, 2000. (Incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)   
|10.22  |  | Warrant No. 27 issued to Barrie Robertson, dated February 25, 2000. (Incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)   
|10.23  |  | Warrant No. 28 issued to James Helm, dated February 25, 2000. (Incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)         
|10.24  |  | Warrant No. 29 issued to James Helm, dated February 25, 2000. (Incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)         
|10.25  |  | Warrant No. 30 issued to Margot T. Lebenberg, dated March 16, 2000. (Incorporated by reference to Exhibit 4.8 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)   
|10.26* |  | Warrant No. 31 issued to Ronald Zazworsky, dated March 16, 2000. (Incorporated by reference to Exhibit 4.9 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)      
|10.27  |  | Warrant No. 32 issued to Timothy J. Barker, dated March 16, 2000. (Incorporated by reference to Exhibit 4.10 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)    
|10.28* |  | Warrant No. 33 issued to Joe A. Rose, dated March 16, 2000. (Incorporated by reference to Exhibit 4.11 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)          
|10.29  |  | Warrant No. 34 issued to Joy Karns, dated February 25, 2000. (Incorporated by reference to Exhibit 4.12 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)         
|10.30  |  | Warrant No. 36 issued to Suzette Estaban, dated February 25, 2000. (Incorporated by reference to Exhibit 4.14 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)   
|10.31  |  | Warrant No. 37 issued to Francis Esteban, dated February 25, 2000. (Incorporated by reference to Exhibit 4.15 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)   
|10.32  |  | Warrant No. 38 issued to Ruben Luna, dated February 25, 2000. (Incorporated by reference to Exhibit 4.16 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)        
|       |  |                                                                                                                                                                                              

83

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|10.33 |  | Warrant No. 39 issued to Maria Olvera, dated February 25, 2000. (Incorporated by reference to Exhibit 4.17 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)   
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.34 |  | Warrant No. 40 issued to C. tuart Haworth, dated March 16, 2000. (Incorporated by reference to Exhibit 4.18 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)  
|10.35 |  | Warrant No. 41 issued to David Byerley, dated March 16, 2000. (Incorporated by reference to Exhibit 4.19 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)     
|10.36 |  | Warrant No. 44 issued to David Delgado, dated March 16, 2000. (Incorporated by reference to Exhibit 4.22 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)     
|10.37 |  | Warrant No. 45 issued to Gene Marzano, dated March 16, 2000. (Incorporated by reference to Exhibit 4.22 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)      
|10.38 |  | Warrant No. 46 issued to Joan G. Haworth, dated March 16, 2000. (Incorporated by reference to Exhibit 4.24 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)   
|10.39 |  | Warrant No. 47 issued to Charles T. Haworth, dated March 16, 2000. (Incorporated by reference to Exhibit 4.25 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)
|10.40 |  | Warrant No. 48 issued to David Delgado, dated March 16, 2000. (Incorporated by reference to Exhibit 4.26 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)     
|10.41 |  | Warrant No. 49 issued to Joan G. Haworth, dated March 16, 2000. (Incorporated by reference to Exhibit 4.27 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)   
|10.42 |  | Warrant No. 50 issued to Charles T. Haworth, dated March 16, 2000. (Incorporated by reference to Exhibit 4.28 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)
|10.43 |  | Warrant No. 51 issued to Michael Wickman, dated March 16, 2000. (Incorporated by reference to Exhibit 4.29 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)   
|10.44 |  | Warrant No. 52 issued to David Delgado, dated March 16, 2000. (Incorporated by reference to Exhibit 4.30 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)     
|10.45 |  | Warrant No. 53 issued to Leo Cooper, dated March 16, 2000. (Incorporated by reference to Exhibit 4.31 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)        
|10.46 |  | Warrant No. 54 issued to C. tuart Haworth, dated March 16, 2000. (Incorporated by reference to Exhibit 4.32 to the Company's Registration Statement on Form S-8 filed on April 25, 2000)  
|      |  |                                                                                                                                                                                           

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|10.47* |  | Warrant No. W057 issued to Thomas C. Walker, dated January 24, 2001. (Incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)  
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.48* |  | Warrant No. W058 issued to Ed H. Bowman, Jr., dated January 24, 2001. (Incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-8 filed on May 11, 2001) 
|10.49* |  | Warrant No. W059 issued to Joe A. Rose, dated January 24, 2001. (Incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)       
|10.50* |  | Warrant No. W060 issued to Barry L. Edwards, dated January 24, 2001. (Incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)  
|10.51* |  | Warrant No. W061 issued to Charles S. Gilbert, dated January 24, 2001. (Incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)
|10.52* |  | Warrant No. W062 issued to Michael S. Rupe, dated January 24, 2001. (Incorporated by reference to Exhibit 4.8 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)   
|10.53* |  | Warrant No. W063 issued to Ronald Zazworsky, dated January 24, 2001. (Incorporated by reference to Exhibit 4.9 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)  
|10.54  |  | Warrant No. W064 issued to Gary Patton, dated January 24, 2001. (Incorporated by reference to Exhibit 4.10 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)      
|10.55  |  | Warrant No. W065 issued to David Byerley, dated January 24, 2001. (Incorporated by reference to Exhibit 4.11 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)    
|10.56  |  | Warrant No. W066 issued to Mary Baker, dated January 24, 2001. (Incorporated by reference to Exhibit 4.12 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)       
|10.57  |  | Warrant No. W067 issued to Hossein Borhani, dated January 24, 2001. (Incorporated by reference to Exhibit 4.13 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)  
|10.58  |  | Warrant No. W068 issued to Charles Haworth, dated January 24, 2001. (Incorporated by reference to Exhibit 4.14 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)  
|10.59  |  | Warrant No. W069 issued to Joan Haworth, dated January 24, 2001. (Incorporated by reference to Exhibit 4.15 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)     
|10.60  |  | Warrant No. W070 issued to Stuart Haworth, dated January 24, 2001. (Incorporated by reference to Exhibit 4.16 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)   
|       |  |                                                                                                                                                                                            

85

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|10.61  |  | Warrant No. W071 issued to Sharon Kelly, dated January 24, 2001. (Incorporated by reference to Exhibit 4.17 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)                                                                                        
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.62  |  | Warrant No. W072 issued to Sam Kimelman, dated January 24, 2001. (Incorporated by reference to Exhibit 4.18 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)                                                                                        
|10.63  |  | Warrant No. W073 issued to Steve Swartz, dated January 24, 2001. (Incorporated by reference to Exhibit 4.19 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)                                                                                        
|10.64  |  | Warrant No. W074 issued to Janet Thornton, dated January 24, 2001. (Incorporated by reference to Exhibit 4.20 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)                                                                                      
|10.65  |  | Warrant No. W075 issued to Paul White, dated January 24, 2001. (Incorporated by reference to Exhibit 4.21 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)                                                                                          
|10.66  |  | Warrant No. W076 issued to Holly Barnett, dated January 24, 2001. (Incorporated by reference to Exhibit 4.22 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)                                                                                       
|10.67  |  | Warrant No. W077 issued to Dennis Reinhold, dated January 24, 2001. (Incorporated by reference to Exhibit 4.23 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)                                                                                     
|10.68  |  | Warrant No. W078 issued to E. Leo Cooper, dated January 24, 2001. (Incorporated by reference to Exhibit 4.24 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)                                                                                       
|10.69* |  | Warrant No. W079 issued to Kerry D. Walbridge, dated March 22, 2001. (Incorporated by reference to Exhibit 4.25 to the Company's Registration Statement on Form S-8 filed on May 11, 2001)                                                                                    
|10.70* |  | Third Amendment to Amended and Restated Employment Agreement dated as of March 7, 2006 by and among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Thomas C. Walker (Incorporated by reference to Exhibit 10.1 to the Company's
Form 8-K filed March 8, 2006)      
|10.71* |  | Second Amendment to Amended and Restated Employment Agreement dated as of February 17, 2006 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Ed H. Bowman, Jr. (Incorporated by reference to Exhibit 10.1 to the Company's
Form 8-K filed on February 24, 2006)
|10.72* |  | Second Amendment to Amended and Restated Employment Agreement dated as of February 17, 2006 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Thomas C. Walker (Incorporated by reference to Exhibit 10.2 to the Company's
Form 8-K filed on February 24, 2006) 
|10.73* |  | Second Amendment to Amended and Restated Employment Agreement dated as of February 17, 2006 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Ralph D. Burns (Incorporated by reference to Exhibit 10.3 to the Company's
Form 8-K filed on February 24, 2006)   
|       |  |                                                                                                                                                                                                                                                                               

86

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|10.74* |  | Second Amendment to Amended and Restated Employment Agreement dated as of February 17, 2006 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Stephen W. Davis (Incorporated by reference to Exhibit 10.4 to the Company's
Form 8-K filed on February 24, 2006)  
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.75* |  | Second Amendment to Amended and Restated Employment Agreement dated as of February 24, 2006 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and David Delgado (Incorporated by reference to Exhibit 10.5 to the Company's
Form 8-K filed on February 24, 2006)     
|10.76* |  | Second Amendment to Amended and Restated Employment Agreement dated as of February 20, 2006 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Barry L. Edwards (Incorporated by reference to Exhibit 10.6 to the Company's
Form 8-K filed on February 24, 2006)  
|10.77* |  | Second Amendment to Amended and Restated Employment Agreement dated as of February 17, 2006 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Charles S. Gilbert (Incorporated by reference to Exhibit 10.7 to the Company's
Form 8-K filed on February 24, 2006)
|10.78* |  | Second Amendment to Amended and Restated Employment Agreement dated as of February 17, 2006 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Kerry d. Walbridge (Incorporated by reference to Exhibit 10.8 to the Company's
Form 8-K filed on February 24, 2006)
|10.79* |  | Second Amendment to Amended and Restated Employment Agreement dated as of February 23, 2006 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Ronald Zazworsky (Incorporated by reference to Exhibit 10.9 to the Company's
Form 8-K filed on February 24, 2006)  
|10.80* |  | Amendment to Amended and Restated Employment Agreement dated as of December 7, 2005 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Ed H. Bowman, Jr. (Incorporated by reference to Exhibit 10.1 to the Company's
Form 8-K filed December 7, 2005)             
|10.81* |  | Amendment to Amended and Restated Employment Agreement dated as of December 7, 2005 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Thomas C. Walker (Incorporated by reference to Exhibit 10.2 to the Company's
Form 8-K filed December 7, 2005)              
|10.82* |  | Amendment to Amended and Restated Employment Agreement dated as of December 7, 2005 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Ralph D. Burns (Incorporated by reference to Exhibit 10.3 to the Company's
Form 8-K filed December 7, 2005)                
|10.83* |  | Amendment to Amended and Restated Employment Agreement dated as of December 7, 2005 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Stephen W. Davis (Incorporated by reference to Exhibit 10.4 to the Company's Form 8-K
filed December 7, 2005)              
|10.84* |  | Amendment to Amended and Restated Employment Agreement dated as of December 7, 2005 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and David Delgado (Incorporated by reference to Exhibit 10.5 to the Company's Form 8-K
filed December 7, 2005)                 
|       |  |                                                                                                                                                                                                                                                                                

87

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|10.85* |  | Amendment to Amended and Restated Employment Agreement dated as of December 7, 2005 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Barry L. Edwards (Incorporated by reference to Exhibit 10.6 to the Company's
Form 8-K filed December 7, 2005)  
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.86* |  | Amendment to Amended and Restated Employment Agreement dated as of December 7, 2005 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Charles S. Gilbert (Incorporated by reference to Exhibit 10.7 to the Company's
Form 8-K filed December 7, 2005)
|10.87* |  | Amendment to Amended and Restated Employment Agreement dated as of December 7, 2005 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Kerry D. Walbridge (Incorporated by reference to Exhibit 10.8 to the Company's
Form 8-K filed December 7, 2005)
|10.88* |  | Amendment to Amended and Restated Employment Agreement dated as of December 7, 2005 among SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Ronald Zazworsky (Incorporated by reference to Exhibit 10.9 to the Company's Form 8-K
filed December 7, 2005)  
|10.89* |  | Amended and Restated Employment Agreement by and between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Ed H. Bowman, Jr. effective as of January 1, 2005 (Incorporated by reference to Exhibit 99.1 to the Company's
Form 8-K filed May 11, 2005)      
|10.90* |  | Amended and Restated Employment Agreement by and between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Thomas C. Walker effective as of January 1, 2005 (Incorporated by reference to Exhibit 99.2 to the Company's
Form 8-K filed May 11, 2005)       
|10.91* |  | Amended and Restated Employment Agreement by and between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Ralph D. Burns effective as of January 1, 2005 (Incorporated by reference to Exhibit 99.3 to the Company's Form 8-K
filed May 11, 2005)         
|10.92* |  | Amended and Restated Employment Agreement by and between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Stephen W. Davis effective as of January 1, 2005 (Incorporated by reference to Exhibit 99.4 to the Company's Form 8-K
filed May 11, 2005)       
|10.93* |  | Amended and Restated Employment Agreement by and between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and David Delgado effective as of January 1, 2005 (Incorporated by reference to Exhibit 99.5 to the Company's Form 8-K filed
May 11, 2005)          
|10.94* |  | Amended and Restated Employment Agreement by and between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Barry L. Edwards effective as of January 1, 2005 (Incorporated by reference to Exhibit 99.6 to the Company's
Form 8-K filed May 11, 2005)       
|10.95* |  | Amended and Restated Employment Agreement by and between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Charles S. Gilbert effective as of January 1, 2005 (Incorporated by reference to Exhibit 99.7 to the Company's
Form 8-K filed May 11, 2005)     
|       |  |                                                                                                                                                                                                                                                                    

88

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|10.96*  |  | Amended and Restated Employment Agreement by and between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and W. Bryan Hill effective as of January 1, 2005 (Incorporated by reference to Exhibit 99.8 to the Company's Form 8-K filed
May 11, 2005)                                                               
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.97*  |  | Amended and Restated Employment Agreement by and between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Kerry D. Walbridge effective as of January 1, 2005 (Incorporated by reference to Exhibit 99.9 to the Company's
Form 8-K filed May 11, 2005)                                                          
|10.98*  |  | Amended and Restated Employment Agreement by and between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Ronald Zazworsky effective as of January 1, 2005 (Incorporated by reference to Exhibit 99.10 to the Company's Form 8-K
filed May 11, 2005)                                                           
|10.99*  |  | Amended and Restated Employment Agreement, entered into on December 19, 2003 and effective as of January 1, 2004 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Ed H. Bowman, Jr. (Incorporated by reference to
Exhibit 10.70 to the Company's 2003 Annual Report on Form 10-K filed March 12, 2004) 
|10.100* |  | Employment Agreement, entered into on December 22, 2003 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and David Delgado (Incorporated by reference to Exhibit 10.71 to the Company's 2003 Annual Report on Form 10-K filed
March 12, 2004)                                                              
|10.101* |  | Amended and Restated Employment Agreement, entered into on December 19, 2003 and effective as of January 1, 2004 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Barry L. Edwards (Incorporated by reference to
Exhibit 10.72 to the Company's 2003 Annual Report on Form 10-K filed March 12, 2004)  
|10.102* |  | Amended and Restated Employment Agreement, entered into on December 19, 2003 and effective as of January 1, 2004 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Charles S. Gilbert (Incorporated by reference to
Exhibit 10.73 to the Company's 2003 Annual Report on Form 10-K filed March 12, 2004)
|10.103* |  | Amended and Restated Employment Agreement, entered into on December 19, 2003 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and W. Bryan Hill (Incorporated by reference to Exhibit 10.74 to the Company's 2003 Annual Report on
Form 10-K filed March 12, 2004)                                         
|10.104* |  | Amended and Restated Employment Agreement, entered into on January 1, 2004 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Kerry D. Walbridge (Incorporated by reference to Exhibit 10.76 to the Company's 2003 Annual
Report on Form 10-K filed March 12, 2004)                                      
|10.105* |  | Amended and Restated Employment Agreement, entered into on December 19, 2003 and effective as of January 1, 2004 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Thomas C. Walker (Incorporated by reference to
Exhibit 10.77 to the Company's 2003 Annual Report on Form 10-K filed March 12, 2004)  
|10.106* |  | Amended and Restated Employment Agreement, effective as of January 1, 2004 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Ronald Zazworsky (Incorporated by reference to Exhibit 10.78 to the Company's 2003 Annual Report on
Form 10-K filed March 12, 2004)                                        
|        |  |                                                                                                                                                                                                                                                                                                                         

89

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|10.107* |  | Amended and Restated Employment Agreement, dated as of April 24, 2002 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Barry L. Edwards (Incorporated by reference to Exhibit 10.8 on the Company's Form 10-Q filed
May 15, 2002)                     
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.108* |  | Amended and Restated Employment Agreement, dated as of April 24, 2002 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Charles S. Gilbert (Incorporated by reference to Exhibit 10.2 on the Company's Form 10-Q filed
May 15, 2002)                   
|10.109* |  | Amended and Restated Employment Agreement, dated as of April 8, 2002 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Ed H. Bowman, Jr. (Incorporated by reference to Exhibit 10.3 on the Company's Form 10-Q filed
May 15, 2002)                     
|10.110* |  | First Amendment to Amended and Restated Employment Agreement, dated as of May 8, 2002 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Ed H. Bowman, Jr. (Incorporated by reference to Exhibit 10.3 to the Company's
Form 10-Q filed August 14, 2002) 
|10.111* |  | Amended and Restated Employment Agreement, dated as of May 10, 2002 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Joe A. Rose (Incorporated by reference to Exhibit 10.4 on the Company's Form 10-Q filed
May 15, 2002)                            
|10.112* |  | First Amendment to Amended and Restated Employment Agreement, dated as of May 10, 2002 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Joe A. Rose (Incorporated by reference to Exhibit 10.1 on the Company's
Form 10-Q filed August 14, 2002)      
|10.113* |  | Employment Agreement, dated as of April 23, 2002 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Kerry D. Walbridge (Incorporated by reference to Exhibit 10.1 on the Company's Form 10-Q filed May 15,
2002)                                        
|10.114* |  | Employment Agreement, dated as of February 7, 2003 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Michael S. Rupe (Incorporated by reference to Exhibit 10.78 on the Company's Form 10-K filed March 31,
2003)                                      
|10.115* |  | Amended and Restated Employment Agreement, dated as of May 18, 2001 between F.Y.I. Incorporated and Ronald Zazworsky (Incorporated by reference to Exhibit 10.90 on the Company's Form 10-Q filed August 14, 2001)                                                     
|10.116* |  | First Amendment to Amended and Restated Employment Agreement, dated as of April 10, 2002 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Ronald Zazworsky (Incorporated by reference to Exhibit 10.6 on the Company's
Form 10-Q filed May 15, 2002)  
|10.117* |  | Amended and Restated Employment Agreement, dated as of April 8, 2002 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Thomas C. Walker (Incorporated by reference to Exhibit 10.7 on the Company's Form 10-Q filed
May 15, 2002)                      
|10.118* |  | First Amendment to Amended and Restated Employment Agreement, dated as of April 8, 2002 between SOURCECORP, Incorporated, SOURCECORP Management, L.P. and Thomas C. Walker (Incorporated by reference to Exhibit 10.2 on the Company's
Form 10-Q filed August 14, 2002)
|10.119* |  | Consulting Agreement Fifth Amended Addendum between F.Y.I. Incorporated (n/k/a SOURCECORP, Incorporated and David Lowenstein dated as of March 7, 2006 (Incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed
March 8, 2006)                       
|        |  |                                                                                                                                                                                                                                                                        

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|10.120* |  | Consulting Agreement Forth Amended Addendum between SOURCECORP, Incorporated and David Lowenstein effective as of January 1, 2006 (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed March 6, 2006)                                                                                                                                                                                                
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.121* |  | Consulting Agreement Third Amended Addendum between SOURCECORP, Incorporated and David Lowenstein dated January 9, 2006 (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed January 11, 2006)                                                                                                                                                                                                       
|10.122* |  | Consulting Agreement Second Amended Addendum effective as of December 18, 2004, supplement to, and modification of, that certain Consulting Agreement by and between F.Y.I. Incorporated (n/k/a SOURCECORP, Incorporated) and David Lowenstein, dated
January 1, 2000 (Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed August 11, 2005).                                                        
|10.123* |  | Consulting Agreement Amended Addendum, entered into effective as of October 1, 2004, between SOURCECORP, Incorporated and David Lowenstein (Incorporated by reference to Exhibit 10.130 on the Company's 2004 Form 10-K filed March 31,
 2005).                                                                                                                                                                            
|10.124* |  | Consulting Agreement between F.Y.I. Incorporated and David Lowenstein (Incorporated by reference to Exhibit 10.65 of the Company's Form 10-K filed on March 23, 2000)                                                                                                                                                                                                                                                      
|10.125  |  | Amended and Restated Credit Agreement dated as of September 29, 2005 by and among SOURCECORP, Incorporated, Bank of America, N.A. as Administrative Agent, Banc of America Securities LLC, as Sole Lead Arranger and Sole Book Manager, SunTrust Bank,
 as Syndication Agent, and JPMorgan Chase Bank, N.A., as Documentation Agent (Incorporated by reference to Exhibit 10.1 to Company's Form 8-K filed October 5, 2005)
|10.126  |  | Fifth Amendment and Waiver to Credit Agreement executed to be effective as of March 23, 2005, by and among SOURCECORP, Incorporated, Bank of America, N.A. as a Lender and as Administrative Agent for Lenders and the other Agents and Lenders party
thereto (Incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed March 25, 2005)**                                               
|10.127  |  | Fourth Amendment to Credit Agreement, effective as of July 30, 2004, by and among SOURCECORP, Incorporated, Bank of America, N.A. and the other Lenders party thereto (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q filed August 9, 2004)**                                                                                                                                    
|10.128  |  | Third Amendment to Credit Agreement, dated as of March 26, 2003 by and among SOURCECORP, Incorporated, Bank of America, N.A., and the other Agents and Lenders party hereto (Incorporated by reference to Exhibit 10.1 to the Company's
Form 10-Q filed May 13, 2003)**                                                                                                                                                    
|10.129  |  | Second Amendment to Credit Agreement, dated as of September 27, 2002 between SOURCECORP, Incorporated, Bank of America, N.A. and the other signatories thereto (Incorporated by reference to Exhibit 10.1 on the Company's Form 10-Q filed
November 14, 2002)**                                                                                                                                                            
|10.130  |  | First Amendment to Credit Agreement, dated as of June 27, 2001, by and among F.Y.I. Incorporated, bank of America, N.A., and the other signatories thereto (Incorporated by reference to Exhibit 10.92 on the Company's Form 10-Q filed
August 14, 2001)**                                                                                                                                                                 
|10.131  |  | Credit Agreement, dated as of April 3, 2001, by and among F.Y.I. Incorporated, Bank of America, N.A., and the other signatories thereto (Incorporated by reference to Exhibit 10.1 on the Company's Form 10-Q filed November 14,
2001)**                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                            

91

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|10.132 |  | Extension and Modification of Waiver to Credit Agreement, effective March 15, 2005, by and among SOURCECORP, Incorporated, Bank of America, N.A. as a Lender and as Administrative Agent for Lenders and the other Agents and Lenders party thereto
(Incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed March 16, 2005)
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.133 |  | Waiver to Credit Agreement, effective as of November 12, 2004, by and among SOURCECORP, Incorporated, Bank of America, N.A., as a Lender and as Administrative Agent for Lenders and the other Agents and Lenders party thereto (Incorporated by
reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed November 17, 2004).                
|10.134 |  | Assignment Agreement dated October 24, 2003 by and between Wachovia Bank, National Association and Hibernia National Bank accepted by Bank of America, N.A. and consented to by SOURCECORP, Incorporated. (Incorporated by reference to
Exhibit 10.120 to the Company's 2003 Annual Report on Form 10-K filed March 12, 2004)                                   
|10.135 |  | Extension Agreement, effective December 4, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed on behalf of Hibernia National Bank (Incorporated by reference
to Exhibit 10.115 to the Company's 2003 Annual Report on Form 10-K filed March 12, 2004)                   
|10.136 |  | Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed on behalf of Bank of America, N.A. (Incorporated by reference to
Exhibit 10.7 to the Company's Form 10-Q filed May 13, 2003)                                                 
|10.137 |  | Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed on behalf of The Bank of Nova Scotia (Incorporated by reference to
Exhibit 10.8 to the Company's Form 10-Q filed May 13, 2003)                                               
|10.138 |  | Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed on behalf of Bank One, N.A. (Incorporated by reference to
Exhibit 10.9 to the Company's Form 10-Q filed May 13, 2003)                                                        
|10.139 |  | Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed on behalf of BNP Paribas (Incorporated by reference to
Exhibit 10.10 to the Company's Form 10-Q filed May 13, 2003)                                                          
|10.140 |  | Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed on behalf of JPMorgan Chase Bank (Incorporated by reference to
Exhibit 10.11 to the Company's Form 10-Q filed May 13, 2003)                                                  
|10.141 |  | Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed on behalf of Suntrust Bank (Incorporated by reference to
Exhibit 10.12 to the Company's Form 10-Q filed May 13, 2003)                                                        
|       |  |                                                                                                                                                                                                                                                                                                                                                                 

92

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|10.142 |  | Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed on behalf of Washington Mutual Bank (Incorporated by reference to
Exhibit 10.13 to the Company's Form 10-Q filed May 13, 2003).                                          
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.143 |  | Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed on behalf of Wells Fargo Bank, N.A. (Incorporated by reference to
Exhibit 10.14 to the Company's Form 10-Q filed May 13, 2003)                                           
|10.144 |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of Bank of America, N.A. (Incorporated by reference to
Exhibit 10.86 to the Company's Form 10-K filed March 31, 2003)                                         
|10.145 |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of SunTrust Bank (Incorporated by reference to
Exhibit 10.87 to the Company's Form 10-K filed March 31, 2003)                                                 
|10.146 |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of BNP Paribas (Incorporated by reference to
Exhibit 10.88 to the Company's Form 10-K filed March 31, 2003)                                                   
|10.147 |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of First Union National Bank (Incorporated by reference
to Exhibit 10.89 to the Company's Form 10-K filed March 31, 2003)                                     
|10.148 |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of The Bank of Nova Scotia (Incorporated by reference
to Exhibit 10.90 to the Company's Form 10-K filed March 31, 2003)                                       
|10.149 |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of JPMorgan Chase Bank formerly known as The Chase
Manhattan Bank (Incorporated by reference to Exhibit 10.91 to the Company's Form 10-K filed March 31, 2003)
|10.150 |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of Wachovia Bank, N.A. (Incorporated by reference to
Exhibit 10.92 to the Company's Form 10-K filed March 31, 2003)                                           
|10.151 |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of Washington Mutual Bank (Incorporated by reference to
Exhibit 10.93 to the Company's Form 10-K filed March 31, 2003)                                        
|       |  |                                                                                                                                                                                                                                                                                                                                                             

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|10.152  |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of Wells Fargo Bank Texas, National Association
(Incorporated by reference to Exhibit 10.94 to the Company's Form 10-K filed March 31, 2003)
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.153  |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of Bank One, NA (Incorporated by reference to
Exhibit 10.95 to the Company's Form 10-K filed March 31, 2003)                                
|10.154  |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of Texas Capital Bank, National Association
(Incorporated by reference to Exhibit 10.96 to the Company's Form 10-K filed March 31, 2003)    
|10.155  |  | Master Guaranty Agreement, dated April 3, 2001, by and among certain subsidiaries of F.Y.I. Incorporated and Bank of America, N.A. (Incorporated by reference to Exhibit 10.4 on the Company's Form 10-Q filed November 14,
2001)                                                                                                         
|10.156  |  | Pledge Agreement, dated April 3, 2001, by and between F.Y.I. Incorporated and Bank of America, N.A. (Incorporated by reference to Exhibit 10.5 on the Company's Form 10-Q filed November 14, 2001)                                                                                                                                        
|10.157  |  | Master Pledge Agreement, dated April 3, 2001, by and among certain subsidiaries of F.Y.I. Incorporated and Bank of America, N.A. (Incorporated by reference to Exhibit 10.6 on the Company's Form 10-Q filed November 14,
2001)                                                                                                           
|10.158  |  | Letter Agreement, dated August 10, 2001, by and among F.Y.I. Incorporated, Bank of America, N.A. and the other signatories thereto (Incorporated by reference to Exhibit 10.3 on the Company's Form 10-Q filed November 14,
2001)                                                                                                         
|10.159  |  | ISDA Master Agreement and Schedule to ISDA Master Agreement dated as of December 20, 2000, between F.Y.I. Incorporated and SunTrust Bank. (Incorporated by reference to Exhibit 10.7 on the Company's Form 10-Q filed November 14,
2001)                                                                                                  
|10.160  |  | Confirmation of Interest Rate Transaction Letter Agreement dated December 21, 2000, between F.Y.I. Incorporated and SunTrust Bank. (Incorporated by reference to Exhibit 10.8 on the Company's Form 10-Q filed November 14,
2001)                                                                                                         
|10.161* |  | F.Y.I. Incorporated Nonqualified Retirement Plan, Amended and Restated as of January 1, 2000 (Incorporated by reference to Exhibit 10.87 on the Company's Form 10 -K filed April 1, 2002)                                                                                                                                                 
|10.162* |  | Description of Non-Qualified Retirement Plan Match (Incorporated by reference to Exhibit 1.128 on the Company's Form 10-K filed (Incorporated by reference to Exhibit 10.128 on the Company's 2004 Form 10-K filed March 31,
2005)                                                                                                        
|10.163* |  | Non-Employee Director's Compensation Summary (Incorporated by reference to Exhibit 10.2 on the Company's Form 10-Q filed August 11, 2005)                                                                                                                                                                                                 
|10.164* |  | 2005 Executive Officer and Director Compensation Summary (Incorporated by reference to Exhibit 10.129 on the Company's 2004 Form 10-K filed March 31, 2005)                                                                                                                                                                               
|10.165  |  | Agreement Settling Disputes and Releasing Claims, entered into as of September 23, 2005, by and between the Company and other parties listed therein (Incorporated by reference to Exhibit 10.1 to Company's Form 10-Q filed on
November 9, 2005)                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                           

94

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|10.166 |  | Confidentiality Agreement made as of August 1, 2005 by and between SOURCECORP, Incorporated and Jana Partners LLC (Incorporated by reference to Exhibit 99.2 to the Company's Form 8-K filed on August 3, 2005)
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|21     |  | List of subsidiaries of SOURCECORP, Incorporated                                                                                                                                                               
|23.1   |  | Consent of Deloitte & Touche LLP                                                                                                                                                                               
|24     |  | Power of Attorney (included with the signature page hereof)                                                                                                                                                    
|31.1   |  | Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)                                                                                                                                                     
|31.2   |  | Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)                                                                                                                                                     
|32.1   |  | Certification pursuant to Section 906 of Sarbanes-Oxley Act                                                                                                                                                    
|32.2   |  | Certification pursuant to Section 906 of Sarbanes-Oxley Act                                                                                                                                                    

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95

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SIGNATURES

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

|                     |  | SOURCECORP, INCORPORATED
|-------------------- |  | ------------------------
|                     |  | By:                     
|Date: March 31, 2006 |  |                         

POWER OF ATTORNEY

Each person whose signature appears below hereby authorizes and constitutes Ed H. Bowman, Jr. and Charles S. Gilbert, and each of them singly, his true and lawful
attorneys-in-fact with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign and file any and all
amendments to this report with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and he hereby ratifies and confirms all that said
attorneys-in-fact or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of March 31, 2006 by the following persons on behalf of the Registrant
and in the capacities indicated.

|SIGNATURE                                           |  | CAPACITY IN WHICH SIGNED                                                          
|--------------------------------------------------- |  | ----------------------------------------------------------------------------------
|                                                    |  |                                                                                   
|/s/THOMAS C. WALKERThomas C. Walker                 |  | Chairman of the Board and Chief Development Officer                               
|/s/ED H. BOWMAN, JR.Ed H. Bowman, Jr.               |  | Director, President and Chief Executive Officer (Principal Executive Officer)     
|/s/DAVID LOWENSTEINDavid Lowenstein                 |  | Director and Founder                                                              
|/s/BARRY L. EDWARDSBarry L. Edwards                 |  | Executive Vice President and Chief Financial Officer (Principal Financial Officer)
|/s/G. MICHAEL BELLENGHIG. Michael Bellenghi         |  | Director                                                                          
|/s/MICHAEL J. BRADLEYMichael J. Bradley             |  | Director                                                                          
|/s/DONALD F. MOOREHEAD, JR.Donald F. Moorehead, Jr. |  | Director                                                                          
|/s/HON. EDWARD M. ROWELLHon. Edward M. Rowell       |  | Director                                                                          
|/s/MARC A. WEISMANMarc A. Weisman                   |  | Director                                                                          

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