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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                   FORM 10-K/A
                                (AMENDMENT NO. 1)

[X]      Annual Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934 For the fiscal year ended March 31, 2003

                                       Or

[ ]    Transition Report Pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934 For the transition period from         to

                        Commission File Number 000-21465

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

                  MISSOURI                                   43-0988805
      (State or other jurisdiction of                     (I.R.S. Employer
       incorporation or organization)                    Identification No.)
      1850 BORMAN COURT, ST. LOUIS, MO                          63146
  (Address of principal executive offices)                   (Zip Code)

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

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

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


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

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

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

As of September 30, 2002, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $168,000,000. For purpose of
this calculation only, without determining whether the following are affiliates
of the registrant, the registrant has assumed that (i) its directors and
executive officers are affiliates and (ii) entities controlled by such persons
are affiliates.

As of May 16, 2003 there were 13,563,125 shares of the registrant's Common Stock
outstanding, net of treasury shares held by the Company.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the registrant's 2003 Annual
Meeting of Stockholders, which definitive proxy statement was filed on July 22,
2003, are incorporated by reference into Part III of this Annual Report on Form
10-K/A.

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                                EXPLANATORY NOTE

TALX Corporation is filing this Form 10-K/A for the fiscal year ended March 31,
2003 to reflect the restatement of its consolidated financial statements for the
fiscal years ended March 31, 1999 through 2003. See the consolidated financial
statements and Note 2 thereto included herein for a description of the
restatement, and related restatements of Notes 1, 7, 11 and 14. This Form 10-K/A
also includes disclosures relating to material developments in the matters
discussed in Note 18 - Commitments and Contingencies, which had been discussed
in the original filing. See additional changes in Items 1, 6, 7 and 8. This Form
10-K/A does not attempt to modify or update any other disclosures set forth in
the original filing, except as required to reflect the effects of the
restatement. Any Items included in the original Form 10-K that are not included
herein are not amended and remain in effect as of the date of the original
filing thereof. Additionally, this Form 10-K/A does not purport to provide a
general update or discussion of any other developments at the Company subsequent
to the original filing. The filing of this Form 10-K/A shall not be deemed an
admission that the original filing, when made, included any untrue statement of
material fact or omitted to state a material fact necessary to make a statement
not misleading.


                                     PART I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-K/A contains forward-looking statements. In some cases, you can
identify forward-looking statements by terms such as "may," "will," "should,"
"could," "would," "expect," "plan," "anticipate," "believe," "estimate,"
"project," "predict," "potential" and similar expressions intended to identify
forward-looking statements. These statements reflect our current views with
respect to future events and are based on assumptions and subject to risks and
uncertainties. These risks, uncertainties and other factors may cause our actual
results, performances or achievements to be materially different from those
expressed or implied by our forward-looking statements. Our forward-looking
statements in this Form 10-K/A include, but are not limited to, statements
relating to:

     o    our expectations regarding future financial results or performance
          contained in the section "Results of Operations" contained in Item 7
          (Management's Discussion and Analysis of Financial Condition and
          Results of Operations);

     o    our business strategy;

     o    the market opportunity for our services and products, including
          anticipated growth of our industry and expected demand for our
          services and products;

     o    the anticipated benefits of our prior fiscal year acquisitions;

     o    our estimates regarding our capital requirements and needs for
          additional financing; and

     o    any of our other plans, objectives, expectations and intentions
          contained in this Form 10-K/A that are not historical facts.

Factors that may cause our actual results to differ materially from our
forward-looking statements include, among others, changes in general economic
and business conditions and the risks and other factors set forth in "Risk
Factors."

You should read this Form 10-K/A completely and with the understanding that our
actual results may be materially different from what we expect. We undertake no
obligation to update these forward-looking statements, even though our situation
may change in the future. We qualify all of our forward-looking statements by
these cautionary statements.


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ITEM 1. BUSINESS

OVERVIEW

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

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

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

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

See "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Discontinued Operations" for information regarding the
divestitures of our database and document service businesses. See note 14 to the
consolidated financial statements included in this Form 10-K/A for financial
information about each of our segments for the last three fiscal years, which is
incorporated by reference herein.

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

TALX(R) is our registered trademark, and The Work Number For Everyone(R), The
Work Number(R), eChoice(R) and FasTime(R) are our registered service marks.
TALXWare is our trademark and UC eXpress, ePayroll, FasCast and W-2 eXpress are
our service marks. All other trade names, trademarks and product names in this
Form 10-K/A are the property of their respective owners.

We are incorporated under the laws of the state of Missouri. Our executive
offices are located at 1850 Borman Court, St. Louis, Missouri, 63146 and our
telephone number is (314) 214-7000.

Unless otherwise stated, all share and per share information in this Form 10-K/A
reflects all of our stock dividends and our fiscal 2001 stock split.

AVAILABLE INFORMATION

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


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RESTATEMENTS OF FINANCIAL STATEMENTS

2004 RESTATEMENT

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

Additionally, we corrected three errors related to bill and hold arrangements on
hardware and software transactions arising out of the customer premises systems
line of business during the fiscal years ended March 31, 2000 and 2001. The
impact of these corrections resulted in revenues and related costs during fiscal
2000 and 2001 being recognized in different quarters than originally reported.
However, such adjustments had no impact on the fiscal 2000 or 2001 results.

The restatement had practically no cumulative impact on our financial results or
our financial condition. It had the effect of reducing revenues by $955,000 for
fiscal years 1999, 2000 and 2001 and increasing revenues by a similar amount in
fiscal years 2002 and 2003. The impact on the years presented, 2001, 2002 and
2003, was a reduction of revenue in 2001 of $358,000 and an increase of revenues
in 2002 and 2003 of $610,000 and $384,000, respectively. In addition to the
revenue adjustments, the related commissions associated with the revenues were
adjusted accordingly and the income taxes provisions were amended to reflect the
impact of these restatements. The annual impact to diluted earnings per share
was a reduction to fiscal 1999 of $0.03, an increase to fiscal 2000 of $0.01, a
reduction to fiscal 2001 of $0.02 and increases to fiscal 2002 and 2003 of $0.03
and $0.01, respectively.

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

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

2002 RESTATEMENT

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

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


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

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

See our Form 10-K/A for the period March 31, 2002 regarding the impact of our
prior restatement on our statements of operations and balance sheets. The prior
restatement had no impact on our total cash flows from operations, investing
activities or financing activities.

RECENT DEVELOPMENTS

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

The transaction is structured as a transfer of assets under contract for sale
with no initial down-payment and the purchase price to be paid over a three-year
period, based on a client retention formula. Proceeds are anticipated to be
between $2 million and $6 million, with no minimum guaranteed amount. We will
record cash received under the asset purchase agreement first to reduce the
recorded value of net assets sold under the agreement and then to reflect gain
on the sale of the business. In connection with the sale, we will provide
Workscape, Inc., for agreed upon fees, with various transition services related
to the operation of the benefits enrollment business until December 31, 2005, or
until certain transferred client contracts have expired or been terminated.
Workscape, Inc. has hired all of the employees related to the benefits
enrollment business.

Near the end of our prior fiscal year, we acquired two businesses that provide
unemployment cost management services. These services include unemployment
insurance claims processing and unemployment tax management and planning to a
broad range of employers. These acquisitions expanded our core human resource
and electronic payroll services business to include unemployment cost management
services. We further believe the services provided by the acquired businesses
are complementary to our services and are cross-selling those services to our
existing client base. Since the date of the acquisitions, we have commenced an
integration strategy to consolidate the sales and customer service delivery.
This new structure was put into place during the first quarter of fiscal 2004.
Given the nature of this integration, we do not expect to realize the full
impact until the last half of fiscal 2004. Through transition teams, we also
reviewed best practices in various operational areas. We have identified a
single operating computer platform, and have established a goal of completing
our integration by the end of fiscal 2004.

     UNEMPLOYMENT COST MANAGEMENT SERVICES BUSINESS OF GATES, MCDONALD & COMPANY

Pursuant to an asset purchase agreement, dated as of March 27, 2002, our
wholly-owned subsidiary, Garcia Acquisition Sub, Inc. ("Garcia"), purchased
certain of the assets and assumed certain of the liabilities of the unemployment
cost management services business (the "GM Unemployment Compensation Business")
of Gates, McDonald & Company, a subsidiary of Nationwide Mutual Insurance
Company. The GM Unemployment Compensation Business provides unemployment cost
management services to a broad range of employers.

The purchase price was $44.3 million, including transaction costs, and was paid
in cash, a portion of which was financed, as discussed below in Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources. The asset purchase agreement
provides for Gates, McDonald & Company to indemnify us for certain existing
liabilities and obligations of the business, subject to certain limitations. An
escrow account, to be maintained by a bank pursuant to the terms of an escrow
agreement, is also available for a fifteen-month period following the date of
the asset purchase agreement to satisfy the indemnification obligations of
Gates, McDonald & Company under the asset purchase agreement, subject to certain
limitations contained in the asset purchase agreement. For such purposes, $4.0


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million of the purchase price was paid into the escrow account. The
indemnification obligations of Gates, McDonald & Company with respect to tax and
certain employee benefit matters terminate upon the expiration of the applicable
statutes of limitation, authorization and title indemnification obligations
terminate after two years and all other indemnification obligations terminate 15
months from the date of the asset purchase agreement. The parties executed
several ancillary agreements in connection with the asset purchase agreement in
order to provide for the orderly transition of the GM Unemployment Compensation
Business and the employees of such business from Gates, McDonald & Company to
us. These ancillary documents included a transition services agreement, an
intellectual property license agreement, a lease services agreement and an
employee services agreement.

     THE FRICK COMPANY

Additionally, pursuant to an acquisition agreement dated as of March 27, 2002,
we purchased all of the 257,200 issued and outstanding shares of common stock of
James E. Frick, Inc., d/b/a The Frick Company, a Missouri corporation ("Frick"),
from the James E. Frick Profit Sharing and Employee Stock Ownership Plan (the
"ESOP"), and options to acquire 190,500 shares of Frick's common stock held by
the four principal optionholders. Frick provides unemployment cost control,
unemployment claims handling, tax planning and related services and employment
information verification services to a broad range of clients. Frick is now our
wholly owned subsidiary.

The total purchase price for the Frick acquisition was $79.7 million, including
transaction costs, which includes amounts allocable to offer to purchase
remaining options to purchase 29,000 shares held by key employee optionholders.
The purchase price was based on a value of $162.60 per share of common stock,
less in the case of an option, the exercise price and withholding and other
applicable taxes, plus up to $16.78 from the escrow, as described below. The
purchase price was paid in cash, a portion of which was financed, as discussed
below in Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources.

Subsequent to the closing of the acquisition, we purchased from the key employee
optionholders the remaining options to purchase 29,000 shares of Frick's common
stock subject to the same terms and conditions as, and for a price per share of
underlying common stock equal to that received by, the four principal
optionholders under the acquisition agreement. The terms of the acquisition
agreement required the sellers to enter into an escrow agreement with us. For
such purpose, $8.0 million of the purchase price was deposited with a bank to be
disbursed in accordance with the escrow agreement. Except for claims related to
willful misrepresentation, our only remedy for indemnified losses is against the
escrow. This escrow account was fully liquidated and paid to the sellers during
May 2003.

SERVICES AND PRODUCTS

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

     THE WORK NUMBER SERVICES

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

The Work Number. Mortgage lenders, pre-employment screeners, social service
agencies and other information verifiers often request organizations to verify
employment and income information that has been provided by employees or former
employees. For example, the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation,


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leading purchasers of residential mortgages in the United States, usually
require independent verification of employment and income data for the past two
calendar years and a current payroll period in connection with mortgages that
they will purchase. In 1995, we developed The Work Number as an outsourced
service that enables employers to reduce the costs and resources to respond to
verification requests, while empowering employees to control the release of
personal information to third parties.

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

The Work Number provides the following benefits to employers, employees and
third-party verifiers:

<Table>
<Caption>
              EMPLOYERS                         EMPLOYEES                      VERIFIERS
              ---------                         ---------                      ---------
<S>                                  <C>                           <C>
 o  reduces costs and resources      o  provides control over      o  decreases the opportunity
    otherwise spent responding to       third-party access to         for human error
    verification inquiries              personal compensation
                                        information

 o  eases the administrative         o  provides information       o  reduces likelihood of
    burden of human resources           without requiring the         fraud by the applicant by
    and payroll staff                   cooperation or knowledge      providing independent
                                        of co-workers                 evidence directly to the
                                                                      verifier

 o  lowers the risk of               o  expedites the              o  expedites the
    liability resulting from            verification process, so      verification process, so
    providing erroneous or              that transactions may         that transactions may
    unauthorized information            occur more quickly            occur more quickly
    to third-parties
</Table>

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

As of March 31, 2003, The Work Number database contained approximately 76
million employee records and had contracts to receive an additional 6 million
records. The 76 million records on-line represent approximately 25 million
current and 51 million former employees of approximately 1,000 large employers,
including federal, state and local government agencies. The Work Number database
is updated on an ongoing basis as employers electronically transmit data
directly to us each payroll period. Employers contract to provide this data for
specified periods, generally three years.

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

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

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

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

     o    automating the process for collecting correction requests.


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The majority of W-2 eXpress clients are billed based upon the number of unique
W-2s, generally pursuant to multi-year contracts. Revenue is recognized on a
straight-line basis from the time the service is available for use by TALX
clients through the end of the service period. Additionally, we have some
clients that are billed on a transactional basis. For these clients, we
recognize revenue on a monthly basis, as transactions occur.

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

Employers that send us electronic transmissions of their employees' pay stubs
and direct deposit data can reduce the amount of staff required to process
routine employee payroll requests as well as reduce the cost to distribute paper
pay advices.

We charge ePayroll clients on a per-employee per-month basis, plus an initial
set-up fee, generally pursuant to multi-year contracts. Revenue for the initial
setup fees is recognized on a straight-line basis over the initial contract
period, beginning with the date the client is live on our system. Per-employee
per-month fees are recognized as revenue in the months billed.

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

FasTime clients are billed for initial set up fees, monthly maintenance fees and
per transaction fees, generally pursuant to multi-year contracts. Revenue is
recognized on a straight-line basis from the time the service is available for
use by our clients through the end of the service period for setup and
maintenance fees and as services are performed for transaction-based fees.

     UNEMPLOYMENT COST MANAGEMENT

As a result of acquisitions we made during our 2002 fiscal year, we provide
unemployment cost management services under the name UC eXpress, through our
wholly-owned subsidiary TALX UCM Services, Inc. UC eXpress is a comprehensive
suite of services designed to reduce the cost of processing unemployment claims
by human resource departments and better manage the tax rate that employers are
assessed for unemployment taxes. UC eXpress utilizes document imaging and web
access to speed the processing of unemployment claims with the goal of
uncovering inaccuracies in claims that have been filed with state agencies by
separated employees. UC eXpress services are aimed at relieving human resource
departments of the administrative burden of managing unemployment claims.

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

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

     o    unemployment tax services

     o    employment tax research and recovery

     o    unemployment tax planning

     o    tax registrations

     o    employment tax consulting (withholding and unemployment)


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Clients who choose UC eXpress for tax services collaborate with a UC eXpress tax
analyst to monitor the clients' unemployment tax accounts, verify tax rates and
contribution reports, and identify voluntary contribution opportunities. Since
UC eXpress offers a choice of employer tax services, clients can take advantage
of the services that are most effective in reducing their employment tax costs.

We charge clients fees pursuant to multi-year contracts, generally billed
monthly or quarterly. Most contracts allow for additional charges if transaction
activity exceeds a certain threshold. Some unemployment tax planning contracts
call for contingent fees based upon actual tax savings realized. Revenues from
UC eXpress are recognized in the period that they are earned, evenly over the
life of the contract. Transaction fees are recorded as the services are
provided. Revenue which is contingent upon achieving certain performance
criteria is recognized when those criteria are met.

     HUMAN RESOURCES AND BENEFITS APPLICATION SERVICES

As discussed above, on April 22, 2003 we sold substantially all of the assets of
our human resources and benefits application services business, retaining
contracts to administer other human resources services for three clients, which
we expect will either terminate or be assigned prior to the end of fiscal 2004.

We formerly offered our clients outsourcing solutions designed to reduce the
resources and expenses associated with enrolling employees and administering
ongoing participation in employee benefits programs. Our services included
processing enrollments, producing personalized worksheets and confirmations, and
delivering completed enrollments to employers and insurance carriers. We
supported both open and ongoing enrollments year-round. Our applications enabled
employees to complete enrollments via the Internet, corporate portals and
corporate intranets. For those employees who preferred or needed to use the
telephone, options were available for processing enrollments via interactive
voice response.

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

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

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

     CUSTOMER PREMISES SYSTEMS AND RELATED MAINTENANCE AND SUPPORT

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

SALES AND MARKETING

We employ a direct sales force in conjunction with strategic marketing
alliances. We use our direct sales force and strategic alliances to develop
relationships with large employers, typically having over 3,500 employees. In
addition, we use our


                                       9
<PAGE>


strategic alliances to help us to identify potential clients for The Work Number
services among mid-sized employers, typically having between 1,000 and 3,500
employees. In our unemployment cost management business, our direct sales force
sells to employers typically having over 3,500 employees.

     DIRECT SALES FORCE

Our sales and marketing effort has representatives located in 40 U.S. cities.
Our sales and marketing effort relies on a team approach consisting of
approximately 136 professionals, including sales representatives, regional sales
managers, regional sales directors, regional sales vice presidents, product
managers, account managers, product consultants and marketing personnel. Our
business development representatives qualify companies as viable potential
clients and establish appointments for our regional sales managers. Our regional
sales managers are responsible for presenting our service offerings to
prospective clients and negotiating for the sale of our services. Our product
managers oversee product direction and provide sales assistance. Our account
managers service existing clients and product consultants provide technical
assistance to regional sales managers and prospective clients during the sales
process. Our marketing personnel support the sales force at all levels.

     STRATEGIC MARKETING ALLIANCES

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

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

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

These and other strategic marketing alliances such as Towers Perrin, Mellon HR
Services, Workscape, Inc., PeopleSoft, Inc., Convergys Corporation and Fringe
Benefits Management Company are generally reflected by non-exclusive contractual
arrangements that remain in effect for specified periods. Recently, we entered
into a business alliance with Money Network to provide our clients with a
payroll card that complements our electronic payroll services. The success of
these alliances will generally depend on the interest and commitment of these
companies to promote and coordinate product development and marketing efforts
with us, which is entirely at their discretion. Some of these companies maintain
similar relationships with some of our competitors and compete directly with us
in certain applications.

COMPETITION

We believe the principal competitive factors in our markets include:

     o    service and product quality, reliability and performance;

     o    functionality and ease of use;

     o    company reputation for integrity and confidentiality;

     o    company financial strength; and

     o    cost of the service or product.

Our primary competitors relating to The Work Number services and unemployment
cost management services are The Sheakley Group of Companies, Employers Unity
and Jon-Jay Associates, which are unemployment cost management companies that
also offer employment and income verification services. One of our partners,
Ceridian, offers services that are


                                       10
<PAGE>


similar to a few of The Work Number services. However, large employers are the
primary market segment for The Work Number services and we believe there is only
limited overlap in the marketplace with Ceridian's small to mid-size employer
focus. Additionally, we are aware of a number of employers who have established
similar systems for their internal use and believe additional competitors may
emerge.

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

TECHNOLOGY AND PRODUCT DEVELOPMENT

Each of our business lines is based on databases we construct and applications
we build to access and manipulate data. Our unemployment cost management
services are run on industry standard databases and applications. Historically,
our other services are run on industry standard databases and they use a
combination of Microsoft technologies and a proprietary integrated visual
development environment and software system known as TALXWare to build our
applications. TALXWare utilizes the Microsoft Windows NT and Windows 2000
operating systems and is designed to support the creation and management of
self-service solutions. We are currently in the process of migrating most of the
applications for The Work Number to the Microsoft.Net platform.

We also license and integrate complementary technologies into our products
including:

     o    speech recognition;

     o    text-to-speech;

     o    facsimile; and

     o    terminal emulation.

We license these technologies from third-party suppliers pursuant to
non-exclusive license or resale agreements or purchase under open market
arrangements and then integrate into our products. For example, we make
quarterly royalty payments under a license agreement for various interactive
voice response technologies in our application services businesses.

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

We incurred product development costs of $2.2 million, $2.0 million and $4.8
million in fiscal 2001, 2002 and 2003. As of March 31, 2003, our total product
development staff consisted of 44 full-time employees. We believe that
significant investments in product development are required to remain
competitive.

PROPRIETARY RIGHTS

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

We currently rely on a combination of trademark, trade secret and copyright laws
and restrictions on disclosure to establish and protect our intellectual
property. We have obtained a trademark registration for the name TALX and
service mark registrations for The Work Number For Everyone, The Work Number,
eChoice and FasTime with the United States Patent


                                       11
<PAGE>


and Trademark Office. TALXWare is our trademark, and UC eXpress, ePayroll,
FasCast and W-2 eXpress are our service marks.

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

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

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

CLIENTS

As of March 31, 2003, The Work Number database contained employee records from
approximately 1,000 clients, representing approximately 76 million present and
former employees. Additionally, as of that date, we had contracts with new
clients to provide 6 million records of present and former employees in backlog.
These clients typically employ over 5,000 employees. Our clientele includes
approximately two-thirds of the Fortune 500 companies and a number of federal,
state and local government agencies. Our clients operate in a wide variety of
industries, including financial services, telecommunications services, retail,
consumer products, health care, temporary services and government. As of March
31, 2003, our unemployment cost management business had over 6,500 clients of
various sizes and operated in a broad range of industries. No client accounted
for more than 10% of total revenues in any of the fiscal years 2001, 2002 or
2003.

EMPLOYEES

As of March 31, 2003, we employed approximately 1,160 full-time and 50 part-time
employees.

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

RISK FACTORS

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

     WE MAY BE SUBJECT TO ADDITIONAL LITIGATION OR REGULATORY PROCEEDINGS AS A
     RESULT OF OUR RECENT FINANCIAL STATEMENT RESTATEMENTS.

We are filing herewith restated financial statements and, on January 5, 2004,
announced that we are restating financial results for the fiscal years ended
March 31, 1999 through March 31, 2003 and for the first two quarters of fiscal
2004. In addition, we announced the resignation of Executive Vice President
Craig N. Cohen. Mr. Cohen had previously served as chief


                                       12
<PAGE>


financial officer from January 1994 to May 2003 and as vice president of
application services and software from May 1999 to May 2003.

In December 2002, we filed restated financial statements for each of the
quarters ended June 30, 2000 through June 30, 2002 and for the fiscal years
ended March 31, 2001 and 2002.

As of the date hereof, we are not aware of any litigation having been commenced
against us related to this new restatement. However, such litigation could be
commenced against us in the future and the plaintiffs who have filed lawsuits
against us previously could amend their complaints to include claims related to
this new restatement, and if so, we could not predict the outcome of any such
litigation at this time. Additionally, the lenders under our March 27, 2002 Loan
Agreement, which is described more fully below under Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources, could seek to exercise remedies which may be available to
them, such as acceleration of our loan, in the event they determine that, as a
result of the restatements or the SEC investigation discussed herein, we have
breached a covenant or representation and warranty in the Loan Agreement. If an
unfavorable result occurred in any such action, our business and financial
condition could be harmed.

As of the date hereof, the SEC is investigating our accounting for certain
items, including those which were the subject of the restatements. It is
possible that the SEC would begin a regulatory proceeding or enforcement action
against us. The commencement of any such proceeding or action, or the
application of any remedies, could harm our business and financial condition.

     OUR FUTURE GROWTH WILL DEPEND ON OUR ABILITY TO EFFECTIVELY INTEGRATE
     ACQUIRED COMPANIES AND CAPITALIZE ON ANTICIPATED CROSS-SELLING
     OPPORTUNITIES.

On March 27, 2002, we acquired Frick and the GM Unemployment Compensation
Business, in each case with the expectation that the transactions will result in
certain benefits, including, without limitation, cost savings, operating
efficiencies, cross-selling opportunities, revenue enhancements and other
synergies. Achieving the benefits of these transactions will depend in part upon
the integration of the business of Frick and the GM Unemployment Compensation
Business together with each other and The Work Number line of products and
services in an efficient manner, and there can be no assurance that this will
occur. Our goal is to complete the consolidation of the operations platform of
Frick and the GM Unemployment Compensation Business during fiscal 2004. The
consolidation of operations will continue to require substantial attention from
management. The diversion of management attention and any difficulties
encountered in the integration processes could have a material adverse effect on
the revenues, levels of expenses and operating results of the combined
companies. There can be no assurance that we complete the consolidation on a
timely basis or that the combined companies will realize all of the anticipated
benefits.

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

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

     OUR REVENUES FROM THE WORK NUMBER MAY FLUCTUATE IN RESPONSE TO CHANGES IN
     THE LEVEL OF RESIDENTIAL MORTGAGE ACTIVITY AND INTEREST RATES.

A significant portion of our revenues from The Work Number depends on
residential mortgage activity and interest rates. We


                                       13
<PAGE>


charge a fee for each request from mortgage lenders to verify employment and
income information. Therefore, a decrease in residential real estate mortgage
activity would reduce the number of transactions per record, which could
adversely affect our revenues. If residential mortgage activity declines,
whether due to increases in mortgage interest rates or otherwise, our revenues
and profitability could be harmed.

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

We believe that residential mortgage lenders are among the most active users of
The Work Number. They utilize our services to verify employment, income and
related information. The demand for this verification is driven in part by the
requirements of the Federal National Mortgage Association, which is also known
as Fannie Mae, and the Federal Home Loan Mortgage Corporation, which is also
known as Freddie Mac, leading purchasers of residential mortgages in the United
States. These agencies currently require specific information, including
independent verification of employment and income data for the past two calendar
years and a current payroll period in connection with mortgages they purchase
having a loan-to-value in excess of 75%. Accordingly, most lenders seek this
information from mortgage applicants. If Fannie Mae or Freddie Mac were to
further reduce the requirement for employment and income data or eliminate the
requirement for independent verification thereof, our revenues and profitability
would be significantly harmed.

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

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

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

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

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

We expect a portion of our growth to come from business acquisitions which we
consummated in fiscal 2002 or which we may consummate in the future. Such
acquisitions involve certain operational, legal and financial risks. Operational
risks include the possibility that an acquisition does not ultimately provide
the benefits originally anticipated by our management, while we continue to
incur operating expenses to provide the services formerly provided by the
acquired company. Legal risks involve contract and regulatory issues. For
example, some employers may not consent to the transfer of ownership of their
contracts by which the unemployment cost management services are provided, and
some states' unemployment compensation commissions may require changes to powers
of attorney by which the employer authorizes processing of claims. In the event
of any loss of employer-customers or our inability to appear before state
unemployment commissions, our business and results of operations may be
materially adversely affected. Financial risks involve the incurrence of
indebtedness as a result of the acquisition and the consequent need to service
that indebtedness. In addition, the issuance of stock in connection with


                                       14
<PAGE>


acquisitions dilutes the voting power and may dilute the economic interests of
existing shareholders. In carrying out our acquisition strategy, we attempt to
minimize the risk of unexpected liabilities and contingencies associated with
acquired businesses through planning, investigation and negotiation, but there
can be no assurance that we will be successful in doing so, nor can there be any
assurance that we will be successful in identifying attractive acquisition
candidates or completing additional acquisitions on favorable terms.

     IF THE FAIR CREDIT REPORTING ACT APPLIES TO THE WORK NUMBER SERVICES, OUR
     BUSINESS AND REVENUES WILL BE HARMED.

The Fair Credit Reporting Act, which we refer to as the FCRA, may apply to The
Work Number services, which would have an adverse impact on us. The FCRA applies
to "consumer reporting agencies" that engage in the practice of "assembling or
evaluating" consumer credit information. We believe The Work Number services do
not cause us to be a consumer reporting agency and that the FCRA does not apply
to The Work Number services. Unlike consumer reporting agencies, we receive all
of the information in The Work Number database regarding an employee from one
source - the employer. Further, when contracting for The Work Number services,
employers name us as their agent. The FCRA exempts from its reach communications
of a party solely related to experiences of the consumer and the person making
the report, such as an employer's report on its experience with its employee. We
believe that as an agent of employers, we are not a consumer reporting agency.
Further, some rulings on the application of FCRA have exempted businesses which,
like The Work Number services, simply pass along information gathered.

While we believe no controlling legal precedent exists, consumers or the Federal
Trade Commission, which enforces the FCRA, could take the position that the FCRA
does apply to us and seek to require us to comply with the FCRA and seek
penalties and damages. Among other provisions, the FCRA requires that a consumer
reporting agency determine that there be a "permissible purpose" before
disclosing a consumer report and furnish certain notices and information in
writing to consumers as consumer reports are used. If required, we would have
difficulty complying with these procedures; The Work Number services are
designed to operate via interactive voice response and the Internet, instead of
paper. Further, we might have to eliminate certain types of transactions,
resulting in loss of revenue. As a result, it is difficult to estimate the
ultimate impact on us in the event the FCRA were deemed to apply to The Work
Number services.

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

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

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

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

The difficult economic environment and consequent staff reductions by many
employers have resulted in an increase in unemployment compensation claims, and
employers have more readily recognized the value of our unemployment
compensation management and unemployment compensation tax planning services. As
economic conditions improve, and claims decrease, employers may question the
value of these services. If economic conditions do not improve, states with
significant budget challenges may take legislative or regulatory steps to reduce
unemployment benefits or to close tax-planning opportunities, which could reduce
the opportunities for service to employers. In such situations, our revenues
could be harmed.


                                       15
<PAGE>


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

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

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

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

For The Work Number, these factors include residential mortgage activity and
interest rate levels. Revenues generated from our W-2 eXpress service are
affected by seasonality, as revenues are primarily earned in our fourth fiscal
quarter. Other factors that can cause our operating results to fluctuate
include:

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

     o    market acceptance of new services;

     o    the hiring and training of additional staff;

     o    the length of the sales cycle; and

     o    general economic conditions.

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

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

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

To remain competitive, we must continually change and improve our services and
products in response to changes in operating systems, application software,
computer and telephony hardware, communications, database and networking
systems, programming tools and computer language technology. Additionally, we
must also introduce new business process outsourcing services and add
functionality to existing services in response to changing market conditions and
client demand.

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


                                       16
<PAGE>


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

     DISCONTINUANCE OF 900-NUMBER SERVICE COULD CAUSE LOSS OF REVENUE.

Many of our verifiers access The Work Number through the use of a 900-number
telephone service. Our 900-number service provider, AT&T, has filed with the
Federal Communications Commission to discontinue providing 900-number services
as of December 31, 2003. We have been contacting 900-number users of The Work
number to advise them of the potential discontinuance of the 900-number service,
and to convert them to accessing The Work Number through an alternate method of
access, such as via the Internet or 800-number. Since we began this campaign, we
have seen a significant decrease in 900-number usage as we have successfully
converted some of these users to one of our other methods of access. However,
there is a risk that some 900-number users will not convert to other means of
accessing The Work Number, and that we will lose revenue opportunities as a
result.

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

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

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

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

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

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

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

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


                                       17
<PAGE>


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

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

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

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

     o    be time-consuming;

     o    result in costly litigation;

     o    divert the efforts of our technical and management personnel;

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

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

     o    require us to pay substantial damage awards;

     o    damage our reputation; or

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

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

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

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

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


                                       18
<PAGE>


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

     WE FACE COMPETITION FROM A BROAD RANGE OF COMPANIES, INCLUDING LARGE AND
     WELL-ESTABLISHED FIRMS.

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

We consider the primary competitors to The Work Number and the unemployment cost
management business to be The Sheakley Group of Companies, Employers Unity and
Jon-Jay Associates which are unemployment cost management providers offering
employment and income verification services. Additionally, we are aware of a
number of employers who have established similar systems for their internal use
and believe additional competitors may emerge.

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

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

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

     o    provide for a classified board of directors;

     o    limit the right of shareholders to remove directors or change the size
          of the board of directors;

     o    limit the right of shareholders to fill vacancies on the board of
          directors;

     o    limit the right of shareholders to act by written consent and to call
          a special meeting of shareholders or propose other actions;

     o    provide that the bylaws may be amended only by the majority vote of
          the board of directors and shareholders will not be able to amend the
          bylaws without first amending the articles of incorporation;

     o    require a higher percentage of shareholders than would otherwise be
          required to amend, alter, change or repeal certain provisions of our
          articles of incorporation and bylaws;

     o    authorize the issuance of preferred stock with any voting rights,
          dividend rights, conversion privileges, redemption rights and
          liquidation rights, and other rights, preferences, privileges, powers,
          qualifications, limitations or restrictions as may be specified by our
          board of directors, without shareholder approval; and

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


                                       19
<PAGE>


These provisions may:


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

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

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


     OUR STOCK PRICE IS HIGHLY VOLATILE AND COULD DROP UNEXPECTEDLY.


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

     o    actual or anticipated variations in our operating results;

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

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

     o    changes in financial estimates by securities analysts;

     o    conditions and trends in outsourcing of unemployment cost management,
          human resources and payroll services; and

     o    general economic and market conditions.

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

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

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

In the past, following periods of volatility in the market price of a company's
securities, shareholders have often instituted class action securities
litigation against those companies. We are currently defending against such
claims. See "Item 3 - Legal Proceedings." Such litigation could result in
substantial costs and a diversion of management attention and resources, which
would significantly harm our profitability and reputation. These market
fluctuations, as well as general economic, political and market conditions such
as recessions or international currency fluctuations, may adversely affect the
market price of our common stock.



                                       20
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

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

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

Three additional purported class action lawsuits were filed in the same court,
against the same defendants and making substantially the same allegations: on
January 8, 2002 by Donald Metzger (Civil Action No. 4:02CV00031DJS); on January
9, 2002 by Anna Goodman (Civil Action No. 4:02CV00033DJS); and on January 30,
2002 by Al Hinton (Civil Action No. 4:02CV00168DJS) each of whom allegedly were
shareholders of the Company during the Putative Class Period. On February 15,
2002, these three lawsuits were consolidated with and into the Brody lawsuit
(Civil Action No. 4:01CV02014DJS) for all purposes. On or about April 14, 2002,
a Consolidated Complaint was filed. In October 2002, the case was transferred
from the Honorable Donald J. Stohr, United States District Judge, to the
Honorable Henry E. Audrey, United States District Judge.

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

On May 20, 2002, we and the Individual Defendants filed a motion to dismiss the
lawsuits, and the underwriter defendants filed a separate motion to dismiss. The
plaintiffs filed their opposition to the motions to dismiss on June 19, 2002.
The defendants' reply memoranda in support of the motions to dismiss were filed
on July 9, 2002. The District Court issued a Memorandum and Order on March 31,
2003 granting in part and denying in part the motion to dismiss. The Court's
Order dismissed the plaintiffs' claims under Section 10(b) and 20(a) of the
Exchange Act of 1934. The plaintiffs were granted leave to file an amended
Consolidated Complaint on or before May 30, 2003.

On May 29, 2003, plaintiffs in the several pending securities lawsuits filed an
Amended Consolidated Complaint ("Amended Complaint"). The Amended Complaint
amends the original Complaint by adding allegations pertaining to our December
2002 restatement of financials and expanding the Putative Class Period to
include all persons who purchased or otherwise acquired shares of our common
stock between April 25, 2001 and November 14, 2002 ("Amended Putative Class
Period"). The Amended Complaint alleges, among other things, that certain
statements in the registration statement and prospectus for our August 2001
secondary common stock offering, as well as other statements made by us and/or
the Individual Defendants during the Amended Putative Class Period, were
materially false and misleading because we capitalized instead of expensed $1.6
million related to a patent technology license agreement executed in March 2001;
expensed approximately $158,000 in bonus payments to executive officers in the
first quarter of fiscal 2002 instead of the fourth fiscal quarter of 2001;
improperly recognized revenue and expenses during the Amended Putative Class
Period; and miscalculated diluted earnings per share during the Amended Putative
Class Period. All of these matters were the subject of our 2002 restatement of
financials described in our Form 10-K/A for the year ended March 31, 2002. The
Amended Complaint also alleges, as did the original Complaint, that we did not
properly account for certain software and inventory, did not reflect certain
write-offs, and did not accurately disclose certain business prospects. The
Amended Complaint seeks, among other things, an award of unspecified money
damages, including interest, for all losses and injuries allegedly suffered by
the putative class members as a result of


                                       21
<PAGE>


the defendants' alleged conduct and unspecified equitable/injunctive relief as
the Court deems proper. On July 30, 2003, the defendants filed a motion to
dismiss the Amended Complaint. On September 26, 2003, plaintiffs filed their
opposition to the motion to dismiss. On October 29, 2003, defendants filed their
reply in support of the motion to dismiss. The Court has not yet ruled on the
motion.

We intend to defend vigorously against the plaintiffs' claims, although we are
currently engaged in settlement negotiations. However, due to the inherent
uncertainties of litigation, we cannot accurately predict the ultimate outcome
of the litigation. An unfavorable outcome could have a material adverse impact
on our business, financial condition and results of operations.

As previously disclosed, the Securities and Exchange Commission initially
commenced an investigation into our second fiscal quarter 2001 financial
results. We are cooperating fully with the investigation. On November 12, 2002,
the staff of the Central Regional Office of the Commission sent us a "Wells
letter" indicating the staff's plans to recommend to the Commission that it
institute an enforcement action against us and two of our executive officers,
William Canfield and Craig Cohen (who recently resigned) related to two matters,
and requesting that we and such executive officers submit responses to the
letter. The Wells letter states that the SEC staff will allege, among other
things, that our financial statements were misleading as a result of
capitalizing instead of expensing $1.6 million related to a patent technology
license agreement executed in March 2001 and expensing approximately $158,000 in
bonus payments to executive officers in the first quarter of fiscal 2002 instead
of the fourth fiscal quarter of 2001. Those items are among those that are the
subject of our prior restatement, as disclosed in our Form 10-K/A for the year
ended March 31, 2002. We and the individuals have filed separate responses to
the Wells letter. Since the time of the Wells submissions, the Commission is
continuing its investigation of our accounting for certain items, including
those which were the subject of the restatements discussed below. The remedies
the Commission may consider, if appropriate, include an injunction against us
and the individuals and an officer and director bar and disgorgement and civil
money penalties against us and/or the individuals. The application of any of the
foregoing remedies, or the commencement of any regulatory proceeding or
enforcement action, could harm our business and financial condition.

As described above, we have filed restated financial statements herewith and
have announced that we are restating financial statements for the fiscal years
ended March 31, 1999 through March 31, 2003 and for each of the first two
quarters of fiscal 2004. In December 2002, we filed restated financial
statements for each of the quarters ended June 30, 2000 through June 30, 2002
and for the fiscal years ended March 31, 2001 and 2002. As a result of this new
restatement, we could become subject to additional litigation or regulatory
proceedings or both. As of the date hereof, we are not aware of any litigation
having been commenced against us related to this new restatement. However, such
litigation could be commenced against us in the future and the plaintiffs who
have filed lawsuits against us previously could amend their complaints to
include claims related to this new restatement. We cannot predict the outcome of
any such litigation at this time. Additionally, the lenders under our March 27,
2002 Loan Agreement, which is described more fully below under Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources, could seek to exercise remedies which may be
available to them, such as acceleration of our loans, in the event they
determine that, as a result of the restatements discussed above or the SEC
investigation discussed below or otherwise, we have breached a covenant or
representation and warranty in the Loan Agreement. If an unfavorable result
occurred in any such action, our business and financial conditions could be
harmed.

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

Our directors and officers liability insurance carriers have received notice of
the consolidated litigation and SEC investigation.

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


                                       22
<PAGE>


                                     PART II

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

This section presents our selected historical financial data and certain
additional information. You should read carefully the financial statements
included in this Form 10-K/A, including the notes to the consolidated financial
statements, in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected data in this
section is not intended to replace the financial statements. As discussed
therein, on April 22, 2003, we sold substantially all of the assets of our human
resources and benefits application services business. See Note 22 of the notes
to consolidated financial statements. During July 2001 we acquired Ti3, Inc. and
during March 2002, we acquired Frick and the GM Unemployment Compensation
Business.

We derived the financial data presented below for, and as of the end of, each of
the years in the five-year period ended March 31, 2003 from our consolidated
financial statements. The consolidated financial statements as of March 31, 2003
and 2002 and for each of the years in the three-year period ended March 31, 2003
contained herein have been audited by KPMG LLP, independent auditors. The
financial information set forth below reflects the classification of the
database and document services businesses as discontinued operations which is
discussed in Note 15 to the consolidated financial statements below.

<Table>
<Caption>
                                                                                YEARS ENDED MARCH 31,
                                                         ---------------------------------------------------------------
                                                           1999(3)       2000         2001          2002         2003
                                                         ----------   ----------   ----------    ----------   ----------
                                                                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
                                                                      (RESTATED FOR ALL PERIODS PRESENTED)
<S>                                                      <C>          <C>          <C>           <C>          <C>
STATEMENT OF EARNINGS DATA:
Revenues:
   The Work Number services ..........................   $    9,109   $   12,328   $   19,149    $   27,184   $   35,934
   Unemployment cost management services .............           --           --           --           848       74,645
   Human resources and benefits application services .        5,126        7,993        8,565         9,757       10,188
   Customer premises systems .........................       10,359       10,827        6,524         3,480        1,708
   Maintenance and support ...........................        4,920        4,876        4,417         3,893        3,639
                                                         ----------   ----------   ----------    ----------   ----------
     Total revenues ..................................       29,514       36,024       38,655        45,162      126,114
                                                         ----------   ----------   ----------    ----------   ----------
Cost of revenues:
   The Work Number services ..........................        3,138        3,973        6,179         9,320       12,285
   Unemployment cost management services .............           --           --           --           450       38,337
   Human resources and benefits application services .        3,225        4,460        6,956         7,530        6,486
   Customer premises systems .........................        7,874        8,388        5,790         2,652          997
   Maintenance and support ...........................        1,545        1,367        1,275         1,028          734
   Inventory write-down ..............................           --           --           --           307           --
                                                         ----------   ----------   ----------    ----------   ----------
     Total cost of revenues ..........................       15,782       18,188       20,200        21,287       58,839
                                                         ----------   ----------   ----------    ----------   ----------
Gross margin .........................................       13,732       17,836       18,455        23,875       67,275
                                                         ----------   ----------   ----------    ----------   ----------
Operating expenses:
   Selling and marketing .............................        8,304        7,819        8,346         8,552       19,715
   General and administrative ........................        4,853        5,477        5,767         7,454       25,180
   Intellectual property settlement ..................           --           --        1,612            --           --
   Restructuring charges .............................          496           --           --         2,627           --
                                                         ----------   ----------   ----------    ----------   ----------
     Total operating expenses ........................       13,653       13,296       15,725        18,633       44,895
                                                         ----------   ----------   ----------    ----------   ----------
Operating income .....................................           79        4,540        2,730         5,242       22,380
Other income (expense), net ..........................            8           82          562         1,567       (1,358)
Income tax expense ...................................           34        1,811        1,346         2,512        8,053
                                                         ----------   ----------   ----------    ----------   ----------
Earnings from continuing operations before
   cumulative effect of change in accounting principle           53        2,811        1,946         4,297       12,969
Discontinued operations:
   Gain on operations and disposal of discontinued
     operations, net .................................           --          117           36            --           --
                                                         ----------   ----------   ----------    ----------   ----------
Earnings before cumulative effect of change
   in accounting principle ...........................           53        2,928        1,982         4,297       12,969
Cumulative effect of change in accounting principle,
   net of income taxes ...............................           --           --       (1,655)           --           --
                                                         ----------   ----------   ----------    ----------   ----------
     Net earnings ....................................   $       53   $    2,928   $      327    $    4,297   $   12,969
                                                         ==========   ==========   ==========    ==========   ==========
</Table>


                                       23
<PAGE>

<Table>
<Caption>
                                                                                     YEARS ENDED MARCH 31,
                                                              ---------------------------------------------------------------------
                                                                1999(3)         2000          2001            2002         2003
                                                              -----------   ------------   -----------    -----------   -----------
                                                                         (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
                                                                               (RESTATED FOR ALL PERIODS PRESENTED)
<S>                                                           <C>           <C>            <C>            <C>           <C>

Net earnings per common share(1):
   Basic:
     Continuing operations ................................   $      0.01   $       0.28   $      0.19    $      0.34   $      0.94
     Discontinued operations, net .........................            --           0.01            --             --            --
     Cumulative effect of change in accounting principle ..            --             --         (0.16)            --            --
                                                              -----------   ------------   -----------    -----------   -----------
       Net earnings .......................................   $      0.01   $       0.29   $      0.03    $      0.34   $      0.94
                                                              ===========   ============   ===========    ===========   ===========
   Diluted:
     Continuing operations ................................   $      0.01   $       0.27   $      0.18    $      0.32   $      0.91
     Discontinued operations, net .........................            --           0.01            --             --            --
     Cumulative effect of change in accounting principle ..            --             --         (0.15)            --            --
                                                              -----------   ------------   -----------    -----------   -----------
       Net earnings .......................................   $      0.01   $       0.28   $      0.03    $      0.32   $      0.91
                                                              ===========   ============   ===========    ===========   ===========

Cash dividends declared per common share ..................   $        --   $         --   $      0.08    $      0.12   $      0.13
                                                              ===========   ============   ===========    ===========   ===========

Weighted average number of common shares outstanding:
   Basic(1) ...............................................     9,803,440     10,091,349    10,255,928     12,622,689    13,742,581
   Diluted(1) .............................................    10,014,152     10,527,236    11,068,583     13,481,683    14,208,565
</Table>

<Table>
<Caption>
                                                                                            MARCH 31,
                                                               -------------------------------------------------------------------
                                                                 1999(3)        2000          2001           2002          2003
                                                               -----------   -----------   -----------   -----------   -----------
                                                                                          (IN THOUSANDS)
                                                                              (RESTATED FOR ALL PERIODS PRESENTED)
<S>                                                            <C>           <C>           <C>           <C>           <C>

BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments ..........   $       267   $     6,291   $     9,725   $    21,431   $     9,409
Working capital ............................................         7,966        14,854        13,677         2,862         1,616
Net assets of business held for sale .......................           859            --            --            --            --
Total assets ...............................................        24,316        30,040        33,620       179,819       172,795
Long-term debt plus capital leases .........................            --            --            --        30,308        22,152
Shareholders' equity .......................................        19,745        23,004        21,823       115,991       123,183

ADDITIONAL INFORMATION:
Employment records in The Work Number database .............        18,285        30,298        43,005        60,700        76,400
Employment records under contract(2) .......................        25,831        36,089        52,000        70,200        82,000
</Table>

----------

(1)  Basic and diluted earnings per share have been computed using the number of
     shares of common stock and common stock options and warrants outstanding.
     The weighted average number of shares was based on common stock outstanding
     for basic earnings per share and common stock outstanding and common stock
     options and warrants for diluted earnings per share in periods when such
     common stock options and warrants are not antidilutive.

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

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


                                       24
<PAGE>


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

You should read this discussion together with the financial statements and other
financial information included in this Form 10-K/A for the year ended March 31,
2003. However, as described below in Note 2 to the Audited Consolidated
Financial Statements, we have decided to restate certain of our previously
issued financial statements. As a result, certain information in the
accompanying financial statements and notes was restated from the original
presentation in our Annual Report on Form 10-K for the fiscal year ended March
31, 2003.

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

OVERVIEW

Our services and products consist of The Work Number services, unemployment cost
management services, human resources and benefits application services, the sale
of customer premises systems, and maintenance and support services related to
those systems. The technologies we use include both interactive web and
interactive voice response.

The Work Number services include:

     o    The Work Number, our leading employment and income verification
          service;

     o    W-2 eXpress, our suite of W-2 payroll services;

     o    ePayroll, our suite of payroll self-service applications; and

     o    FasTime, our automated timesheet collection and approval services.

We derive substantially all our revenues from The Work Number based on fees
charged to mortgage lenders, pre-employment screeners and other verifiers for
verification of employment history, including the past three years of income
history of participating employers' current and former employees. We derive
additional revenues from ongoing maintenance fees charged to employers and
one-time conversion fees from new employers. Our revenues from W-2 eXpress and
ePayroll represent fees charged to clients on a monthly fee basis which is based
upon the number of employees. We first introduced W-2 eXpress in fiscal 2000,
with no meaningful revenues generated until the fourth quarter of fiscal 2001.
Our first clients began using ePayroll in our second fiscal quarter of 2002. Our
revenues from FasTime include fees from establishment of the service and fees
based on the number of transactions. Costs of revenues related to The Work
Number services consist of telecommunications services, personnel, equipment and
capitalized software amortization.

As a result of our 2002 acquisitions, we provide unemployment cost management
services under the name UC eXpress. These services include unemployment
insurance claims processing and unemployment tax planning and management to a
broad range of employers. We charge clients fees on an annual contractual basis,
generally billed monthly or quarterly, pursuant to multi-year contracts. Certain
contracts allow for additional charges if transaction activity exceeds a
specified threshold. Certain unemployment tax planning contracts call for
contingent fees based upon actual tax savings realized. Costs of revenues
related to UC eXpress consist primarily of personnel and equipment.

As discussed below, we recently sold our benefits enrollment business, which is
the primary service included within our human resources and benefits application
services business. Our human resources and benefits application services
business consisted principally of benefits enrollment services that offered
employers and employees a broad range of automated features. In 2000, we began
offering eChoice, our advanced benefits enrollment service that provided these
features in a standardized package. We maintained a system on our premises that
contained a customer database and received incoming requests for access to the
information. Revenues from human resources and benefits application services
include fees derived from establishment of the service and fees based on the
number of employees or transactions. Costs of revenues related to our human
resources and benefits application services consist of personnel, equipment,
telecommunications services and capitalized software amortization.

Our customer premises systems business provides interactive web, interactive
voice response and computer telephony integration software and services that
enable an organization's users to access, input and update information without
human assistance. We recognize revenue from hardware sales and software licenses
upon shipment. Revenues from implementation services relating to our customer
premises systems are recognized by the contract method of accounting using
percentage of


                                       25
<PAGE>


completion for larger, more complex systems and the completed contract method
for smaller systems. With the market's acceptance of our application services
delivery method, in fiscal 1998 we began to de-emphasize sales of customer
premises systems and in fiscal 2000 discontinued sales to new clients. However,
we continue to provide maintenance and support services with respect to
installed customer premises systems. Revenues from maintenance and support are
recognized ratably over the term of the maintenance agreement. Costs of revenues
related to our customer premises systems consist of personnel, capitalized
software amortization and hardware costs of goods sold. Costs of revenues
related to maintenance and support consist primarily of personnel costs.

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

The transaction is structured as a transfer of assets under contract for sale
with no initial down-payment and the purchase price to be paid over a three-year
period, based on a client retention formula. Proceeds are anticipated to be
between $2 million and $6 million, with no minimum guaranteed amount. We will
record cash received under the asset purchase agreement first to reduce the
recorded value of net assets sold under the agreement and then to reflect gain
on the sale of the business. In connection with the sale, we will provide
Workscape, Inc., for agreed upon fees, with various transition services related
to the operation of the benefits enrollment business until December 31, 2005, or
until certain transferred client contracts have expired or been terminated.
Workscape, Inc. has hired all of the employees related to the benefits
enrollment business.

RESTATEMENTS OF FINANCIAL STATEMENTS

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

Additionally, we corrected three errors related to bill and hold arrangements on
hardware and software transactions arising out of the customer premises systems
line of business during the fiscal years ended March 31, 2000 and 2001. These
adjustments resulted in movements of revenue and related costs between quarters
for each year. There was no impact to the annual financial results of either
fiscal year. The impact of these corrections resulted in revenues and related
costs during fiscal 2000 and 2001 being recognized in different quarters than
originally reported. However, such adjustments had no impact on the fiscal 2000
or 2001 results.

The restatement had practically no cumulative impact on our financial results or
our financial condition. It had the effect of reducing revenues by $955,000 for
fiscal years 1999, 2000 and 2001 and increasing revenues by a similar amount in
fiscal years 2002 and 2003. The impact on the years presented, 2001, 2002 and
2003, was a reduction of revenue in 2001 of $358,000 and an increase of revenues
in 2002 and 2003 of $610,000 and $384,000, respectively. In addition to the
revenue adjustments, the related commissions associated with the revenues were
adjusted accordingly and the income taxes provisions were amended to reflect the
impact of these restatements. The annual impact to diluted earnings per share
was a reduction to fiscal 1999 of $0.03, an increase to fiscal 2000 of $0.01, a
reduction to fiscal 2001 of $0.02 and increases to fiscal 2002 and 2003 of $0.03
and $0.01, respectively.

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


                                       26
<PAGE>


may have resulted in adjustments to increase revenue in 2000 by decreasing
revenues in prior periods, based on the review performed, management believes
that further adjustments were not supportable.

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

2002 RESTATEMENT

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

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

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

REVENUE RECOGNITION: Revenues from The Work Number are recognized in the period
that they are earned, from transaction fees charged to users for verifications
of employment history and income. Additionally, revenue for set up fees, monthly
maintenance and employer conversion fees are recognized on a straight-line basis
from the time the service is available to be used by our clients through the end
of the service period.

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

Human resources and benefits application services revenue is recognized on a
straight-line basis from the time the service is available to be used by our
clients through the end of the service period. Because of seasonal variations of
our service


                                       27
<PAGE>


offerings, a greater number of clients have services available to them from
October through December than during any other period during the year. As a
result, revenues in our third fiscal quarter are substantially higher than in
the other three quarters of the year. In recent fiscal years, approximately
fifty percent of annual revenues in this revenue line have been recorded in the
third fiscal quarter.

We recognize hardware and software license revenue upon shipment based on
vendor-specific objective evidence. Revenues for professional services of
customer premises systems are generally recognized as the services are
performed. If there is a significant uncertainty about the project completion or
receipt of payment for the professional services, revenue is deferred until the
uncertainty is sufficiently resolved. We estimate the percentage of completion
on contracts with fixed fees on a monthly basis utilizing hours incurred to date
as a percentage of total estimated hours to complete the project. If we do not
have a sufficient basis to measure progress towards completion, revenue is
recognized when the project is complete. Revenue from maintenance contracts is
deferred and recognized ratably over the maintenance period.

Deferred revenue represents the unearned portion of The Work Number setup fees,
as well as, Human Resources and Benefits Application Services, UC eXpress and
maintenance fees.

Commissions are paid based upon successful efforts and are deferred and expensed
over the related service period.

INTANGIBLE ASSET VALUATIONS: In connection with the acquisitions of Ti3, Inc.;
the unemployment cost management services business of Gates, McDonald & Company,
a subsidiary of Nationwide Mutual Insurance Company; and James E. Frick, Inc.,
d/b/a The Frick Company, TALX acquired certain identifiable intangible assets.
These assets were recorded in accordance with the Financial Accounting Standards
Board SFAS No. 141, "Business Combinations".

Effective April 1, 2002, we have adopted the Financial Accounting Standards
Board SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142
addresses the initial recognition and measurement of intangible assets acquired
outside of a business combination and the accounting for goodwill and other
intangible assets subsequent to their acquisition. SFAS No. 142 provides that
intangible assets with finite useful lives be amortized and that goodwill and
intangible assets with indefinite lives will not be amortized, but will rather
be tested at least annually for impairment. Under the provisions of SFAS No.
142, any impairment loss identified upon adoption of this standard will be
recognized as a cumulative effect of a change in accounting principle. Goodwill
and intangible assets determined to have an indefinite useful life that are
acquired in purchase business combinations will not be amortized, but instead
tested for impairment on an annual basis. Through the use of an independent
business appraiser, we reviewed our goodwill and intangible assets as of
December 31, 2002 and determined that no impairment existed.

CAPITALIZED SOFTWARE: Software development costs are expensed as incurred until
technological feasibility is achieved, after which they are capitalized on a
product-by-product basis. Amortization of capitalized software development costs
is computed using the straight-line method over the remaining estimated economic
life of the product, generally three years. Amortization of capitalized software
development costs starts when the product is available for general release to
clients. All capitalized software assets are reviewed as of each balance sheet
date for impairment. Upon determination of any impairment, the asset is
written-down to the appropriate value in the period that the impairment is
determined.

INCOME TAXES: We record income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. In assessing the
realization of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment. Based upon the level of historical taxable
income and projections for future taxable income over the periods in which the
deferred tax assets are deductible, management believes it is more likely than
not we will realize the benefits of these deductible differences. If management
were to determine that we would not be able to realize all or part of our net
deferred tax asset in the future, an adjustment to the deferred tax asset would
be charged against earnings in the period such determination was made.

The above listing is not intended to be a comprehensive list of all of our
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by accounting principles generally accepted
in the United States of


                                       28
<PAGE>


America, with no need for management's judgment in their application. There are
also areas in which management's judgment in selecting any available alternative
would not produce a materially different result. See our consolidated financial
statements and notes thereto contained in this Annual Report on Form 10-K/A
which contains accounting policies and other disclosures required by accounting
principles generally accepted in the United States of America.

RECENT ACCOUNTING PRONOUNCEMENTS

In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 145 ("SFAS No. 145"),
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections." Among other provisions, SFAS No. 145
rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt."
Accordingly, gains or losses from extinguishment of debt shall not be reported
as extraordinary items unless the extinguishment qualifies as an extraordinary
item under the criteria of APB No. 30. Gains or losses from extinguishment of
debt that do not meet the criteria of APB No. 30 should be reclassified to
income from continuing operations in all prior periods presented. SFAS No. 145
is effective for fiscal years beginning after May 15, 2002. We will adopt SFAS
No. 145 beginning in our fiscal year 2003. We do not expect the adoption of SFAS
No. 145 to have a material impact on our financial position or results of
operations.

In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146 ("SFAS No. 146"), "Accounting for Costs Associated with Exit or Disposal
Activities." SFAS No. 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities. This statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Previous guidance, provided under EITF No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including certain costs incurred in a restructuring),"
required an exit cost liability be recognized at the date of an entity's
commitment to an exit plan. The provisions of this statement are effective for
exit or disposal activities that are initiated by a company after December 31,
2002. We will adopt SFAS No. 146 in the next fiscal year in conjunction with the
disposal of our benefits enrollment business. We do not expect this adoption to
have a material impact on our financial position or results of operations.

In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 ("SFAS No. 148"), "Accounting for Stock-Based Compensation - Transition
and Disclosure - an amendment to FASB Statement No. 123, Accounting for
Stock-Based Compensation." SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of Statement 123 to require more prominent and more
frequent disclosures in financial statements about the effects of stock-based
compensation. The transition guidance and annual disclosure provisions of SFAS
No. 148 are effective for fiscal years ending after December 15, 2002. The
interim disclosure provisions are effective for financial reports containing
financial statements for interim periods beginning after December 15, 2002. We
have adopted the disclosure requirements of SFAS No. 148, with no impact to our
financial position or results of operations.

In November 2002, the FASB issued Interpretation No. 45 ("FIN No. 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 expands on the
accounting guidance of Statements No. 5, 57, and 107 and incorporates without
change the provisions of FASB Interpretation No. 34, which is being superseded.
FIN No. 45 will affect leasing transactions involving residual guarantees,
vendor and manufacturer guarantees, and tax and environmental indemnities. All
such guarantees will need to be disclosed in the notes to the financial
statements starting with the period ending after December 15, 2002. For
guarantees issued after December 31, 2002, the fair value of the obligation must
be reported on the balance sheet. Existing guarantees will be grandfathered and
will not be recognized on the balance sheet. We do not expect the adoption of
FIN No. 45 to have a material impact on our financial position or results of
operations.

In January 2003, the FASB issued Interpretation No. 46 ("FIN No. 46"),
"Consolidation of Variable Interest Entities." FIN No. 46 expands upon and
strengthens existing accounting guidance that addresses when a company should
include in its financial statements the assets, liabilities and activities of
another entity. A variable interest entity is a corporation, partnership, trust,
or any other legal structure used for business purposes that either (a) does not
have equity investors with voting rights or (b) has equity investors that do not
provide sufficient financial resources for the entity to support its activities.
FIN No. 46 requires a variable interest entity to be consolidated by a company
if that company is subject to a majority of the risk of loss from the variable
interest entity's activities or is entitled to receive a majority of the
entity's residual returns or both. The consolidation requirements of FIN No. 46
apply immediately to variable interest entities created after January 31, 2003.
The consolidation requirements apply to older entities in the first fiscal year
or interim period beginning after June 15,


                                       29
<PAGE>


2003. Disclosure requirements apply to any financial statements issued after
January 31, 2003. We have considered the provisions of FIN No. 46 and believe it
will not be necessary to include in our financial statements any assets,
liabilities, or activities of the entities holding our corporate headquarters
leases. We do not expect the adoption of FIN No. 46 to have a material impact on
our financial position or results of operations.

RESULTS OF OPERATIONS

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





                                       30
<PAGE>


<Table>
<Caption>
                                                                      YEARS ENDED MARCH 31,
                                                            -------------------------------------------
                                                                2001           2002            2003
                                                            ------------   ------------    ------------
                                                                          (IN THOUSANDS)
                                                               (RESTATED FOR ALL PERIODS PRESENTED)
<S>                                                         <C>            <C>             <C>
Revenues:
   The Work Number services .............................   $     19,149   $     27,184    $     35,934
   Unemployment cost management services ................             --            848          74,645
   Human resources and benefits application services ....          8,565          9,757          10,188
   Customer premises systems ............................          6,524          3,480           1,708
   Maintenance and support ..............................          4,417          3,893           3,639
                                                            ------------   ------------    ------------
     Total revenues .....................................   $     38,655   $     45,162    $    126,114
                                                            ============   ============    ============
Gross margin:
   The Work Number services .............................   $     12,970   $     17,864    $     23,649
   Unemployment cost management services ................             --            398          36,308
   Human resources and benefits application services ....          1,609          2,227           3,702
   Customer premises systems ............................            734            828             711
   Maintenance and support ..............................          3,142          2,865           2,905
   Inventory write-down .................................             --           (307)             --
                                                            ------------   ------------    ------------
     Total gross margin .................................   $     18,455   $     23,875    $     67,275
                                                            ============   ============    ============
</Table>

<Table>
<Caption>
                                                                       YEARS ENDED MARCH 31,
                                                            -------------------------------------------
                                                                2001           2002            2003
                                                            ------------   ------------    ------------
                                                               (RESTATED FOR ALL PERIODS PRESENTED)
<S>                                                         <C>            <C>             <C>
Gross margin percentage by revenue category:
   The Work Number services .............................           67.7%           65.7%           65.8%
   Unemployment cost management services ................             --            46.9            48.6
   Human resources and benefits application services ....           18.8            22.8            36.3
   Customer premises systems ............................           11.3            23.8            41.6
   Maintenance and support ..............................           71.1            73.6            79.8
</Table>

<Table>
<Caption>
                                                                        YEARS ENDED MARCH 31,
                                                            ---------------------------------------------
                                                                2001             2002            2003
                                                            ------------     ------------    ------------
PERCENTAGE OF TOTAL REVENUES                                    (RESTATED FOR ALL PERIODS PRESENTED)
<S>                                                         <C>            <C>             <C>
Revenues:
   The Work Number services .............................           49.5%            60.2%           28.5%
   Unemployment cost management services ................             --              1.9            59.2
   Human resources and benefits application services ....           22.2             21.6             8.1
   Customer premises systems ............................           16.9              7.7             1.3
   Maintenance and support ..............................           11.4              8.6             2.9
                                                            ------------     ------------    ------------
     Total revenues .....................................          100.0            100.0           100.0
Cost of revenues ........................................           52.3             47.1            46.7
                                                            ------------     ------------    ------------
Gross margin ............................................           47.7             52.9            53.3
                                                            ------------     ------------    ------------
Operating expenses:
   Selling and marketing ................................           21.6             18.9            15.6
   General and administrative ...........................           14.9             16.5            20.0
   Intellectual property settlement .....................            4.2               --              --
   Restructuring charge .................................             --              5.9              --
                                                            ------------     ------------    ------------
     Total operating expenses ...........................           40.7             41.3            35.6
                                                            ------------     ------------    ------------
Operating income ........................................            7.0             11.6            17.7
Other income, net .......................................            1.5              3.5            (1.0)
                                                            ------------     ------------    ------------
Earnings from continuing operations before income tax
   expense and cumulative effect of change in
   accounting principle .................................            8.5             15.1            16.7
Income tax expense ......................................            3.5              5.6             6.4
                                                            ------------     ------------    ------------
Earnings from continuing operations before cumulative ...            5.0              9.5            10.3
   effect of change in accounting principle
Discontinued operations, net ............................            0.1               --              --
Cumulative effect of change in accounting principle .....           (4.3)              --              --
                                                            ------------     ------------    ------------
Net earnings ............................................            0.8%             9.5%           10.3%
                                                            ============     ============    ============
</Table>


                                       31
<PAGE>


FISCAL YEAR ENDED MARCH 31, 2003 COMPARED TO FISCAL YEAR ENDED MARCH 31, 2002

Revenues. Total revenues increased 179.2% to $126.1 million in fiscal 2003 from
$45.2 million in fiscal 2002.

Revenues from The Work Number services increased 32.2% to $35.9 million in
fiscal 2003 from $27.2 million in fiscal 2002, due to an increase in the number
of employment records in the database and related transaction volume, new
clients gained from continued marketing to employers and verifiers and the
inclusion of revenues from our acquisition of Ti3 beginning in the second
quarter of fiscal 2002.

Revenues from unemployment cost management services increased to $74.6 million
in fiscal 2003 from $848,000 in fiscal 2002. Fiscal 2002 included only four days
of revenue from our March 27, 2002 acquisitions of The Frick Company and the GM
Unemployment Compensation Business, while fiscal 2003 includes a full year.

Revenues from human resources and benefits application services increased 4.4%
to $10.2 million in fiscal 2003 from $9.8 million in fiscal 2002, due to the
addition of client services going live, offset by client attrition not being
replaced by new sales. This softening of new sales is primarily due to the poor
economic conditions which began affecting our sales performance in the second
quarter of fiscal 2002.

Revenues from customer premises systems decreased 50.9% to $1.7 million in
fiscal 2003 from $3.5 million in fiscal 2002. This decrease is due to a shift in
our focus away from selling in-house systems.

Revenues from maintenance and support related to the customer premises systems
decreased 6.5% to $3.6 million in fiscal 2003 from $3.9 million in fiscal 2002,
reflecting the support provided to a shrinking installed base as we shifted our
strategy toward providing similar solutions through application services.

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

Gross Margin. Gross margin increased 181.8% to $67.3 million in fiscal 2003 from
$23.9 million in fiscal 2002. As a percentage of total revenues, gross margin
increased to 53.3% in fiscal 2003 from 52.9% in fiscal 2002.

The Work Number services gross margin increased 32.4% to $23.6 million, or 65.8%
of corresponding revenue, in fiscal 2003 from $17.9 million, or 65.7% of
corresponding revenue, in fiscal 2002. The increase in gross margin and gross
margin percentage was due primarily to revenue increases and improved leveraging
of our operational infrastructure, partially offset by an increase in personnel
and infrastructure costs to accommodate possible future electronic payroll
services clients.

Unemployment cost management services gross margin increased to $36.3 million,
or 48.6% of corresponding revenue, in fiscal 2003 from $398,000, or 46.9% of
corresponding revenue, in fiscal 2002. The increase in gross margin is due to
the inclusion of a full year in fiscal 2003 versus four days in fiscal 2002. The
increase in gross margin percentage is due to improved leveraging of our
operational infrastructure, primarily resulting from our efforts to consolidate
the operations of the acquired businesses. We expect to realize improvements in
the gross margin percentage throughout the next fiscal year as we continue to
consolidate the operations of the acquired businesses.

Human resources and benefits application services gross margin increased 66.2%
to $3.7 million, or 36.3% of corresponding revenue, in fiscal 2003 from $2.2
million, or 22.8% of corresponding revenue, in fiscal 2002. This increase in
gross margin and gross margin percentage is principally due to improved
leveraging of personnel costs within our delivery organization. Because of the
seasonal variations in our service offerings, gross margins in this revenue line
are lower in the first, second and fourth fiscal quarters and are substantially
higher in our third fiscal quarter each year. This is because fixed
infrastructure and personnel costs are incurred relatively evenly throughout the
year, while revenues are seasonally higher in the third fiscal quarter due to
proportionally increased benefits enrollment activity.

Customer premises systems gross margin decreased 14.1% to $711,000, or 41.6% of
corresponding revenue, in fiscal 2003 from $828,000, or 23.8% of corresponding
revenue, in fiscal 2002. The decrease in gross margin is due to the lower level
of revenues. The increase in gross margin percentage is due to a lower level of
fixed costs required as we have discontinued new sales within this business
unit, including the elimination of amortization of capitalized software that
remained during the first quarter of fiscal 2002.


                                       32
<PAGE>


Maintenance and support gross margin remained consistent at $2.9 million in
fiscal 2003 and 2002. Gross margin as a percentage of corresponding revenue
increased to 79.8% in fiscal 2003, from 73.6% in fiscal 2002. The increase in
gross margin percentage is due to improved leveraging of personnel costs, offset
by lower revenues caused by a shrinking client base.

Selling and Marketing Expenses. Selling and marketing expenses increased 130.5%
to $19.7 million in fiscal 2003 from $8.6 million in fiscal 2002. This increase
in expense is primarily due to the addition of our recently acquired
unemployment cost management services businesses. As a percentage of revenues,
such expenses decreased to 15.6% in fiscal 2003 from 18.9% in fiscal 2002. The
decrease in percentage of revenues is due to the greater rate of increase in our
revenues as compared to personnel and related costs.

General and Administrative Expenses. General and administrative expenses
increased 237.8% to $25.2 million in fiscal 2003 from $7.5 million in fiscal
2002. This increase is primarily due to the addition of our recently acquired
unemployment cost management services businesses. Additionally, in the last half
of fiscal 2003 we incurred approximately $750,000 in incremental legal and
accounting fees related to our ongoing SEC investigation and related financial
statement restatements. This amount is net of reimbursements received under our
insurance policy. As a percentage of revenues, such expenses increased to 20.0%
in fiscal 2003 from 16.5% in fiscal 2002. This increase is due primarily to the
newly acquired unemployment cost management services businesses historically
having higher general and administrative expenses as a percentage of revenue
compared to our traditional businesses. We expect to see this percentage improve
in future quarters as we continue to consolidate the cost structure of the
acquired businesses.

Restructuring and Other Charge. During the quarter ended September 30, 2001, we
reorganized our sales and delivery operations and refocused our product lines
related to our human resources and benefit applications and customer premises
systems businesses. In conjunction with the reorganization, we reduced our
workforce by approximately 17%, closed certain regional sales offices and
wrote-down hardware inventory and capitalized software. As a result of these
actions, we incurred restructuring charges of $1.9 million associated with the
write-off of capitalized software, $349,000 related to employee severance costs
and $337,000 related to office closing costs. These items are reflected in the
line item "restructuring charge" on the statement of earnings and $240,000 and
$139,000 is reflected in accrued expenses on the balance sheet as of March 31,
2002 and 2003, respectively. Additionally, we incurred a charge of $307,000
related to the write-down of certain hardware inventory items. This charge is
reflected as a separate component of cost of goods sold on the statement of
earnings for the year ended March 31, 2002.

Other Income (Expense), Net. Other income (expense), net decreased to $1.4
million of other expense in fiscal 2003 from $1.6 million of other income in
fiscal 2002, due to a shift from a net investing position to a net borrowing
position. This is due to borrowings and the reduction of cash related to our
acquisitions of the unemployment cost management services businesses.

Income Tax Expense. Our effective income tax rate was 38.3% in fiscal 2003 and
36.9% in fiscal 2002. The increase is primarily due to the inclusion of
tax-exempt interest earned on state and federal tax free municipal securities
during fiscal 2002, and to a lesser extent, a higher effective state income tax
rate in fiscal 2003 compared to fiscal 2002.

FISCAL YEAR ENDED MARCH 31, 2002 COMPARED TO FISCAL YEAR ENDED MARCH 31, 2001

Revenues. Total revenues increased 16.8% to $45.2 million in fiscal 2002 from
$38.7 million in fiscal 2001.

Revenues from The Work Number services increased 42.0% to $27.2 million in
fiscal 2002 from $19.1 million in fiscal 2001, due to an increase in the number
of employment records in the database and related transaction volume, new
clients gained from continued marketing to employers and verifiers, the
inclusion of revenues from our acquisition of Ti3 in the second quarter of
fiscal 2002 and, to a lesser extent, an increase in pricing during the year.

Revenues from unemployment cost management services for fiscal 2002 includes
four days of revenue from our March 27, 2002 acquisitions of The Frick Company
and the GM Unemployment Compensation Business.


                                       33
<PAGE>


Revenues from human resources and benefits application services increased 13.9%
to $9.8 million in fiscal 2002 from $8.6 million in fiscal 2001, due to the
addition of client services going live, offset by client attrition. This growth
was less than planned, due to the poor economic conditions experienced during
the second and third quarters of fiscal 2002.

Revenues from customer premises systems decreased 46.7% to $3.5 million in
fiscal 2002 from $6.5 million in fiscal 2001. This decrease is due to a shift in
our focus away from selling in-house systems to our human resources and benefits
application services.

Revenues from maintenance and support related to the customer premises systems
decreased 11.9% to $3.9 million in fiscal 2002 from $4.4 million in fiscal 2001,
reflecting the support provided to a shrinking installed base as we shifted our
strategy toward providing similar solutions through application services.

Gross Margin. Gross margin increased 29.4% to $23.9 million in fiscal 2002 from
$18.5 million in fiscal 2001. As a percentage of total revenues, gross margin
increased to 52.9% in fiscal 2002 from 47.7% in fiscal 2001.

The Work Number services gross margin increased 37.7% to $17.9 million in fiscal
2002 from $13.0 million in fiscal 2001, but as a percentage of corresponding
revenue, decreased to 65.7% in fiscal 2002 from 67.7% in fiscal 2001. The
increase in gross margin is due primarily to revenue increases. The gross margin
percentage decreased slightly due to the addition of Ti3, which has a slightly
lower gross margin than our traditional The Work Number services. Also, costs
related to personnel and infrastructure increased slightly to accommodate
possible future electronic payroll services clients.

Human resources and benefits application services gross margin increased 38.4%
to $2.2 million, or 22.8% of corresponding revenue, in fiscal 2002 from $1.6
million, or 18.8% of corresponding revenue, in fiscal 2001. This increase in
gross margin and gross margin percentage is principally due to a higher level of
revenues and better leveraging of fixed infrastructure costs as services were
available to a greater number of clients.

Customer premises systems gross margin increased 12.8% to $828,000, or 23.8% of
corresponding revenue, in fiscal 2002 from $734,000, or 11.3% of corresponding
revenue, in fiscal 2001, as revenues declined. This increase in gross margin and
gross margin percentage is principally due to better leveraging of costs.

Maintenance and support gross margin decreased 8.8% to $2.9 million, or 73.6% of
corresponding revenue, in fiscal 2002, from $3.1 million, or 71.1% of
corresponding revenue, in fiscal 2001 due to lower revenues caused by a
shrinking client base. The gross margin percentage increased due to a lower
level of third-party hardware support costs and improved leveraging of personnel
costs.

Selling and Marketing Expenses. Selling and marketing expenses increased 2.5% to
$8.6 million in fiscal 2002 from $8.3 million in fiscal 2001. As a percentage of
revenues, such expenses decreased to 18.9% in fiscal 2002 from 21.6% in fiscal
2001. The decrease in percentage of revenues is due to the greater rate of
increase in our revenues as compared to personnel and related costs.
Additionally, we anticipate these costs will generally decrease as a percentage
of revenues as our revenue mix shifts more to The Work Number Services which
have lower sales maintenance costs.

General and Administrative Expenses. General and administrative expenses
increased 29.3% to $7.5 million in fiscal 2002 from $5.8 million in fiscal 2001.
The increase in such expenses reflected the increased infrastructure costs of a
growing business and workforce, including the inclusion of costs related to our
acquisitions during fiscal 2002. As a percentage of revenues, such expenses
increased to 16.5% in fiscal 2002 from 14.9% in fiscal 2001. The increase in
general and administrative expenses as a percentage of revenues is due to
revenue growth rates, particularly in human resources and benefits application
services, that were lower than anticipated.

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


                                       34
<PAGE>


Other Income, Net. Other income increased to $1.6 million in fiscal 2002 from
$562,000 in fiscal 2001, due to interest income earned on a higher level of
invested funds. Invested funds increased due to the receipt of the proceeds from
our secondary common stock offering during the second quarter of fiscal 2002 and
cash flow from operations.

Income Tax Expense. Our effective income tax rate was 36.9% in fiscal 2002 and
40.9% in fiscal 2001. The decrease is due to tax-exempt interest earned on state
and federal tax free municipal securities during the last eight months of fiscal
2002, and to a lesser extent, a lower effective state income tax rate. As we
continue to move our business to a business process outsourcing services model,
we have reduced the amount of taxes paid on hardware and software sales in
states with higher income tax rates.

DISCONTINUED OPERATIONS

In August 1996, we determined to divest our database and document services
businesses and, accordingly, reflected the results of operations of such
businesses as discontinued operations. A provision of $350,000 was made as of
June 30, 1996, to reflect the anticipated loss from operations until the time of
disposal. On January 31, 1997, we sold substantially all of the assets of the
document services business to Sterling Direct, Inc., the largest customer of the
division. The sales price, after giving effect to the post-closing adjustments,
was $1,241,000. The net assets sold totaled approximately $566,000. As of March
31, 1997 and 1998, we provided additional provisions for loss, net of tax, in
the amount of $550,000 and $374,000, respectively.

Effective March 31, 2000, we sold substantially all of the assets, net of
liabilities, of the database services business to WPZ Holdings, Inc., the parent
company of one of the division's largest customers. The sales price was
$1,273,000. We realized pre-tax and after-tax gains of $187,000 and $117,000,
respectively.

During the quarter ended September 30, 2000, we concluded all transition-related
activity for the database services business. Completing this transition ahead of
schedule resulted in a savings of $61,000 of the transition reserve. Therefore,
we realized pre-tax and after-tax gains of $61,000 and $37,000, respectively.

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth (1) specified unaudited statement of operations
data for each of the four quarters in fiscal 2002 and 2003, (2) the gross margin
percentage for each of our revenue categories, and (3) operating data expressed
as a percentage of our total revenues. The unaudited financial statements have
been prepared on the same basis as the audited financial statements contained
herein and include all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of such
information when read in conjunction with our financial statements and related
notes included elsewhere in this Form 10-K/A. We believe that quarter-to-quarter
comparisons of our financial results should not necessarily be relied upon as an
indication of future performance. The information contained herein has been
restated for all periods presented. See Note 23 to the consolidated financial
statements for a summary of the adjustments made.


                                       35



<PAGE>

<Table>
<Caption>
                                                                               QUARTERS ENDED
                                        ------------------------------------------------------------------------------------------
                                        JUNE 30,    SEPT. 30,   DEC. 31,   MARCH 31,   JUNE 30,    SEPT. 30,  DEC. 31,   MARCH 31,
                                          2001        2001        2001       2002        2002        2002       2002       2003
                                        --------    ---------   --------   ---------   --------    ---------  --------   --------
                                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                  (RESTATED FOR ALL PERIODS PRESENTED)
<S>                                     <C>         <C>         <C>        <C>         <C>         <C>        <C>        <C>
Revenues:
   The Work Number services .........   $  6,103    $  6,659    $  6,856   $  7,566    $  7,617    $  8,573   $  9,011   $ 10,733
   Unemployment cost management
     services .......................         --          --          --        848      18,039      17,939     18,879     19,789
   Human resources and benefits
     application services............      1,380       1,281       5,543      1,553       1,445       1,906      4,652      2,184
   Customer premises systems ........      1,065       1,112         826        476         672         427        408        200
   Maintenance and support ..........        988         978         978        949         933         916        908        882
                                        --------    --------    --------   --------    --------    --------   --------   --------
     Total revenues .................      9,536      10,030      14,203     11,392      28,706      29,761     33,858     33,788
                                        --------    --------    --------   --------    --------    --------   --------   --------
Gross margin:
   The Work Number services .........      4,239       4,212       4,521      4,892       4,802       5,555      6,099      7,193
   Unemployment cost management
     services .......................         --          --          --        398       8,779       8,428      9,182      9,919
   Human resources and benefits
     application services ...........       (452)       (687)      3,278         88        (143)        166      2,908        769
   Customer premises systems ........        (28)        549         401        (94)        333         190         70        118
   Maintenance and support ..........        677         705         751        732         737         737        735        697
   Inventory write-down .............         --        (307)         --         --          --          --         --         --
                                        --------    --------    --------   --------    --------    --------   --------   --------
     Total gross margin .............      4,436       4,472       8,951      6,016      14,508      15,076     18,994     18,696
                                        --------    --------    --------   --------    --------    --------   --------   --------
Operating expenses:
   Selling and marketing ............      2,192       2,355       2,126      1,879       4,868       4,331      4,918      5,597
   General and administrative .......      1,335       2,029       1,992      2,098       5,855       6,247      6,837      6,241
   Restructuring charge .............         --       2,627          --         --          --          --         --         --
                                        --------    --------    --------   --------    --------    --------   --------   --------
     Total operating expenses .......      3,527       7,011       4,118      3,977      10,723      10,578     11,755     11,838
                                        --------    --------    --------   --------    --------    --------   --------   --------
Operating income (loss) .............        909      (2,539)      4,833      2,039       3,785       4,498      7,239      6,858
                                        ========    ========    ========   ========    ========    ========   ========   ========
Net earnings (loss) .................   $    595    $ (1,298)   $  3,437   $  1,563    $  2,124    $  2,544   $  4,243   $  4,058
                                        ========    ========    ========   ========    ========    ========   ========   ========
Diluted earnings (loss) per share ...   $   0.05    $  (0.10)   $   0.24   $   0.11    $   0.15    $   0.18   $   0.30   $   0.29
                                        ========    ========    ========   ========    ========    ========   ========   ========
</Table>

<Table>
<Caption>
                                                                              QUARTERS ENDED
                                        ------------------------------------------------------------------------------------------
                                        JUNE 30,    SEPT. 30,   DEC. 31,   MARCH 31,   JUNE 30,    SEPT. 30,  DEC. 31,   MARCH 31,
                                          2001        2001        2001       2002        2002        2002       2002       2003
                                        --------    ---------   --------   ---------   --------    ---------  --------   ---------
                                                                  (RESTATED FOR ALL PERIODS PRESENTED)
<S>                                     <C>         <C>         <C>        <C>         <C>         <C>         <C>         <C>
Gross margin percentage by revenue
  category:
   The Work Number services .........       69.5%       63.3%       65.9%      64.7%       63.0%       64.8%       67.7%       67.0%
   Unemployment cost management
     services .......................         --          --          --       46.9        48.7        47.0        48.6        50.1
   Human resources and benefits
     application services ...........      (32.8)      (53.6)       59.1        5.7        (9.9)        8.7        62.5        35.2
   Customer premises systems ........       (2.6)       49.4        48.5      (19.7)       49.6        44.5        17.2        59.0
   Maintenance and support ..........       68.5        72.1        76.8       77.1        79.0        80.5        80.9        79.0
</Table>

<Table>
<Caption>
                                                                             QUARTERS ENDED
                                        ------------------------------------------------------------------------------------------
                                        JUNE 30,    SEPT. 30,   DEC. 31,   MARCH 31,   JUNE 30,    SEPT. 30,  DEC. 31,   MARCH 31,
                                          2001         2001       2001       2002        2002         2002      2002        2003
                                        --------    ----------  --------   ---------   --------    ---------  --------   ---------
                                                               (RESTATED FOR ALL PERIODS PRESENTED)
<S>                                     <C>         <C>         <C>        <C>         <C>         <C>        <C>        <C>
PERCENTAGE OF TOTAL REVENUES:
Revenues:
   The Work Number services .........      64.0%       66.4%        48.3%      66.5%       26.6%       28.8%      26.6%      31.8%
   Unemployment cost management
     services .......................        --          --           --        7.4        62.8        60.3       55.8       58.6
   Human resources and benefits
     application services ...........      14.5        12.8         39.0       13.6         5.0         6.4       13.7        6.5
   Customer premises systems ........      11.1        11.0          5.8        4.2         2.3         1.4        1.2        0.5
   Maintenance and support ..........      10.4         9.8          6.9        8.3         3.3         3.1        2.7        2.6
                                       --------    --------     --------   --------    --------    --------   --------   --------
     Total revenues .................     100.0       100.0        100.0      100.0       100.0       100.0      100.0      100.0
Cost of revenues ....................      53.5        55.4         37.0       47.2        49.5        49.3       43.9       44.7
                                       --------    --------     --------   --------    --------    --------   --------   --------
Gross margin ........................      46.5        44.6         63.0       52.8        50.5        50.7       56.1       55.3
                                       --------    --------     --------   --------    --------    --------   --------   --------
Operating expenses:
   Selling and marketing ............      23.0        23.5         15.0       16.5        17.0        14.6       14.5       16.5
   General and administrative .......      14.0        20.2         14.0       18.4        20.4        21.0       20.2       18.5
   Restructuring charge .............        --        26.2           --         --          --          --         --         --
                                       --------    --------     --------   --------    --------    --------   --------   --------
     Total operating expenses .......      37.0        69.9         29.0       34.9        37.4        35.5       34.7       35.0
                                       --------    --------     --------   --------    --------    --------   --------   --------
Operating income ....................       9.5       (25.3)        34.0       17.9        13.2        15.1       21.4       20.3
                                       ========    ========     ========   ========    ========    ========   ========   ========
Net earnings (loss) .................       6.2%      (12.9)%       24.2%      13.7%        7.4%        8.5%      12.5%      12.0%
                                       ========    ========     ========   ========    ========    ========   ========   ========
</Table>

                                       36
<PAGE>


See Note 23 of the notes to our consolidated financial statements for a
reconciliation of these quarterly results to the amounts previously reported.

On April 22, 2003, we sold substantially all of the assets of our human
resources and benefits application services business. See Note 22 of the notes
to consolidated financial statements. During July 2001 we acquired Ti3, Inc. and
during March 2002, we acquired Frick and the GM Unemployment Compensation
Business.

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

SEASONALITY

Because of the seasonal variations of our human resources and benefits
applications services offerings, a greater number of clients have had services
available to them from October through December than during any other period
during the year. As a result, revenues in our third fiscal quarter have been
substantially higher than in the other three quarters of the year. In fiscal
2002 and 2003, over fifty percent of annual revenues in this revenue line have
been recorded in the third fiscal quarter. Given the disposal of this business
unit as of April 22, 2003, our future statements of earnings should no longer be
impacted by this seasonality.

Revenues generated from our W-2 eXpress service are particularly affected by
seasonality and are principally earned in our fourth fiscal quarter.

Revenues generated from our unemployment cost management services, which we
acquired in late March 2002, are generally higher in the third and fourth fiscal
quarters as certain client contracts allow us to bill additional fees based upon
actual annual claims volumes. Additionally, our tax planning business has an
inherent seasonality based upon the general nature of tax services.

LIQUIDITY AND CAPITAL RESOURCES

In recent years, we have financed our operations through cash flows from
operations.

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

Our working capital was $2.9 million at March 31, 2002 and $1.6 million at March
31, 2003. Total working capital decreased in fiscal 2003 due principally to
payments made related to our March 27, 2002 acquisitions and increases in
deferred revenue and the current portion of long-term debt. At March 31, 2003,
$7.5 million of current liabilities represent deferred revenue instead of
payment obligations. As a result, based on cash and cash equivalents on hand
together with anticipated cash flows from operations, we believe we have
sufficient liquidity to pay our obligations as they become due, for at least the
next 12 months.

Our accounts receivable increased from $12.5 million at March 31, 2002 to $18.1
million at March 31, 2003. The increase was due primarily to a higher level of
billings during the last quarter of fiscal 2003 compared to fiscal 2002.
Additionally, AT&T has discontinued billing for their 900 telephone service,
utilized by The Work Number Services business unit. As a result, we have moved
to a third party billing company, whose billing terms are further extended than
AT&T's terms. As a result, we have an additional receivable of approximately
$1.0 million at March 31, 2003 compared to March 31, 2002.

Our capital expenditures were $4.5 million in fiscal 2003. These capital
expenditures were principally for computer equipment and integrating the
operational infrastructure for our unemployment cost management services
segment. At March 31, 2003, we had no material capital spending or purchase
commitments other than normal purchase commitments and commitments under
facilities and operating leases, but would expect capital expenditures to
increase during the next 18 to 24 months, as we continue to integrate the
operations of our acquisitions.


                                       37
<PAGE>


In November 2000, our board of directors authorized us to repurchase up to
400,000 shares of our stock in the open market, or through privately negotiated
transactions over the following two-year period. In November 2001, this plan was
extended to November 2004, and the number of shares was increased to one
million. Under this plan, we repurchased 311,000 shares during the year ended
March 31, 2003. Cumulative shares repurchased under this plan amount to 608,500.
Share amounts are reported on a pre-dividend basis. On September 5, 2002, our
board of directors approved a new stock repurchase plan, authorizing us to
repurchase up to one million shares during the 36 month period ending September
30, 2005, subject to market conditions and other factors. As of March 31, 2003,
175,000 shares have been repurchased under this plan. Except for the 409,231
shares remaining in the treasury at March 31, 2003, all shares repurchased have
been reissued in connection with employee stock option exercises and employee
stock purchase plan purchases.

During fiscal 2003, we continued our quarterly dividend program, declaring a
$0.03 dividend on each share of our common stock in each of the first three
quarters and a $0.04 dividend in the fourth quarter.

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

The Term Loan and advances under the Revolving Credit Facility bear interest at
rates we select under the terms of the Loan Agreement, including a base rate or
eurodollar rate, plus an applicable margin. Until March 27, 2003, eurodollar
rate loans bore interest at the applicable eurodollar rate plus 2.25% and base
rate loans bore interest at the applicable base rate. Commencing March 28, 2003,
the applicable margin for eurodollar rate loans varies from 2.00% to 2.25%, and
the applicable margin for base rate loans will remain at 0.00%, in each case
based upon our ratio of total indebtedness to EBITDA (earnings before interest,
taxes, depreciation and amortization). We may make prepayments under the Term
Loan and Revolving Credit Facility without penalty. In addition, if William W.
Canfield ceases serving as our chief executive officer during the first 24
months after closing, and we do not retain a substitute satisfactory to the
Lenders within 120 days, then we are required to repay all outstanding loans,
including both the Term Loan and Revolving Credit Facility.

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

The Loan Agreement includes certain covenants, including, without limitation,
restrictions on the use of proceeds of the Term Loan and loans made under the
Revolving Credit Facility. The Term Loan was to be used solely to pay a portion
of the purchase price for the acquisitions of The Frick Company and the GM
Unemployment Compensation Business. The proceeds of loans made under the
Revolving Credit Facility may be used solely for working capital, permitted
capital expenditures, as the source for payment of our obligations with respect
to certain existing letters of credit, to pay the transaction cost of the Loan
Agreement, and to finance certain permitted acquisitions. The Loan Agreement
also requires compliance with certain financial covenants based on our minimum
net worth, minimum EBITDA, our ratio of total indebtedness to EBITDA and our
ratio of EBITDA to fixed charges. The Loan Agreement further requires compliance
with certain operating and other covenants which limit, among other things, the
incurrence of additional indebtedness by us and our subsidiaries, the amount of
capital expenditures to be made by us and our subsidiaries, sales of assets and
mergers and dissolutions, impose restrictions on distributions to shareholders,
change of control of TALX, investments, acquisitions and liens, and which
require compliance, in all material respects, with material laws. The Loan
Agreement generally prohibits the payment of cash dividends, except for cash
dividends not in excess of $2.5 million per fiscal year so long as we are not in
default at the time of the declaration. The Loan Agreement also contains various
representations and warranties, including among other things, the accuracy of
financial statements and other information delivered to the Lenders and the
absence of changes which would have or would reasonably be likely to have a
material adverse effect (as customarily included in secured credit facilities of
this nature).


                                       38
<PAGE>


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

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

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

As of March 31, 2003, the fair value of the interest rate swap in the amount of
$256,000 is included in accrued expenses and other liabilities. Interest expense
accrued on the swap contract was $175,000 for the year ended March 31, 2003.

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

OTHER MATTERS

We are cooperating with a pending SEC investigation and are a defendant in
pending lawsuits which are described in Note 18 of our Notes to Consolidated
Financial Statements, which is incorporated by reference herein.

As described above, we are filing herewith restated financial statements and, on
January 5, 2004, announced that we are restating financial statements for the
fiscal years ended March 31, 1999 through March 31, 2003 and for the first two
quarters of fiscal 2004. In December 2002, we restated our financial statements
for each of the quarters ended June 30, 2001 through June 30, 2002 and for the
fiscal years ended March 31, 2001 and 2002. As a result of this new restatement,
we could become subject to additional litigation or regulatory proceedings or
both. As of the date hereof, we are not aware of any litigation having been
commenced against us related to this new restatement. However, such litigation
could be commenced against us in the future and the plaintiffs who have filed
lawsuits against us previously could amend their complaints to include claims
related to this restatement, and if so, we could not predict the outcome of any
such litigation at this time. Additionally, the lenders under our March 27, 2002
Loan Agreement, which is described more fully above under Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources, could seek to exercise remedies which may be
available to them, such as acceleration of our loans, in the event they
determine that, as a result of the restatements discussed above or the SEC
investigation discussed above or otherwise, we have breached a covenant or
representation and warranty in the Loan Agreement. If an unfavorable result
occurred in any such action, our business and financial conditions could be
harmed.

Further, it is possible that the SEC would begin a regulatory proceeding or
enforcement action against us. The commencement of any such proceeding or
action, or the application of any remedies, could harm our business condition
and financial condition.

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


                                       39
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS


<Table>
<Caption>
                                                                                                         PAGE
                                                                                                         ----
<S>                                                                                                      <C>
    TALX CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS:

    Independent Auditors' Report.....................................................................     41

    Consolidated Balance Sheets as of March 31, 2002 and 2003........................................     42

    Consolidated Statements of Earnings for the years ended March 31, 2001, 2002 and 2003............     43

    Consolidated Statements of Shareholders' Equity and Comprehensive Income for the years ended
         March 31, 2001, 2002 and 2003...............................................................     44

    Consolidated Statements of Cash Flows for the years ended March 31, 2001, 2002 and 2003..........     45

    Notes to Consolidated Financial Statements.......................................................     46
</Table>




                                       40
<PAGE>


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders of
TALX Corporation:

We have audited the accompanying consolidated balance sheets of TALX Corporation
and subsidiaries as of March 31, 2002 and 2003, and the related consolidated
statements of earnings, shareholders' equity and comprehensive income, and cash
flows for each of the years in the three-year period ended March 31, 2003. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TALX Corporation and
subsidiaries as of March 31, 2002 and 2003, and the results of their operations
and their cash flows for each of the years in the three-year period ended March
31, 2003, in conformity with accounting principles generally accepted in the
United States of America.

As discussed in Note 2 to the consolidated financial statements, the Company has
restated the accompanying consolidated balance sheets as of March 31, 2003 and
2002, the related consolidated statements of earnings, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended March 31, 2003.

As discussed in Note 5 to the consolidated financial statements, effective April
1, 2002, the Company changed its method of accounting for goodwill and other
intangible assets and as discussed in Note 20 to the consolidated financial
statements, effective April 1, 2000, the Company changed its method of
accounting for revenue recognition.


/s/ KPMG LLP


St. Louis, Missouri
May 2, 2003, except for Note 2 which
is as of January 21, 2004


                                       41
<PAGE>


                        TALX CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
             (IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
                                   (RESTATED)

<Table>
<Caption>
                                                                                                       MARCH 31,
                                                                                              ----------------------------
                                                                                                  2002            2003
                                                                                              ------------    ------------
<S>                                                                                           <C>             <C>
ASSETS
Current assets:
   Cash and cash equivalents ..............................................................   $     21,431    $      9,409
   Accounts receivable, net ...............................................................         12,469          18,082
   Work in progress, less progress billings ...............................................          1,278           1,115
   Prepaid expenses and other current assets ..............................................          3,444           4,122
   Deferred tax assets, net ...............................................................          3,128             598
                                                                                              ------------    ------------
     Total current assets .................................................................         41,750          33,326
Property and equipment, net ...............................................................         11,357          10,315
Capitalized software development costs, net of amortization
   of $966 in 2002 and $2,547 in 2003 .....................................................          3,262           3,804
Goodwill ..................................................................................        102,564         105,469
Other intangibles, net ....................................................................         19,175          18,450
Other assets ..............................................................................          1,711           1,431
                                                                                              ------------    ------------
                                                                                              $    179,819    $    172,795
                                                                                              ============    ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable .......................................................................   $      1,200    $      1,560
   Accrued expenses and other liabilities .................................................         20,427          11,473
   Dividends payable ......................................................................            413             542
   Current portion of capitalized lease obligations .......................................            156             130
   Current portion of long term debt ......................................................          8,000          10,000
   Income taxes payable ...................................................................            814             482
   Deferred revenue .......................................................................          7,878           7,523
                                                                                              ------------    ------------
     Total current liabilities ............................................................         38,888          31,710
Deferred tax liabilities, net .............................................................            371           3,372
Capitalized lease obligations, less current portion .......................................            152              22
Long term debt, less current portion ......................................................         22,000          12,000
Other long term liabilities ...............................................................          2,417           2,508
                                                                                              ------------    ------------
     Total liabilities ....................................................................         63,828          49,612
                                                                                              ------------    ------------
Commitments and contingencies
Shareholders' equity:
   Preferred stock, $0.01 par value; authorized 5,000,000 shares and
     no shares issued or outstanding at March 31, 2002 and 2003 ...........................             --              --
   Common stock, $0.01 par value; authorized 30,000,000 shares, issued and outstanding
     13,909,714 shares at March 31, 2002 and 13,948,542 shares at March 31, 2003 ..........            139             140
   Additional paid-in capital .............................................................        162,058         162,773
   Accumulated deficit ....................................................................        (44,144)        (34,721)
   Accumulated other comprehensive income:
     Unrealized loss on interest rate swap contract, net of tax of $99 at March 31, 2003 ..             --            (158)
   Treasury stock, at cost, 120,951 shares at March 31, 2002 and 409,231
     shares at March 31, 2003 .............................................................         (2,062)         (4,851)
                                                                                              ------------    ------------
     Total shareholders' equity ...........................................................        115,991         123,183
                                                                                              ------------    ------------
                                                                                              $    179,819    $    172,795
                                                                                              ============    ============
</Table>

          See accompanying notes to consolidated financial statements.


                                       42
<PAGE>


                        TALX CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS
             (IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
                                   (RESTATED)

<Table>
<Caption>
                                                                                        YEARS ENDED MARCH 31,
                                                                             --------------------------------------------
                                                                                 2001            2002            2003
                                                                             ------------    ------------    ------------
<S>                                                                          <C>             <C>             <C>
Revenues:
   The Work Number services ..............................................   $     19,149    $     27,184    $     35,934
   Unemployment cost management services .................................             --             848          74,645
   Human resources and benefits application services .....................          8,565           9,757          10,188
   Customer premises systems .............................................          6,524           3,480           1,708
   Maintenance and support ...............................................          4,417           3,893           3,639
                                                                             ------------    ------------    ------------
     Total revenues ......................................................         38,655          45,162         126,114
                                                                             ------------    ------------    ------------
Cost of revenues:
   The Work Number services ..............................................          6,179           9,320          12,285
   Unemployment cost management services .................................             --             450          38,337
   Human resources and benefits application services .....................          6,956           7,530           6,486
   Customer premises systems .............................................          5,790           2,652             997
   Maintenance and support ...............................................          1,275           1,028             734
   Inventory write-down ..................................................             --             307              --
                                                                             ------------    ------------    ------------
     Total cost of revenues ..............................................         20,200          21,287          58,839
                                                                             ------------    ------------    ------------
     Gross margin ........................................................         18,455          23,875          67,275
                                                                             ------------    ------------    ------------
Operating expenses:
   Selling and marketing .................................................          8,346           8,552          19,715
   General and administrative ............................................          5,767           7,454          25,180
   Intellectual property settlement ......................................          1,612              --              --
   Restructuring charge ..................................................             --           2,627              --
                                                                             ------------    ------------    ------------
     Total operating expenses ............................................         15,725          18,633          44,895
                                                                             ------------    ------------    ------------
     Operating income ....................................................          2,730           5,242          22,380
                                                                             ------------    ------------    ------------
Other income (expense), net:
   Interest income .......................................................            539           1,493             115
   Interest expense ......................................................             --             (18)         (1,471)
   Other, net ............................................................             23              92              (2)
                                                                             ------------    ------------    ------------
     Total other income (expense), net ...................................            562           1,567          (1,358)
                                                                             ------------    ------------    ------------
     Earnings from continuing operations before income tax expense and
       cumulative effect of change in accounting principle ...............          3,292           6,809          21,022
Income tax expense .......................................................          1,346           2,512           8,053
                                                                             ------------    ------------    ------------
     Earnings from continuing operations before cumulative effect of
       change in accounting principle ....................................          1,946           4,297          12,969
Discontinued operations:
   Gain on operations and  disposal of discontinued operations, net ......             36              --              --
                                                                             ------------    ------------    ------------
     Earnings before cumulative effect of change in accounting principle..          1,982           4,297          12,969
Cumulative effect of change in accounting principle, net of taxes ........         (1,655)             --              --
                                                                             ------------    ------------    ------------
     Net earnings ........................................................   $        327    $      4,297    $     12,969
                                                                             ============    ============    ============

Basic earnings per share:
   Continuing operations .................................................   $       0.19    $       0.34    $       0.94
   Cumulative effect of change in accounting principle, net ..............          (0.16)             --              --
                                                                             ------------    ------------    ------------
     Net earnings ........................................................   $       0.03    $       0.34    $       0.94
                                                                             ============    ============    ============
Diluted earnings per share:
   Continuing operations .................................................   $       0.18    $       0.32    $       0.91
   Cumulative effect of change in accounting principle, net ..............          (0.15)             --              --
                                                                             ------------    ------------    ------------
     Net earnings ........................................................   $       0.03    $       0.32    $       0.91
                                                                             ============    ============    ============

Weighted average number of common shares outstanding:
   Basic .................................................................     10,255,928      12,622,689      13,742,581
   Diluted ...............................................................     11,068,583      13,481,683      14,208,565
</Table>

          See accompanying notes to consolidated financial statements.


                                       43
<PAGE>


                        TALX CORPORATION AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                    YEARS ENDED MARCH 31, 2001, 2002 AND 2003
             (IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)

<Table>
<Caption>
                                                                              ACCUMULATED
                                                   ADDITIONAL                    OTHER                                    TOTAL
                                           COMMON    PAID-IN    ACCUMULATED  COMPREHENSIVE   TREASURY   COMPREHENSIVE  SHAREHOLDERS'
                                            STOCK    CAPITAL      DEFICIT       INCOME         STOCK        INCOME       EQUITY
                                           ------  ----------  -----------   -------------   ---------- -------------  -------------
<S>                                        <C>     <C>          <C>          <C>             <C>        <C>            <C>
BALANCE AT MARCH 31, 2000, RESTATED .....  $   56  $   23,978   $   (1,030)  $        --     $     --                  $  23,004
Net earnings, restated ..................      --          --          327            --           --   $      327           327
Net unrealized gain on marketable
   equity securities ....................      --          --           --            35           --           35            35
                                                                                                        ----------
Total comprehensive income, restated ....                                                               $      362
                                                                                                        ==========
Repurchase of 112,500 shares of
   common stock .........................      --          --           --            --       (1,928)                    (1,928)
Issuance of 55,609 shares of common
   stock and 110,153 shares of
   treasury stock for benefit plans,
   net of tax benefit ...................       1         478       (1,201)           --        1,861                      1,139
Issuance of 39,895 shares of common
   stock upon exercise of warrants ......      --          --           --            --           --                         --
Issuance of 563,935 shares of common
   stock and 838 shares of treasury
   stock upon 10% stock dividend ........       6       9,863       (9,869)           --           --                         --
Issuance of 3,128,552 shares of
   common stock and 66 shares of
   treasury stock upon 3-for-2
   stock split ..........................      31         (31)          --            --           --                         --
Cash dividends ($0.08 per share) ........      --          --         (754)           --           --                       (754)
                                            -----  ----------   ----------    ----------   ----------                  ---------
BALANCE AT MARCH 31, 2001, RESTATED .....      94      34,288      (12,527)           35          (67)                    21,823
Net earnings, restated ..................      --          --        4,297            --           --   $    4,297         4,297
Net unrealized loss on marketable
   equity securities ....................      --          --           --           (35)                      (35)          (35)
                                                                                                        ----------
Total comprehensive income, restated ....                                                               $    4,262
                                                                                                        ==========
Repurchase of 287,500 shares of
   common stock .........................      --          --           --            --       (5,486)                    (5,486)
Issuance of 82,128 shares of common
   stock and 124,425 shares for
   benefit plans, net of tax benefit ....       1       1,820       (1,852)           --        2,649                      2,618

Issuance of 67,667 shares of common
   stock and 45,375 shares of treasury
   stock upon exercise of warrants ......      --          --         (667)           --          842                        175
Issuance of 1,263,626 shares of common
   stock upon 10% stock dividend ........      13      31,831      (31,868)           --           --                        (24)
Issuance of 341,854 shares of common
   stock upon acquisitions ..............       3      11,746           --            --           --                     11,749
Issuance of 2,750,000 shares of common
   stock upon secondary stock offering ..      28      82,373           --            --           --                     82,401
Cash dividends ($0.12 per share) ........      --          --       (1,527)           --           --                     (1,527)
                                            -----  ----------   ----------    ----------   ----------                  ---------
BALANCE AT MARCH 31, 2002, RESTATED .....     139     162,058      (44,144)           --       (2,062)                   115,991
Net earnings, restated ..................      --          --       12,969            --           --   $   12,969        12,969
Net unrealized loss on interest rate
   swap contract ........................      --          --           --          (158)          --         (158)         (158)
                                                                                                        ----------
Total comprehensive income, restated ....                                                               $   12,811
                                                                                                        ==========
Repurchase of 486,000 shares of common
   stock ................................      --          --           --            --       (5,644)                    (5,644)
Issuance of 38,828 shares of common
   stock and 197,720 shares for
   benefit plans, net of tax benefit ....       1         715       (1,768)           --        2,855                      1,803
Cash dividends ($0.13 per share) ........      --          --       (1,778)           --           --                     (1,778)
                                           ------  ----------   ----------    ----------   ----------                  ---------
BALANCE AT MARCH 31, 2003, RESTATED .....  $  140  $  162,773   $  (34,721)   $     (158)  $   (4,851)                 $ 123,183
                                           ======  ==========   ==========    ==========   ==========                  =========
</Table>

          See accompanying notes to consolidated financial statements.


                                       44
<PAGE>

                        TALX CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (RESTATED)

<Table>
<Caption>
                                                                             YEARS ENDED MARCH 31,
                                                                  ------------------------------------------
                                                                      2001           2002           2003
                                                                  ------------   ------------   ------------
<S>                                                               <C>            <C>            <C>
Cash flows from operating activities:
   Net earnings ................................................  $        327   $      4,297   $     12,969
   Adjustments to reconcile net earnings to net cash provided
     by operating activities:
     Depreciation and amortization .............................         4,615          3,911          8,306
     Inventory write-down ......................................            --            307             --
     Capitalized software write-down ...........................            --          1,941             --
     Deferred taxes ............................................        (1,245)          (571)         5,531
     Cumulative effect of change in accounting principle .......         1,655             --             --
     Change in assets and liabilities, net of acquisitions:
       Accounts receivable .....................................           573          1,699         (5,613)
       Work in progress, less progress billings ................         1,497            (30)           163
       Prepaid expenses and other current assets ...............           126            (45)          (678)
       Other assets ............................................            60           (940)            36
       Accounts payable ........................................          (308)          (188)           478
       Accrued expenses and other liabilities ..................         2,063         (2,056)         7,621
       Income taxes payable ....................................           (18)         2,082            127
       Deferred revenue ........................................           (36)           940           (355)
       Other liabilities .......................................            --             --             91
                                                                  ------------   ------------   ------------
         Net cash provided by operating activities .............         9,309         11,347         28,676
                                                                  ------------   ------------   ------------
Cash flows from investing activities:
   Additions to property and equipment .........................        (1,819)        (1,606)        (4,516)
   Acquisitions, net of cash acquired ..........................            --       (102,477)       (20,052)
   Capitalized software development costs ......................        (2,766)        (2,357)        (2,123)
   Proceeds from maturity of short-term investments ............         3,000          5,365             --
   Proceeds from sale of short-term investments ................            --        233,097          4,000
   Purchases of short-term investments .........................        (4,505)      (234,126)        (4,000)
                                                                  ------------   ------------   ------------
     Net cash used in investing activities .....................        (6,090)      (102,104)       (26,691)
                                                                  ------------   ------------   ------------
Cash flows from financing activities:
   Dividends paid ..............................................          (472)        (1,396)        (1,649)
   Borrowings under long-term debt facility ....................            --         30,000             --
   Repayments under long-term debt facility ....................            --             --         (8,000)
   Repayments of capitalized lease obligations .................            --             --           (156)
   Issuance of common stock ....................................         1,072         83,903          1,442
   Repurchase of common stock ..................................        (1,928)        (5,486)        (5,644)
                                                                  ------------   ------------   ------------
     Net cash provided by (used in) financing activities .......        (1,328)       107,021        (14,007)
                                                                  ------------   ------------   ------------
     Net increase (decrease) in cash and cash equivalents ......         1,891         16,264        (12,022)
Cash and cash equivalents at beginning of year .................         3,276          5,167         21,431
                                                                  ------------   ------------   ------------
Cash and cash equivalents at end of year .......................  $      5,167   $     21,431   $      9,409
                                                                  ============   ============   ============
</Table>

          See accompanying notes to consolidated financial statements.


                                       45
<PAGE>


                        TALX CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2002 AND 2003

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (a) Description of Business

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

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

     (b) Principles of Consolidation

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

     (c) Cash and Cash Equivalents

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

     (d) Allowance for Doubtful Accounts

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

     (e) Property and Equipment

Property and equipment is recorded at cost less accumulated depreciation and
amortization. Depreciation is computed using straight-line and accelerated
methods over the estimated useful lives of the assets. Amortization of leasehold
improvements is computed using the straight-line method over the lesser of the
useful life of the asset or lease term.

     (f) Product Development and Capitalized Software Development Costs

Product development costs are charged to operations as incurred. Software
development costs are expensed as incurred until technological feasibility is
achieved, after which they are capitalized on a product-by-product basis.
Amortization of capitalized software development costs is computed using the
straight-line method over the remaining estimated economic life of the product,
which is typically three years. Amortization of capitalized software development
costs starts when the product is available for general release to clients.


                                       46
<PAGE>


     (g) Goodwill and Other Intangible Assets

We have adopted the provisions of the Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets" as of
April 1, 2002. SFAS No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. SFAS No. 142
requires that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually. SFAS
No. 142 also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values.

     (h) Revenue Recognition, Work in Progress and Deferred Revenue

Revenues from The Work Number are recognized in the period that they are earned,
from transaction fees charged to users for verifications of employment history
and income. Additionally, revenue for set up fees, monthly maintenance and
employer conversion fees are recognized on a straight-line basis from the time
the service is available to be used by our clients through the end of the
service period. Revenues from our unemployment cost management services, called
UC eXpress, are recognized in the period that they are earned, evenly over the
life of the contract. Transaction fees are recorded as the services are
provided. Revenue which is contingent upon achieving certain performance
criteria is recognized when those criteria are met. Human resources and benefits
application services revenue is recognized on a straight-line basis from the
time the service is available to be used by our clients through the end of the
service period. Because of seasonal variations of our service offerings, a
greater number of clients have services available to them from October through
December than during any other period during the year. As a result, revenues in
our third fiscal quarter are substantially higher than in the other three
quarters of the year. Historically, over fifty percent of annual revenues in
this revenue line have been recorded in the third quarter. We recognize hardware
and software license revenue upon shipment based on vendor-specific objective
evidence. Revenues for professional services of customer premises systems are
generally recognized as the services are performed. We estimate the percentage
of completion on contracts with fixed fees on a monthly basis utilizing hours
incurred to date as a percentage of total estimated hours to complete the
project. Revenue from maintenance contracts is deferred and recognized ratably
over the maintenance period. Deferred revenue represents the unearned portion of
The Work Number setup fees, as well as, Human Resources and Benefits Application
Services, UC eXpress and maintenance fees. Commissions paid are deferred and
expensed over the related service period.

     (i) Concentration of Credit Risk

We sell our services and software in a variety of industries. No client
represented over 10% of revenues in fiscal 2001, 2002 or 2003. We perform
periodic credit evaluations of our clients' financial condition and generally do
not require collateral; however, for our maintenance business we maintain a
security interest in hardware until payment is received. Credit losses from
clients have been within management's expectations, and management believes the
allowance for doubtful accounts adequately provides for any expected losses.

     (j) Income Taxes

We record income taxes under the asset and liability method. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

     (k) Fair Value of Financial Instruments

We disclose estimated fair values for our financial instruments. A financial
instrument is defined as cash or a contract that both imposes on one entity a
contractual obligation to deliver cash or another financial instrument to a
second entity and conveys to that second entity a contractual right to receive
cash or another financial instrument from the first entity. Our financial
instruments include long-term debt and a revolving line of credit facility. The
carrying value of these commitments approximate fair value due to their stated
interest rates approximating market rates. These estimated fair value amounts
have been determined using available market information or other appropriate
valuation methodologies.


                                       47
<PAGE>


     (l) Derivative Financial Instruments

We use interest rate swap agreements as required under the terms of our term
loan and revolving credit facility (see note 7). Our policy is to manage
interest costs using a mix of fixed and variable rate debt. Using interest rate
swap agreements, we agree to exchange, at specified intervals, the difference
between fixed and variable interest amounts calculated by reference to an
agreed-upon notional principal amount. We do not hold or issue any derivative
financial instruments for trading purposes.

     (m) Stock-Based Compensation

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

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

<Table>
<Caption>
                                                                               MARCH 31,
                                                              -------------------------------------------
                                                                  2001            2002           2003
                                                              ------------    ------------   ------------
                                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                 (RESTATED FOR ALL PERIODS PRESENTED)
<S>                                                           <C>             <C>            <C>

Net earnings, as reported .................................   $        327    $      4,297   $     12,969
Stock-based employee compensation cost, net of taxes ......            394             839            668
                                                              ------------    ------------   ------------
   Net earnings, pro forma ................................   $        (67)   $      3,458   $     12,301
                                                              ============    ============   ============
Basic earnings per share:
   Net earnings, as reported ..............................   $       0.03    $       0.34   $       0.94
   Stock-based employee compensation cost, net of taxes ...           0.04            0.07           0.04
                                                              ------------    ------------   ------------
     Net earnings, pro forma ..............................   $      (0.01)   $       0.27   $       0.90
                                                              ============    ============   ============

Diluted earnings per share:
   Net earnings, as reported ..............................   $       0.03    $       0.32   $       0.91
   Stock-based employee compensation cost, net of taxes ...           0.04            0.06           0.04
                                                              ------------    ------------   ------------
     Net earnings, pro forma ..............................   $      (0.01)   $       0.26   $       0.87
                                                              ============    ============   ============
</Table>

The following table represents the above data, prior to restatement:

<Table>
<Caption>
                                                                              MARCH 31,
                                                              ------------------------------------------
                                                                  2001           2002           2003
                                                              ------------   ------------   ------------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                           <C>            <C>            <C>
Net earnings, as reported .................................   $        522   $      3,933   $     12,747
Stock-based employee compensation cost, net of taxes ......            394            839            668
                                                              ------------   ------------   ------------
   Net earnings, pro forma ................................   $        128   $      3,094   $     12,079
                                                              ============   ============   ============

Basic earnings per share:
   Net earnings, as reported ..............................   $       0.05   $       0.31   $       0.93
   Stock-based employee compensation cost, net of taxes ...           0.04           0.07           0.05
                                                              ------------   ------------   ------------
     Net earnings, pro forma ..............................   $       0.01   $       0.24   $       0.88
                                                              ============   ============   ============

Diluted earnings per share:
   Net earnings, as reported ..............................   $       0.05   $       0.29   $       0.90
   Stock-based employee compensation cost, net of taxes ...           0.04           0.06           0.05
                                                              ------------   ------------   ------------
     Net earnings, pro forma ..............................   $       0.01   $       0.23   $       0.85
                                                              ============   ============   ============
</Table>


                                       48
<PAGE>


The full impact of calculating compensation cost for stock options under SFAS
No. 123 was not reflected in the determination of the impact, because
compensation cost is reflected over the options' vesting period of six to ten
years and compensation cost for options granted prior to April 1, 1995 is not
considered. The fair value of option grants for fiscal 2001, 2002 and 2003 is
estimated on the date of the grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions: expected volatility of 62%, 59%
and 80% in fiscal 2001, 2002 and 2003, respectively; risk-free interest rate of
4.91%, 4.81% and 3.50% in fiscal 2001, 2002 and 2003, respectively; expected
life of 5.0, 5.0 and 7.5 years in fiscal 2001, 2002 and 2003, respectively; and
an expected dividend yield of 3.50%, 3.50% and 1.20% in fiscal 2001, 2002 and
2003, respectively.

     (n) Management's Use of Estimates

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

     (o) Litigation

We have legal contingencies that have a high degree of uncertainty. As described
in Note 18, certain allegations have been made against us. We believe that
liabilities for many of these matters are either not probable or not estimable
and therefore, no reserves have been established for those matters. When a
contingency becomes probable and estimable a reserve is established. We have
established reserves for certain other matters. If these matters are resolved
unfavorably, they could have a significant impact on our future results and
liquidity. Legal costs are expensed as incurred.

     (p) Earnings Per Share

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

     (q) Reclassifications

Certain balances in prior fiscal years have been reclassified to conform to the
presentation adopted in the current fiscal year.

(2) RESTATEMENT OF FINANCIAL STATEMENTS

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

Additionally, we corrected three errors related to bill and hold arrangements on
hardware and software transactions arising out of the customer premises systems
line of business during the fiscal years ended March 31, 2000 and 2001. The
impact of these corrections resulted in revenues and related costs during fiscal
2000 and 2001 being recognized in different quarters than originally reported.
However, such adjustments had no impact on the fiscal 2000 or 2001 results.

The restatement had practically no cumulative impact on our financial results or
our financial condition. It had the effect of reducing revenues by $955,000 for
fiscal years 1999, 2000 and 2001 and increasing revenues by a similar amount in
fiscal


                                       49
<PAGE>


years 2002 and 2003. The impact on the years presented, 2001, 2002 and 2003, was
a reduction of revenue in 2001 of $358,000 and an increase of revenues in 2002
and 2003 of $610,000 and $384,000, respectively. In addition to the revenue
adjustments, the related commissions associated with the revenues were adjusted
accordingly and the income taxes provisions were amended to reflect the impact
of these restatements. The annual impact to diluted earnings per share was a
reduction to fiscal 1999 of $0.03, an increase to fiscal 2000 of $0.01, a
reduction to fiscal 2001 of $0.02 and increases to fiscal 2002 and 2003 of $0.03
and $0.01, respectively.

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

The adjustments also impacted our balance sheet based on the respective revenue
amounts resulting in a restatement of our work in progress and deferred
revenues. In addition, accrued expenses were restated to give effect to the
impact on accrued commissions and deferred income taxes were restated for the
related tax effect. Financial statement data presented within Notes 1, 7, 11 and
14 has been restated to give effect to the adjustments.

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



                                       50
<PAGE>

<Table>
<Caption>
                                                            AS PREVIOUSLY REPORTED                      AS RESTATED
                                                      ------------------------------------   -----------------------------------
                                                         2001         2002         2003         2001         2002        2003
                                                      ----------   ----------   ----------   ----------   ----------  ----------
                                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                   <C>          <C>          <C>          <C>          <C>         <C>

STATEMENT OF OPERATIONS DATA:
Revenues:
   Customer premises systems .......................  $    6,882   $    2,870   $    1,324   $    6,524   $    3,480  $    1,708
Cost of revenues:
   Customer premises systems .......................       5,790        2,652          997        5,790        2,652         997
Gross margin .......................................      18,813       23,265       66,891       18,455       23,875      67,275
Selling and marketing expenses .....................       8,374        8,516       19,692        8,346        8,552      19,715
Total operating expense ............................      15,753       18,597       44,872       15,725       18,633      44,895
Operating income (loss) ............................       3,060        4,668       22,019        2,730        5,242      22,380
Earnings (loss) from continuing operations before
   income tax expense and cumulative effect of
   change in accounting principle ..................       3,622        6,235       20,661        3,292        6,809      21,022
Income tax expense (benefit) .......................       1,481        2,302        7,914        1,346        2,512       8,053
Net earnings (loss) from continuing operations
   before cumulative effect of change in
   accounting principle ............................       2,141        3,933       12,747        1,946        4,297      12,969
Net earnings (loss) ................................         522        3,933       12,747          327        4,297      12,969

Basic earnings (loss) per share:
   Earnings (loss) from continuing operations
     before cumulative effect of  change
     in accounting principle .......................        0.21         0.31         0.93         0.19         0.34        0.94
   Net earnings (loss) .............................        0.05         0.31         0.93         0.03         0.34        0.94

Diluted earnings (loss) per share:
   Earnings (loss) from continuing operations
      before cumulative effect of  change
      in accounting principle ......................        0.20         0.29         0.90         0.18         0.32        0.91
   Net earnings (loss) .............................        0.05         0.29         0.90         0.03         0.32        0.91

BALANCE SHEET DATA:
Assets:
   Work in progress, less progress billings ........               $    1,377   $    1,091                $    1,278  $    1,115
   Deferred tax assets, net ........................                    2,948          556                     3,128         598
   Total current assets ............................                   41,669       33,260                    41,750      33,326
   Total assets ....................................                  179,738      172,729                   179,819     172,795
Liabilities and shareholders' equity:
   Accrued expenses and other liabilities ..........                   20,455       11,478                    20,427      11,473
   Deferred revenue ................................                    7,632        7,537                     7,878       7,523
   Total current liabilities .......................                   38,670       31,729                    38,888      31,710
   Total liabilities ...............................                   63,610       49,631                    63,828      49,612
   Accumulated deficit .............................                  (44,007)     (34,806)                  (44,144)    (34,721)
   Total shareholders' equity ......................                  116,128      123,098                   115,991     123,183
</Table>


                                       51
<PAGE>


(3)  ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

<Table>
<Caption>
                                                              MARCH 31,
                                                       ------------------------
                                                         2002             2003
                                                       --------        --------
                                                             (IN THOUSANDS)
<S>                                                    <C>             <C>

        Accounts receivable........................    $ 15,028        $ 19,265
        Less allowance for doubtful accounts.......       2,559           1,183
                                                       --------        --------
                                                       $ 12,469        $ 18,082
                                                       ========        ========
</Table>

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

The following table represents activity within our allowance for doubtful
accounts for the years ended March 31, 2001, 2002 and 2003:

<Table>
<Caption>
                                          (IN THOUSANDS)
<S>                                       <C>

Balance at March 31, 2000 ..............  $        370
    Additions ..........................           462
    Write-offs .........................          (607)
                                          ------------
Balance at March 31, 2001 ..............           225
    Acquisitions .......................         2,379
    Additions ..........................           505
    Write-offs .........................          (550)
                                          ------------
Balance at March 31, 2002 ..............         2,559
    Additions ..........................           325
    Write-offs .........................        (1,701)
                                          ------------
Balance at March 31, 2003 ..............  $      1,183
                                          ============
</Table>

(4)  PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<Table>
<Caption>
                                                       RANGE OF
                                                       ESTIMATED             MARCH 31,
                                                     USEFUL LIVES   --------------------------
                                                       (IN YEARS)      2002          2003
                                                     ------------   ------------  ------------
                                                                         (IN THOUSANDS)
<S>                                                  <C>            <C>           <C>

Computer equipment .................................       3-5      $     13,404  $     12,961
Office furniture and equipment .....................      5-10             1,315         1,502
Software ...........................................       3-5             2,074         5,811
Capitalized lease equipment ........................       3-5                --            37
Leasehold improvements .............................      3-10             3,882         4,055
                                                                    ------------  ------------
                                                                          20,675        24,366
Less accumulated depreciation and amortization .....                       9,318        14,051
                                                                    ------------  ------------
                                                                    $     11,357  $     10,315
                                                                    ============  ============
</Table>

(5)  PRODUCT DEVELOPMENT AND CAPITALIZED SOFTWARE DEVELOPMENT COSTS

Product development costs and amortization of capitalized software development
costs for the years ended March 31, 2001, 2002 and 2003 were as follows:

<Table>
<Caption>
                                                                                  MARCH 31,
                                                                     ------------------------------------
                                                                       2001          2002          2003
                                                                     --------     ---------     ---------
                                                                               (IN THOUSANDS)
<S>                                                                  <C>          <C>           <C>
        Product development costs charged to general and
           administrative expenses...............................    $     405    $     381     $   1,503
                                                                     =========    =========     =========
        Amortization of capitalized software development costs
           charged to cost of revenues...........................    $   2,159    $   1,161     $   1,564
                                                                     =========    =========     =========
        Write-off of capitalized software development costs......    $      --    $   1,941     $      --
                                                                     =========    =========     =========
</Table>


                                       52
<PAGE>


(6) GOODWILL AND OTHER INTANGIBLE ASSETS

In connection with the acquisitions of Ti3, Inc.; the unemployment cost
management services business of Gates, McDonald & Company, a subsidiary of
Nationwide Mutual Insurance Company; and James E. Frick, Inc., d/b/a The Frick
Company, TALX acquired certain identifiable intangible assets. These assets were
recorded in accordance with the Financial Accounting Standards Board SFAS No.
141, "Business Combinations."

Effective April 1, 2002, we have adopted the Financial Accounting Standards
Board SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142
addresses the initial recognition and measurement of intangible assets acquired
outside of a business combination and the accounting for goodwill and other
intangible assets subsequent to their acquisition. SFAS No. 142 provides that
intangible assets with finite useful lives be amortized and that goodwill and
intangible assets with indefinite lives will not be amortized, but will rather
be tested at least annually for impairment. Under the provisions of SFAS No.
142, any impairment loss identified upon adoption of this standard will be
recognized as a cumulative effect of a change in accounting principle. Goodwill
and intangible assets determined to have an indefinite useful life that are
acquired in purchase business combinations will not be amortized, but instead
tested for impairment on an annual basis. Through the use of an independent
business appraiser, we reviewed our goodwill and intangible assets as of
December 31, 2002 and determined that no impairment existed.

The following table summarizes goodwill and other intangible asset activity for
years ended March 31, 2002 and 2003 (dollars in thousands).

<Table>
<Caption>
                                                                                         OTHER INTANGIBLE ASSETS
                                                                    ----------------------------------------------------------------
                                                                      CUSTOMER                    CUSTOMER        NON-       GROSS
                                                       GOODWILL         BASE        SOFTWARE       RECORDS      COMPETE      TOTAL
                                                     ------------   ------------  ------------   ----------   -----------  ---------
<S>                                                  <C>            <C>           <C>            <C>          <C>          <C>
GROSS CARRYING VALUES:
   March 31, 2001 .................................  $         --   $         --  $         --   $       --   $        --  $      --
     Assets acquired ..............................       102,564         16,904           154        2,200            --     19,258
                                                     ------------   ------------  ------------   ----------   -----------  ---------
   March 31, 2002 .................................       102,564         16,904           154        2,200            --     19,258
     Adjust intangibles to final valuations .......          (618)           679          (154)         (16)          109        618
     Adjust acquired assets to final valuations ...           537             --            --           --            --         --
     Transaction costs ............................           986             --            --           --            --         --
     Ti3 acquisition additional consideration .....         2,000             --            --           --            --         --
                                                     ------------   ------------  ------------   ----------   -----------  ---------
   March 31, 2003 .................................  $    105,469   $     17,583  $         --   $    2,184   $       109  $  19,876
                                                     ============   ============  ============   ==========   ===========  =========

ACCUMULATED AMORTIZATION:
   March 31, 2001 .................................  $         --   $         --  $         --   $       --   $        --  $      --
     Amortization .................................            --             43            38            2            --         83
                                                     ------------   ------------  ------------   ----------   -----------  ---------
   March 31, 2002 .................................            --             43            38            2            --         83
     Amortization .................................            --          1,172           (38)         145            64      1,343
                                                     ------------   ------------  ------------   ----------   -----------  ---------
   March 31, 2003 .................................  $         --   $      1,215  $         --   $      147   $        64  $   1,426
                                                     ============   ============  ============   ==========   ===========  =========

Weighted average lives (in years) .................                        14.92                      15.00          3.00      14.86
                                                                    ============                 ==========   ===========  =========
</Table>

Amortization of other intangible assets is projected to be $1.4 million for the
fiscal year ended March 31, 2004 and $1.3 million for each of the fiscal years
ended March 31, 2005 through 2008.


                                       53
<PAGE>


(7)  ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities for the years ended March 31, 2002 and
2003 consist of the following:

<Table>
<Caption>
                                                       MARCH 31,
                                              ---------------------------
                                                  2002           2003
                                              ------------   ------------
                                                     (IN THOUSANDS)
<S>                                           <C>            <C>

Compensation and benefits .................          2,004          5,836
Transition fees ...........................             --          2,977
Partner fees ..............................             --          1,027
Acquisition costs .........................         17,298             --
Other .....................................          1,125          1,633
                                              ------------   ------------
                                              $     20,427   $     11,473
                                              ============   ============
</Table>

Prior to restatement, compensation and benefits and total accrued expenses were,
in thousands, $2,032 and $20,455, respectively, for 2002 and $5,841 and $11,478,
respectively, for 2003.

(8)  LONG-TERM DEBT

Long-term debt at March 31, 2002 and 2003 consisted of:

<Table>
<Caption>
                                                               MARCH 31,
                                                        ----------------------
                                                          2002           2003
                                                        ---------     --------
                                                            (IN THOUSANDS)
<S>                                                     <C>           <C>

        Borrowings under term note..................    $  30,000     $  22,000
             Less current portion...................        8,000        10,000
                                                        ---------     ---------
        Long-term debt..............................    $  22,000     $  12,000
                                                        =========     =========
</Table>

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

The Term Loan and advances under the Revolving Credit Facility bear interest at
rates we select under the terms of the Loan Agreement, including a base rate or
eurodollar rate, plus an applicable margin. Until March 27, 2003, eurodollar
rate loans bore interest at the applicable eurodollar rate plus 2.25% and base
rate loans bore interest at the applicable base rate plus 0.00%. Commencing
March 28, 2003, the applicable margin for eurodollar rate loans varies from
2.00% to 2.25%, and the applicable margin for base rate loans remains at 0.00%,
in each case based upon our ratio of total indebtedness to EBITDA. We may make
prepayments under the Term Loan and Revolving Credit Facility without penalty.
In addition, if William W. Canfield ceases serving as our chief executive
officer during the first 24 months after closing, and we do not retain a
substitute satisfactory to the Lenders within 120 days, then we are required to
repay all outstanding loans (Term Loan and Revolving Credit Facility).

The Loan Agreement is secured by security interests in substantially all the
assets of us and of our three subsidiaries (Ti3, Garcia and Frick), the
guarantees of our three subsidiaries, and a pledge of the stock of each of those
subsidiaries.

The Loan Agreement includes certain covenants, including, without limitation,
restrictions on the use of proceeds of the Term Loan and loans made under the
Revolving Credit Facility. The Term Loan was to be used solely to pay a portion
of the purchase price for the acquisitions of the The Frick Company and the GM
Unemployment Compensation Business. The proceeds of loans made under the
Revolving Credit Facility may be used solely for working capital, permitted
capital


                                       54
<PAGE>


expenditures, as the source for payment of our obligations with respect to
certain existing letters of credit, to pay the transaction cost of the Loan
Agreement, and to finance certain permitted acquisitions. The Loan Agreement
also requires compliance with certain financial covenants based on our minimum
net worth, minimum EBITDA, our ratio of total indebtedness to EBITDA and our
ratio of EBITDA to fixed charges. The Loan Agreement further requires compliance
with certain operating and other covenants which limit, among other things, the
incurrence of additional indebtedness by us and our subsidiaries, the amount of
capital expenditures to be made by us and our subsidiaries, sales of assets and
mergers and dissolutions, impose restrictions on distributions to shareholders,
change of control of TALX, investments, acquisitions and liens, and which
require compliance, in all material respects, with material laws. The Loan
Agreement generally prohibits the payment of cash dividends, except for cash
dividends not in excess of $2.5 million per fiscal year so long as we are not in
default at the time of the declaration. The Loan Agreement also contains various
representations and warranties, including among other things, the accuracy of
financial statements and other information delivered to the Lenders, the absence
of changes which would have or would reasonably be likely to have a material
adverse effect (as customarily included in secured credit facilities of this
nature).

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

At March 31, 2003 our outstanding borrowings carried an interest rate of 3.54%.

Scheduled minimum long-term debt repayments are $10 million and $12 million in
fiscal years 2004 and 2005, respectively. Payments are due in equal quarterly
amounts. We may accelerate credit facility repayments, depending on available
operating cash flow.

(9) DERIVATIVE FINANCIAL INSTRUMENT

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

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

As of March 31, 2003, the fair value of the interest rate swap in the amount of
$256,000 is included in accrued expenses and other liabilities. Interest expense
accrued on the swap contract was $175,000 for the year ended March 31, 2003.

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

(10) LEASES

We have non-cancelable operating leases, primarily for office space and office
equipment, that expire through fiscal 2009. Total rent expense for operating
leases was $1,360,000, $1,494,000 and $5,021,000 in 2001, 2002 and 2003,
respectively.


                                       55
<PAGE>


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

The following is a schedule, by year, of the future minimum payments under
capital and operating leases, together with the present value of the net minimum
payments as of March 31, 2003.

<Table>
<Caption>
                                                           CAPITAL      OPERATING
                                                           LEASES        LEASES
                                                        ------------   ------------
                                                              (IN THOUSANDS)
<S>                                                     <C>            <C>
Fiscal Year:
   2004 .............................................   $        131   $      4,330
   2005 .............................................             24          3,718
   2006 .............................................             --          3,548
   2007 .............................................             --          1,664
   2008 .............................................             --            341
   Thereafter .......................................             --            144
                                                        ------------   ------------
Total minimum lease payments ........................            155   $     13,745
                                                                       ============
   Less amount representing interest ................              3
                                                        ------------
Total present value of minimum capital lease payments            152
   Less current portion .............................            130
                                                        ------------
Long-term capital lease obligations .................   $         22
                                                        ============
</Table>

(11) INCOME TAXES

Income tax expense consists of the following:

<Table>
<Caption>
                                                                          MARCH 31,
                                                         --------------------------------------------
                                                             2001            2002            2003
                                                         ------------    ------------    ------------
                                                                        (IN THOUSANDS)
                                                             (RESTATED FOR EACH PERIOD PRESENTED)
<S>                                                      <C>             <C>             <C>
Current:
   Federal ...........................................   $      3,006    $      2,412    $      2,214
   State and local ...................................            644             840             406
Deferred:
   Federal ...........................................         (1,905)           (518)          4,591
   State and local ...................................           (399)           (222)            842
                                                         ------------    ------------    ------------
     Income tax expense before discontinued operations          1,346           2,512           8,053
Discontinued operations ..............................             24              --              --
                                                         ------------    ------------    ------------
   Total income tax expense ..........................   $      1,370    $      2,512    $      8,053
                                                         ============    ============    ============
</Table>

Prior to restatement, deferred federal, deferred state and local, and total
income tax expense were recorded as, in thousands, $(1,786), $(383) and $1,505,
respectively for 2001 and $(705), $(245) and $2,302, respectively for 2002 and
$4,476, $818 and $7,914, respectively for 2003.

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

<Table>
<Caption>
                                                                                           MARCH 31,
                                                                           -------------------------------------------
                                                                               2001           2002            2003
                                                                           ------------   ------------    ------------
                                                                                          (IN THOUSANDS)
                                                                               (RESTATED FOR EACH PERIOD PRESENTED)

<S>                                                                        <C>            <C>             <C>
Computed "expected" tax expense ........................................   $      1,119   $      2,315    $      7,147
Increase (decrease) in income taxes resulting from:
   State and local income taxes, net of federal income tax benefit .....            162            408             824
   Travel and entertainment ............................................             53             54              66
   Tax exempt interest .................................................             --           (302)             --
   Other, net ..........................................................             12             37              16
                                                                           ------------   ------------    ------------
                                                                           $      1,346   $      2,512    $      8,053
                                                                           ============   ============    ============
</Table>


                                       56
<PAGE>

Prior to restatement, computed "expected" tax expense, increase from state and
local income taxes and total income tax expense were recorded as, in thousands,
$1,244, $172 and $1,481, respectively for 2001 and $2,119, $394 and $2,302,
respectively for 2002 and $7,025, $807 and $7,914, respectively for 2003.

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at March 31, 2002 and
2003 are presented below:

<Table>
<Caption>
                                                                               MARCH 31,
                                                                      --------------------------
                                                                         2002           2003
                                                                      -----------    -----------
                                                                           (IN THOUSANDS)
                                                                         (RESTATED FOR EACH
                                                                          PERIOD PRESENTED)
<S>                                                                   <C>            <C>
Deferred tax assets:
   Allowance for doubtful accounts .................................  $        54    $       184
   Intellectual property settlement ................................          551             --
   Restructuring charges ...........................................           --             54
   Accrual for compensated absences ................................           94            337
   Deferred revenue ................................................        2,545             42
   Net operating loss carryforwards ................................          542            228
   Differences in depreciation and amortization ....................          635            424
                                                                      -----------    -----------
     Total deferred tax assets .....................................        4,421          1,269
                                                                      -----------    -----------
Deferred tax liabilities:
   Differences in capitalized software development cost methods ....       (1,256)        (1,389)
   Differences in intangible asset amortization methods ............         (193)        (2,554)
   Differences in expense recognition methods ......................         (215)          (100)
                                                                      -----------    -----------
     Total deferred tax liabilities ................................       (1,664)        (4,043)
                                                                      -----------    -----------
     Net deferred tax assets (liabilities) .........................  $     2,757    $    (2,774)
                                                                      ===========    ===========
</Table>

Prior to restatement, deferred revenue, total deferred tax assets and net
deferred tax assets (liabilities) were recorded as, in thousands, $2,365, $4,241
and $2,577, respectively for 2002 and $0, $1,227 and $(2,816), respectively for
2003.

A net operating loss carryforward of approximately $600,000 is available to
offset consolidated future taxable earnings, subject to certain restrictions.
This net operating loss carryforward was acquired as part of our 2002
acquisitions.

In assessing the realization of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, management believes it
is more likely than not we will realize the benefits of these deductible
differences.

(12)  RESTRUCTURING AND OTHER CHARGE

During the quarter ended September 30, 2001, we reorganized our sales and
delivery operations and refocused our product lines related to our human
resources and benefit applications and customer premises systems businesses. In
conjunction with the reorganization, we reduced our workforce by approximately
17%, closed certain regional sales offices and wrote-down hardware inventory and
capitalized software. As a result of these actions, we incurred restructuring
charges of $1.9 million associated with the write-off of capitalized software,
$349,000 related to employee severance costs and $337,000 related to office
closing costs. These items are reflected in the line item "restructuring charge"
on the statement of earnings and $240,000 and $139,000 is reflected in accrued
expenses on the balance sheet as of March 31, 2002 and 2003, respectively.
Additionally, we incurred a charge of $307,000 related to the write-down of
certain hardware inventory items. This charge is reflected as a separate
component of cost of goods sold on the statement of earnings for the year ended
March 31, 2002.



                                       57
<PAGE>
(13)  SHAREHOLDERS' EQUITY

TALX has adopted a stock option plan for employees that provides for the
issuance of a maximum of 3,049,200 shares of common stock pursuant to incentive
or non-qualified options. Options are granted by the Board of Directors at
prices not less than fair market value as of the date of the grant. Options vest
20% per year and expire six to ten years after the date of the grant.

TALX has adopted a stock option plan for outside directors that provides for the
issuance of a maximum of 145,200 shares of common stock. Options are granted in
the amount of 2,500 shares each to outside directors at prices not less than
fair market value as of the date of the grant, which is April 1 of each year.
The options vest one year from the date of grant. Options outstanding amount to
54,568 and 53,676 at March 31, 2002 and 2003, respectively.

Activity under the plans for the three years ended March 31, 2003 is as follows:

<Table>
<Caption>
                                                                                                          WEIGHTED
                                                                                                           AVERAGE
                                                                                           SHARES      EXERCISE PRICE
                                                                                         -----------   --------------
<S>                                                                                        <C>               <C>
      Outstanding at March 31, 2000.................................................       1,097,038         3.43
         Granted....................................................................         321,303         8.51
         Cancelled..................................................................         (56,858)        5.35
         Exercised..................................................................        (229,075)        2.56
                                                                                         -----------
      Outstanding at March 31, 2001.................................................       1,132,408         4.98
         Granted....................................................................         446,502        23.25
         Cancelled..................................................................          (6,029)       17.16
         Exercised..................................................................        (175,038)        4.03
                                                                                         -----------
      Outstanding at March 31, 2002.................................................       1,397,843        10.88
         Granted....................................................................         507,375        16.31
         Cancelled..................................................................        (133,928)       12.77
         Exercised..................................................................        (170,992)        3.96
                                                                                         -----------
      Outstanding at March 31, 2003.................................................       1,600,298        13.18
                                                                                         ===========
</Table>

<Table>
<Caption>
                                                  OPTIONS OUTSTANDING                       OPTIONS EXERCISABLE
                                   --------------------------------------------------  ------------------------------
                                                    WEIGHTED AVERAGE
                                                        REMAINING       WEIGHTED                          WEIGHTED
                                    NUMBER OF       CONTRACTUAL LIFE     AVERAGE        NUMBER OF          AVERAGE
     RANGE OF EXERCISE PRICE         SHARES              (YEARS)      EXERCISE PRICE     SHARES        EXERCISE PRICE
    ---------------------------    ----------     ------------------  ---------------  -----------     --------------
<S>                 <C>            <C>            <C>                 <C>              <C>             <C>
    $   0.00  --    3.12.......        191,651            4.3            $  2.78         131,379           $ 2.72
        3.12  --    6.23.......        274,168            5.9               4.20         165,424             4.14
        6.23  --    9.35.......        227,710            7.1               8.30          83,575             8.29
        9.35  --   12.46.......         40,892            7.1              11.27          10,892            10.47
       12.46  --   15.58.......          1,000            9.5              14.02              --               --
       15.58  --   18.69.......        489,625            9.0              16.63           6,000            16.90
       18.69  --   21.81.......         10,325            8.3              19.91           3,330            19.73
       21.81  --   24.92.......        243,926            7.9              22.90          57,585            22.86
       24.92  --   28.04.......        110,001            8.1              25.20          22,000            25.20
       28.04  --   31.15.......         11,000            8.3              31.15           2,200            31.15
                                   -----------                                        ----------
                                     1,600,298                                           482,385
                                   ===========                                        ==========
</Table>

In May 1999, we entered into an agreement with a third party, under which they
provide us with strategic advisory services, including in connection with our
acquisition of Ti3. Pursuant to that agreement, we issued them warrants to
purchase a total of 45,375 shares of our common stock at an exercise price of
$4.82 per share. All 45,375 warrants are outstanding and exercisable at March
31, 2003.

During fiscal 1997, shareholders approved the TALX Corporation 1996 Employee
Stock Purchase Plan (ESPP), which was amended in 1998 and 2000 and amended and
restated in 2001. The ESPP allows eligible employees the right to purchase
common stock on a quarterly basis at the lower of 85% of the market price at the
beginning or end of each three-month



                                       58
<PAGE>

offering period. Of the 907,500 shares of common stock shares reserved for the
ESPP, there were 464,106 shares remaining at March 31, 2003.

In November 2000, our board of directors authorized us to repurchase up to
400,000 shares of our stock in the open market, or through privately negotiated
transactions over the following two-year period. In November 2001, this plan was
extended to November 2004, and the number of shares was increased to one
million. Under this plan, we repurchased 311,000 shares during the year ended
March 31, 2003. Cumulative shares repurchased under this plan amount to 608,500.
Share amounts are reported on a pre-dividend basis. On September 5, 2002, our
board of directors approved a new stock repurchase plan, authorizing us to
repurchase up to one million shares during the 36 month period ending September
30, 2005, subject to market conditions and other factors. As of March 31, 2003,
175,000 shares have been repurchased under this plan. Except for the 409,231
shares remaining in the treasury at March 31, 2003, all shares repurchased have
been reissued in connection with employee stock option exercises and employee
stock purchase plan purchases.

During fiscal 2001, we began paying dividends on our common stock on a quarterly
basis. Dividends of $0.08, $0.12 and $0.13 per share were declared and dividends
of $0.05, $0.12 and $0.12 per share were paid to shareholders during fiscal
years 2001, 2002 and 2003, respectively. Any future determination to pay
dividends will be at the discretion of our board of directors and will depend
upon our earnings, capital requirements and operating and financial condition
and such other factors as the board may deem relevant.

 (14)  BUSINESS SEGMENTS

FASB Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information," requires companies to provide certain information about their
operating segments. Prior to our acquisitions in March 2002, we only had one
reportable segment. Effective March 27, 2002, we had two reportable segments:
Payroll-Based Services and Software and Unemployment Cost Management Services.

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

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

     o        Human Resources and Benefits Application Services; and

     o        Customer Premises Systems and Related Maintenance and Support

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

For the year ended March 31, 2002, we allocated goodwill and intangible assets
to the appropriate segments. All interest income and expense, debt and executive
overhead expenses were included in the Payroll-Based Services and Software
segment.

For the year ended March 31, 2003, the following items are not reported on an
operating segment basis (and are included in the following table in the column
entitled "Unallocated") because they are not considered in the performance
evaluation by our chief operating decision-maker, our chairman and CEO:

     o        Interest income and expense and income taxes;

     o        Acquisition-related debt, goodwill and intangible assets;

     o        Intangible asset amortization expense; and

     o        Executive overhead expenses



                                       59
<PAGE>


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

<Table>
<Caption>
                                                PAYROLL-BASED   UNEMPLOYMENT COST
                                                 SERVICES AND      MANAGEMENT
                                                   SOFTWARE         SERVICES        UNALLOCATED        TOTAL
                                                --------------  ----------------- --------------    --------------
                                                                  (IN THOUSANDS)
                                                                    (RESTATED)
<S>                                             <C>              <C>              <C>               <C>
   MARCH 31, 2001
   Revenues .................................   $       38,655   $           --   $           --    $       38,655
   Income from operations ...................            2,730               --               --             2,730
   Total assets .............................           33,620               --               --            33,620
   Depreciation and amortization ............            4,615               --               --             4,615
   Capital expenditures .....................            1,819               --               --             1,819

   MARCH 31, 2002
   Revenues .................................   $       44,314   $          848   $           --    $       45,162
   Income from operations ...................            5,088              154               --             5,242
   Total assets .............................           52,184          127,635               --           179,819
   Depreciation and amortization ............            3,801              110               --             3,911
   Capital expenditures .....................            1,606               --               --             1,606

   MARCH 31, 2003
   Revenues .................................   $       51,469   $       74,645               --    $      126,114
   Income from operations ...................           16,379           12,806           (6,805)           22,380
   Total assets .............................           10,104           38,772          123,919           172,795
   Depreciation and amortization ............            3,942            3,020            1,344             8,306
   Capital expenditures .....................            2,134            2,382               --             4,516
</Table>

Prior to restatement, Payroll-Based Services and Software revenues, income from
operations and total assets were recorded as, in thousands, $39,013, $3,060 and
$33,434 for 2001, $43,704, $4,514 and $52,103 for 2002 and $51,085, $16,018 and
$10,038 for 2003, respectively.

(15)  DISCONTINUED OPERATIONS

Effective March 31, 2000, we sold all of the assets, net of liabilities, of the
database services business to WPZ Holdings, Inc., the parent company of one of
the division's largest customers. The sales price was $1,273,000, which
represented the current book value of the net assets sold. We realized pre-tax
and after-tax gains of $187,000 and $117,000, respectively. While the effective
date of the transaction was March 31, 2000, cash settlement occurred April 5,
2000.

During the quarter ended September 30, 2000, we concluded all transition-related
activity for the database services business. Completing this transition ahead of
schedule resulted in a savings of $61,000 of the transition reserve. Therefore,
we realized pre-tax and after-tax gains of $61,000 and $37,000, respectively.

The results of operations for the database business for the year ended March 31,
2001 included a gain on disposal of $61,000, income taxes of $24,000 and net
earnings of $36,000. There were no results of operations for the years ended
March 31, 2002 and 2003. As of March 31, 2001, 2002 and 2003 there were no
assets or liabilities related to the database business on the balance sheets.




                                       60
<PAGE>
(16)  DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts for our cash and cash equivalents, short-term investments,
trade receivables, accounts payable, accrued expenses and income taxes payable
approximate fair value because of the short-term maturity of these instruments.
The carrying value of long-term debt and borrowings under our revolving line of
credit facility approximate fair value due to their stated interest rates
approximating market rates. These estimated fair value amounts have been
determined using available market information or other appropriate valuation
methodologies.

(17)  EMPLOYEE BENEFIT PLAN

We sponsor a profit-sharing/401(k) plan. The plan covers substantially all of
our employees. We make contributions to the plan, subject to ERISA limitations,
up to 2.4% of employees' earnings. Total expense under the plan for the years
ended March 31, 2001, 2002 and 2003 was $305,000, $322,000 and $762,000,
respectively.

(18)  COMMITMENTS AND CONTINGENCIES

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

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

Three additional purported class action lawsuits were filed in the same court,
against the same defendants and making substantially the same allegations: on
January 8, 2002 by Donald Metzger (Civil Action No. 4:02CV00031DJS); on January
9, 2002 by Anna Goodman (Civil Action No. 4:02CV00033DJS); and on January 30,
2002 by Al Hinton (Civil Action No. 4:02CV00168DJS) each of whom allegedly were
shareholders of the Company during the Putative Class Period. On February 15,
2002, these three lawsuits were consolidated with and into the Brody lawsuit
(Civil Action No. 4:01CV02014DJS) for all purposes. On or about April 14, 2002,
a Consolidated Complaint was filed. In October 2002, the case was transferred
from the Honorable Donald J. Stohr, United States District Judge, to the
Honorable Henry E. Audrey, United States District Judge.

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

On May 20, 2002, we and the Individual Defendants filed a motion to dismiss the
lawsuits, and the underwriter defendants filed a separate motion to dismiss. The
plaintiffs filed their opposition to the motions to dismiss on June 19, 2002.
The defendants' reply memoranda in support of the motions to dismiss were filed
on July 9, 2002. The District Court issued a Memorandum and Order on March 31,
2003 granting in part and denying in part the motion to dismiss. The Court's
Order dismissed the plaintiffs' claims under Section 10(b) and 20(a) of the
Exchange Act of 1934.

We intend to defend vigorously against the plaintiffs' claims, although we are
engaged in settlement discussions. However,



                                       61
<PAGE>

due to the inherent uncertainties of litigation, we cannot accurately predict
the ultimate outcome of the litigation. An unfavorable outcome could have a
material adverse impact on our business, financial condition and results of
operations.

As previously disclosed, the Securities and Exchange Commission initially
commenced an investigation into our second fiscal quarter 2001 financial
results. We are cooperating fully with the investigation. On November 12, 2002,
the staff of the Central Regional Office of the Commission sent us a "Wells
letter" indicating the staff's plans to recommend to the Commission that it
institute an enforcement action against us and two of our executive officers,
William Canfield and Craig Cohen (who recently resigned) related to two matters,
and requesting that we and such executive officers submit responses to the
letter. The Wells letter states that the SEC staff will allege, among other
things, that our financial statements were misleading as a result of
capitalizing instead of expensing $1.6 million related to a patent technology
license agreement executed in March 2001 and expensing approximately $158,000 in
bonus payments to executive officers in the first quarter of fiscal 2002 instead
of the fourth fiscal quarter of 2001. Those items are among those that are the
subject of our prior restatement. We and the individuals have filed separate
responses to the Wells letter. Since the time of the Wells submissions, the
Commission is continuing its investigation of our accounting for certain items,
including those which were the subject of the restatements discussed below. The
remedies the Commission may consider, if appropriate, include an injunction
against us and the individuals and an officer and director bar and disgorgement
and civil money penalties against us and/or the individuals. The application of
any of the foregoing remedies, or the commencement of any regulatory proceeding
or enforcement action, could harm our business and financial condition.

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

Our directors and officers liability insurance carriers have received notice of
the consolidated litigation and SEC investigation.

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

COMMITMENTS AND CONTINGENCIES UPDATE (UNAUDITED)

As discussed above, on May 20, 2002, we and the Individual Defendants filed a
motion to dismiss the lawsuits, and the underwriter defendants filed a separate
motion to dismiss. The plaintiffs filed their opposition to the motions to
dismiss on June 19, 2002. The defendants' reply memoranda in support of the
motions to dismiss were filed on July 9, 2002. The District Court issued a
Memorandum and Order on March 31, 2003 granting in part and denying in part the
motion to dismiss. The Court's Order dismissed the plaintiffs' claims under
Section 10(b) and 20(a) of the Exchange Act of 1934. The plaintiffs were granted
leave to file an amended Consolidated Complaint on or before May 30, 2003.

On May 29, 2003, plaintiffs in the several pending securities lawsuits filed an
Amended Consolidated Complaint ("Amended Complaint"). The Amended Complaint
amends the original Complaint by adding allegations pertaining to our December
2002 restatement of financials and expanding the Putative Class Period to
include all persons who purchased or otherwise acquired shares of our common
stock between April 25, 2001 and November 14, 2002 ("Amended Putative Class
Period"). The Amended Complaint alleges, among other things, that certain
statements in the registration statement and prospectus for our August 2001
secondary common stock offering, as well as other statements made by us and/or
the Individual Defendants during the Amended Putative Class Period, were
materially false and misleading because we capitalized instead of expensed $1.6
million related to a patent technology license agreement executed in March 2001;
expensed approximately $158,000 in bonus payments to executive officers in the
first quarter of fiscal 2002 instead of the fourth fiscal quarter of 2001;
improperly recognized revenue and expenses during the Amended Putative Class
Period; and miscalculated diluted earnings per share during the Amended Putative
Class Period. All of these matters were the subject of our 2002 restatement of
financials described in our Form 10-K/A for the year ended March 31, 2002. The
Amended Complaint also alleges, as did the original Complaint, that we did not
properly account for certain software and inventory, did not reflect certain
write-offs, and did not accurately disclose certain business prospects. The
Amended Complaint seeks, among other things, an award of unspecified money
damages, including interest, for all losses and injuries allegedly suffered by
the putative class members as a result of



                                       62
<PAGE>

the defendants' alleged conduct and unspecified equitable/injunctive relief as
the Court deems proper. On July 30, 2003, the defendants filed a motion to
dismiss the Amended Complaint. On September 26, 2003, plaintiffs filed their
opposition to the motion to dismiss. On October 29, 2003, defendants filed their
reply in support of the motion to dismiss. The Court has not yet ruled on the
motion.

As described above, we have filed restated financial statements herewith and
have announced that we are restating financial results for the fiscal years
ended March 31, 1999 through March 31, 2003 and for the first two quarters of
fiscal 2004. In December 2002, we filed restated financial statements for each
of the quarters ended June 30, 2000 through June 30, 2002 and for the fiscal
years ended March 31, 2001 and 2002. As a result of this new restatement, we
could become subject to additional litigation or regulatory proceedings or both.
As of the date hereof, we are not aware of any litigation having been commenced
against us related to this new restatement. However, such litigation could be
commenced against us in the future and the plaintiffs who have filed lawsuits
against us previously could amend their complaints to include claims related to
this new restatement. We cannot predict the outcome of any such litigation at
this time. Additionally, the lenders under our March 27, 2002 Loan Agreement,
which is described more fully above in Note 8, could seek to exercise remedies
which may be available to them, such as acceleration of our loans, in the event
they determine that, as a result of the restatements discussed above or the SEC
investigation discussed below or otherwise, we have breached a covenant or
representation and warranty in the Loan Agreement. If an unfavorable result
occurred in any such action, our business and financial conditions could be
harmed.

(19)  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the year for interest totaled $0, $0 and $1.3 million for the
years ended March 31, 2001, 2002 and 2003, respectively. Cash paid during the
year for income taxes totaled $2.7 million, $1.0 million and $2.5 million for
the years ended March 31, 2001, 2002 and 2003, respectively.

(20)  RELATED PARTY TRANSACTION

James W. Canfield, the son of our Chairman, President and Chief Executive
Officer, is employed in a non-executive position with our Company as the manager
of ePayroll business development. Mr. Canfield has a current annual salary of
$95,000 and is eligible for a bonus of approximately $19,000 based upon certain
performance goals. This bonus can decrease or increase based on the percentage
achievement of these performance goals. Mr. Canfield is also eligible annually
for an award of 2,500 stock options. Both the bonus and stock option awards are
granted under standard corporate compensation plans and are consistent with
payments made to managers at Mr. Canfield's level. For fiscal 2003, Mr. Canfield
received $91,350 in salary, $12,800 in bonus and 2,500 stock options for his
services to the Company.

(21)  CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

During 2001, we changed our method of accounting for certain service
transactions in the Human Resources and Benefits Application Services and The
Work Number Services revenue lines to be in accordance with Staff Accounting
Bulletin (SAB) No. 101. We also considered recent guidance from the SEC staff
concerning the accounting for these types of service transactions. This guidance
requires revenues to be recognized on a straight-line basis from the time the
service is available for use by our clients through the end of the service
period. Previously, we had consistently recorded revenues as services were
provided. We have retroactively adopted SAB 101 as of April 1, 2000, and have
recorded a cumulative effect adjustment of $1.7 million, net of tax of $1.1
million, in fiscal 2001 to reflect the application of the new accounting. The
cumulative effect adjustment was computed based on revenue of $2.9 million, and
related commission expense of $175,000, initially recognized in 2000 and prior
years that was delayed to 2001 and future periods under SAB 101.

(22)  SUBSEQUENT EVENT

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



                                       63
<PAGE>
The transaction is structured as a transfer of assets under contract for sale
with no initial down-payment and the purchase price to be paid over a three-year
period, based on a client retention formula. Proceeds are anticipated to be
between $2 million and $6 million, with no minimum guaranteed amount. We will
record cash received under the asset purchase agreement first to reduce the
recorded value of net assets sold under the agreement and then to reflect gain
on the sale of the business. In connection with the sale, we will provide
Workscape, Inc., for agreed upon fees, with various transition services related
to the operation of the benefits enrollment business until December 31, 2005, or
until certain transferred client contracts have expired or been terminated.
Workscape, Inc. has hired all of the employees related to the benefits
enrollment business.



                                       64
<PAGE>
(23)  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly data is set forth in the following table on a restated
basis. The revenues for customer premises systems business have been restated to
give effect to the impact of adjustments to contract revenues as discussed in
Note 2. The revenue impact of the restatement is set forth below for each of the
respective quarterly summaries, net of the related commissions and income taxes
which were adjusted to give effect to the restated revenue.

<Table>
<Caption>
                                                                                                FISCAL 2002
                                                                           ------------------------------------------------------
                                                                             JUNE 30,    SEPT. 30,        DEC. 31,      MARCH 31,
                                                                              2001          2001            2001          2002
                                                                           -----------   -----------    -----------   -----------
                                                                                    (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                              <C>          <C>            <C>           <C>
   AS RESTATED:
       Total revenues ....................................................       9,536        10,030         14,203        11,392
       Gross margin ......................................................       4,436         4,472          8,951         6,016
       Net earnings (loss) ...............................................         595        (1,298)         3,437         1,563

        Basic earnings (loss) per share:
           Earnings (loss) from continuing operations before cumulative
              effect of change in accounting principle ...................        0.06         (0.10)          0.25          0.11
           Net earnings (loss) ...........................................        0.06         (0.10)          0.25          0.11

        Diluted earnings (loss) per share:
           Earnings (loss) from continuing operations before cumulative
              effect of change in accounting principle ...................        0.05         (0.10)          0.24          0.11
           Net earnings (loss) ...........................................        0.05         (0.10)          0.24          0.11

   IMPACT OF RESTATEMENT ON:
       Total revenues ....................................................          35           134            222           219
       Net earnings (loss) ...............................................          20            78            134           132
       Diluted earnings (loss) per share .................................        0.00          0.01           0.01          0.01

</Table>

<Table>
<Caption>
                                                                                                FISCAL 2003
                                                                          -----------------------------------------------------
                                                                            JUNE 30,     SEPT. 30,     DEC. 31,      MARCH 31,
                                                                             2002          2002          2002          2003
                                                                          -----------   -----------   -----------   -----------
                                                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                       <C>           <C>           <C>           <C>
   AS RESTATED:
       Total revenues .................................................        28,706        29,761        33,858        33,788
       Gross margin ...................................................        14,508        15,076        18,994        18,696
       Net earnings (loss) ............................................         2,124         2,544         4,243         4,058

        Basic earnings (loss) per share:
           Earnings (loss) from continuing operations before cumulative
              effect of change in accounting principle ................          0.15          0.18          0.31          0.30
           Net earnings (loss) ........................................          0.15          0.18          0.31          0.30

        Diluted earnings (loss) per share:
           Earnings (loss) from continuing operations before cumulative
              effect of change in accounting principle ................          0.15          0.18          0.30          0.29
           Net earnings (loss) ........................................          0.15          0.18          0.30          0.29

   IMPACT OF RESTATEMENT ON:
       Total revenues .................................................            85           114           127            58
       Net earnings (loss) ............................................            49            66            73            34
       Diluted earnings (loss) per share ..............................          0.00          0.00          0.01          0.00
</Table>

On April 22, 2003, we sold substantially all of the assets of our human
resources and benefits application services business. See Note 22 of the notes
to consolidated financial statements. During July 2001 we acquired Ti3, Inc. and
during March 2002, we acquired Frick and the GM Unemployment Compensation
Business.



                                       65
<PAGE>
                                    PART III

ITEM 14.  CONTROLS AND PROCEDURES

As of the end of the period covered by this report, management, including our
Chairman, President and Chief Executive Officer and our Chief Financial Officer
and Assistant Secretary, evaluated the effectiveness of the design and operation
of our disclosure controls and procedures with respect to the information
generated for use in this Annual Report. Based upon, and as of the date of that
evaluation, the Chairman, President and Chief Executive Officer and the Chief
Financial Officer and Assistant Secretary concluded that the disclosure controls
and procedures were effective to provide reasonable assurance that information
required to be disclosed in the reports we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Commission's rules and forms.

Except as described below, there was no change in our internal control over
financial reporting during the fourth fiscal quarter for the fiscal year ended
March 31, 2003, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

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

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

Additionally, we corrected three errors related to bill and hold arrangements on
hardware and software transactions arising out of the customer premises systems
line of business during the fiscal years ended March 31, 2000 and 2001. The
impact of these corrections resulted in revenues and related costs during fiscal
2000 and 2001 being recognized in different quarters than originally reported.
However, such adjustments had no impact on the fiscal 2000 or 2001 results.

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

In addition, we announced the resignation of Executive Vice President Craig N.
Cohen. Mr. Cohen had previously served as




                                       66
<PAGE>

chief financial officer from January 1994 to May 2003 and as vice president of
application services and software from May 1999 to May 2003.


                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

     (1)  Financial Statements
         See Item 8 -- Index to Consolidated Financial Statements

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

     (3)  Exhibits

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

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

(b)  Reports on Form 8-K

     Current Report on Form 8-K filed by the Company on January 31, 2003,
     furnishing a press release issued by the Company to announce third quarter
     results.



                                       67
<PAGE>
                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                              TALX CORPORATION

                              By:   /s/ WILLIAM W. CANFIELD
                                    -------------------------------------------
                              Chairman, President and Chief Executive Officer
                              (Principal Executive Officer)
                              January 21, 2004


                              By:   /s/ L. KEITH GRAVES
                                    -------------------------------------------
                              Chief Financial Officer and Assistant Secretary
                              (Principal Financial and Accounting Officer)
                              January 21, 2004




                                       68
<PAGE>
                                  EXHIBIT INDEX

<Table>
<Caption>
EXHIBIT NO.                        DESCRIPTION
-----------                        -----------
<S>            <C>
      2.1      Asset Purchase Agreement between Gates, McDonald & Company and
               Garcia Acquisition Sub, Inc. dated as of March 27, 2002,
               incorporated by reference to Exhibit 2.1 to our Current Report on
               Form 8-K filed April 2, 2002 +

      2.2      Escrow Agreement by and among Garcia Acquisition Sub, Inc.,
               Gates, McDonald & Company and LaSalle Bank National Association
               dated as of March 27, 2002, incorporated by reference to Exhibit
               2.2 to our Current Report on Form 8-K filed April 2, 2002

      2.3      Acquisition Agreement by and among the James E. Frick Profit
               Sharing and Employee Stock Ownership Plan and the principal
               holders of options to acquire capital stock of James E. Frick,
               Inc. and TALX Corporation dated as of March 27, 2002,
               incorporated by reference to Exhibit 2.3 to our Current Report on
               Form 8-K filed April 2, 2002 +

      2.4      Escrow Agreement by and among TALX Corporation, Falcon, LLC and
               UMB Bank, N.A. dated as of March 27, 2002, incorporated by
               reference to Exhibit 2.4 to our Current Report on Form 8-K filed
               April 2, 2002

      2.5      Lease Services Agreement by and between Gates, McDonald & Company
               and Garcia Acquisition Sub, Inc. dated as of March 27, 2002,
               incorporated by reference to Exhibit 2.5 to our Current Report on
               Form 8-K filed April 2, 2002

      2.6      Employee Services Agreement by and between Nationwide Mutual
               Insurance Company and Garcia Acquisition Sub, Inc. dated as of
               March 27, 2002, incorporated by reference to Exhibit 2.6 to our
               Current Report on Form 8-K filed April 2, 2002

      2.7      Master Transition Services Agreement by and between Gates,
               McDonald & Company and Garcia Acquisition Sub, Inc. dated as of
               March 27, 2002, incorporated by reference to Exhibit 2.7 to our
               Current Report on Form 8-K filed April 2, 2002

      2.8      Intellectual Property License Agreement by and between Gates,
               McDonald & Company and Garcia Acquisition Sub, Inc. dated as of
               March 27, 2002, incorporated by reference to Exhibit 2.8 to our
               Current Report on Form 8-K filed April 2, 2002

      3.1      Restated Articles of Incorporation of TALX Corporation, as
               amended, incorporated by reference to Exhibit 3.1 to our Annual
               Report on Form 10-K for the year ended March 31, 1997 (File No.
               000-21465)

      3.2      Bylaws of TALX Corporation, incorporated by reference to Exhibit
               3.2 to our Quarterly Report on Form 10-Q for the period ended
               December 31, 2001 (File No. 000-21465)

      4.1      See Exhibit 3.1

      4.2      Warrant Agreement dated as of October 22, 1996 among TALX
               Corporation, First Albany Corporation and Principal Financial
               Securities, Inc., incorporated by reference to Exhibit 4.2 to our
               Annual Report on Form 10-K for the year ended March 31, 1997
               (File No. 000-21465)

     10.1      Form of Incentive Stock Option Agreement, incorporated by
               reference to Exhibit 10.2 to our Registration Statement on Form
               S-1 (File No. 333-10969) ++

     10.2      TALX Corporation Amended and Restated 1994 Stock Option Plan,
               incorporated by reference to Exhibit 10.2 to our Registration
               Statement on Form S-1 (File No. 333-10969) ++

     10.3      Form of Non-Qualified Stock Option Agreement, incorporated by
               reference to Exhibit 10.4 to our Registration Statement on Form
               S-1 (File No. 333-10969) ++

     10.4      TALX Corporation Outside Directors' Stock Option Plan,
               incorporated by reference to Exhibit 10.6 to our Registration
               Statement on Form S-1 (File No. 333-10969) ++
</Table>



                                       69
<PAGE>
<Table>
<Caption>
EXHIBIT NO.                        DESCRIPTION
-----------                        -----------
<S>            <C>
     10.4.1    Amendment to TALX Corporation Outside Directors' Stock Option
               Plan, incorporated by reference to Exhibit 10.6.1 to our Annual
               Report on Form 10-K for the year ended March 31, 2001 (File No.
               000-21465) ++

     10.5      Form of Director Stock Option Agreement, incorporated by
               reference to Exhibit 10.7 to our Annual Report on Form 10-K for
               the year ended March 31, 1998 (File No. 000-21465) ++

     10.6      Lease dated March 28, 1996 by and between TALX Corporation and
               Stephen C. Murphy, Thomas W. Holley, Arthur S. Margulis and
               Samuel B. Murphy, Trustee of the Samuel B. Murphy Revocable
               Living Trust UTA 1/9/91, dba "Adie Road Partnership,"
               incorporated by reference to Exhibit 10.10 to our Registration
               Statement on Form S-1 (File No. 333-10969)

     10.7      Lease dated August 23, 1993 by and between Prudential Insurance
               Company of America, a New Jersey corporation and EKI
               Incorporated, incorporated by reference to Exhibit 10.11 to
               Amendment No. 1 to our Registration Statement on Form S-1 (File
               No. 333-10969)

     10.8      Amended and Restated Preferred Stock Purchase Agreement dated
               December 23, 1988 among TALX Corporation, MiTek Industries, Inc.,
               Intech Group, Inc., Gateway Venture, Zinsmeyer Trusts
               Partnership, and Missouri Venture Partners, L.P., incorporated by
               reference to Exhibit 10.13 to Amendment No. 1 to our Registration
               Statement on Form S-1 (File No. 333-10969)

     10.9      Securities Purchase Agreement dated November 28, 1990 among TALX
               Corporation, MiTek Industries, Inc., Intech Group, Inc., Gateway
               Venture Partners II, L.P. and Zinsmeyer Trusts Partnership,
               incorporated by reference to Exhibit 10.14 to Amendment No. 1 to
               our Registration Statement on Form S-1 (File No. 333-10969)

     10.10     Amendment and Waiver Agreement dated as of July 28, 1996 between
               TALX Corporation, Intech Group, Inc., Intech Partners, L.P.,
               MiTek Industries, Inc., Gateway Venture Partners II, L.P.,
               Zinsmeyer Trusts Partnership and the Missouri State Employee's
               Retirement System, incorporated by reference to Exhibit 10.15 to
               our Registration Statement on Form S-1 (File No. 333-10969)

     10.11     Debenture Purchase Agreement dated May 11, 1990 among TALX
               Corporation, Intech Group, Inc., MiTek Industries, Inc., Gateway
               Venture Partners II, L.P., Zinsmeyer Trusts Partnership, H.
               Richard and Gloria Grodsky, W. Gary and Debra Lowe, Michael and
               Della Smith and John E. and Janet B. Tubbesing, incorporated by
               reference to Exhibit 10.19 to our Registration Statement on Form
               S-1 (File No. 333-10969)

     10.12     Employment Agreement between TALX Corporation and Mr. Canfield,
               incorporated by reference to Exhibit 10.21 to Amendment No. 2 to
               our Registration Statement on Form S-1 (File No. 333-10969) ++

     10.13     Employment Agreement between TALX Corporation and Mr. Smith,
               incorporated by reference to Exhibit 10.23 to Amendment No. 2 to
               our Registration Statement on Form S-1 (File No. 333-10969) ++

     10.14     Employment Agreement between TALX Corporation and Mr. Cohen,
               incorporated by reference to Exhibit 10.14 to our Annual Report
               on Form 10-K filed July 1, 2002 ++

     10.15     License Agreement by and between A2D, L.P. and TALX Corporation,
               dated as of April 1, 2001, incorporated by reference to exhibit
               10.26 to our Annual Report on Form 10-K for the year ended March
               31, 2001 (File No. 000-21465) *

     10.16     Loan Agreement among LaSalle Bank National Association, Southwest
               Bank of St. Louis and TALX Corporation dated as of March 27,
               2002, incorporated by reference to Exhibit 10.1 to our Current
               Report on Form 8-K filed April 2, 2002 +

     10.17     Security Agreement executed and delivered by TALX Corporation in
               favor of LaSalle Bank National Association dated as of March 27,
               2002, incorporated by reference to Exhibit 10.2 to our Current
               Report on Form 8-K filed April 2, 2002

     10.18     Security Agreement executed and delivered by Ti3, Inc. in favor
               of LaSalle Bank National Association dated as of March 27, 2002,
               incorporated by reference to Exhibit 10.3 to our Current Report
               on Form 8-K filed April 2, 2002

     10.19     Security Agreement executed and delivered by Garcia Acquisition
               Sub, Inc. in favor of LaSalle Bank National Association dated as
               of March 27, 2002, incorporated by reference to Exhibit 10.4 to
               our Current Report on Form 8-K filed April 2, 2002
</Table>



                                       70
<PAGE>
<Table>
<Caption>
EXHIBIT NO.                        DESCRIPTION
-----------                        -----------
<S>            <C>
     10.20     Security Agreement executed and delivered by James E. Frick, Inc.
               in favor of LaSalle Bank National Association dated as of March
               27, 2002, incorporated by reference to Exhibit 10.5 to our
               Current Report on Form 8-K filed April 2, 2002

     10.21     Collateral Assignment of Asset Purchase Agreement executed and
               delivered by Garcia Acquisition Sub, Inc. in favor of LaSalle
               Bank National Association dated as of March 27, 2002,
               incorporated by reference to Exhibit 10.6 to our Current Report
               on Form 8-K filed April 2, 2002

     10.22     Collateral Assignment of Asset Purchase Agreement executed and
               delivered by TALX Corporation in favor of LaSalle Bank National
               Association dated as of March 27, 2002, incorporated by reference
               to Exhibit 10.7 to our Current Report on Form 8-K filed April 2,
               2002

     10.23     Stock Pledge of Ti3 Stock executed and delivered by TALX
               Corporation in favor of LaSalle Bank National Association dated
               as of March 27, 2002, incorporated by reference to Exhibit 10.8
               to our Current Report on Form 8-K filed April 2, 2002

     10.24     Stock Pledge of Garcia Stock executed and delivered by TALX
               Corporation in favor of LaSalle Bank National Association dated
               as of March 27, 2002, incorporated by reference to Exhibit 10.9
               to our Current Report on Form 8-K filed April 2, 2002

     10.25     Stock Pledge of Frick Stock executed and delivered by TALX
               Corporation in favor of LaSalle Bank National Association dated
               as of March 27, 2002, incorporated by reference to Exhibit 10.10
               to our Current Report on Form 8-K filed April 2, 2002

     10.26     Guaranty executed and delivered by Ti3, Inc. in favor of LaSalle
               Bank National Association dated as of March 27, 2002,
               incorporated by reference to Exhibit 10.11 to our Current Report
               on Form 8-K filed April 2, 2002

     10.27     Guaranty executed and delivered by Garcia Acquisition Sub, Inc.
               in favor of LaSalle Bank National Association dated as of March
               27, 2002, incorporated by reference to Exhibit 10.12 to our
               Current Report on Form 8-K filed April 2, 2002

     10.28     Guaranty executed and delivered by James E. Frick, Inc. in favor
               of LaSalle Bank National Association dated as of March 27, 2002,
               incorporated by reference to Exhibit 10.13 to our Current Report
               on Form 8-K filed April 2, 2002

     10.29     Form of Warrant to Purchase Common Stock dated as of May 7, 1999
               issued by TALX Corporation to AGE Investments, Inc., incorporated
               by reference to Exhibit 10.1 to our Registration Statement on
               Form S-3 (File No. 333-63690)

     10.30     First Amendment to Loan Agreement, among LaSalle Bank National
               Association, Southwest Bank of St. Louis and TALX Corporation
               dated as of July 29, 2002, incorporated by reference to Exhibit
               10.30 to our original Annual Report on Form 10-K for the period
               ended March 31, 2003 (File No. 000-21465)

     10.31     Second Amendment to Loan Agreement, among LaSalle Bank National
               Association, Southwest Bank of St. Louis and TALX Corporation
               dated as of January 27, 2003, incorporated by reference to
               Exhibit 10 to our Quarterly Report on Form 10-Q for the period
               ended December 31, 2002 (File No. 000-21465)

     10.32     Employment Agreement between TALX Corporation and Mr. Graves,
               incorporated by reference to Exhibit 10.32 to our original Annual
               Report on Form 10-K for the period ended March 31, 2003 (File No.
               000-21465) ++

     11.1      Statement regarding computation of Per Share Earnings

     21.1      Subsidiaries of TALX Corporation, incorporated by reference to
               Exhibit 21.1 to our Annual Report on Form 10-K filed July 1, 2002

     23.1      Consent of KPMG LLP

     31.1      Chief Executive Officer Certification pursuant to Rule 13a-14(a)
               under the Securities Exchange Act of 1934

     31.2      Chief Financial Officer Certification pursuant to Rule 13a-14(a)
               under the Securities Exchange Act of 1934
</Table>



                                       71
<PAGE>
<Table>
<Caption>
EXHIBIT NO.                        DESCRIPTION
-----------                        -----------
<S>            <C>
     32.1      Chief Executive Officer Certification pursuant to Rule 13a-14(b)
               under the Exchange Act and 18 U.S.C. Section 1350

     32.2      Chief Financial Officer Certification pursuant to Rule 13a-14(b)
               under the Exchange Act and 18 U.S.C. Section 1350
</Table>

----------

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

++       Represents management contract or compensatory plan or arrangement.

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


                                       72