ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report and other reports and statements issued by the Company and its officers from time to time contain certain "forward-looking statements." Words such as "may," "should," "likely," "could," "seek," "believe," "expect," "anticipate," "estimate," "project," "intend," "strategy," "design to," and similar expressions are intended to identify forward-looking statements about the Company's future plans, objectives, performance, intentions and expectations. These forward-looking statements are subject to a number of known and unknown risks and uncertainties including, but are not limited to, those set forth below under "Factors That May Affect Future Results." Such risks and uncertainties could cause the Company's actual results, performance and achievements to differ materially from those described in or implied by the forward-looking statements. Accordingly, readers should not place undue reliance on any forward-looking statements made by or on behalf of the Company. The Company does not assume any obligation to update any forward-looking statements after the date they are made.

FACTORS THAT MAY AFFECT FUTURE RESULTS

THE COMPANY'S BUSINESS IS DEPENDENT UPON GENERAL ECONOMIC, COMPETITIVE AND OTHER BUSINESS CONDITIONS INCLUDING THE EFFECTS OF THE UNITED STATES AND EUROPEAN ECONOMIES AND OTHER GENERAL CONDITIONS, SUCH AS CUSTOMERS OFF-SHORING ACTIVITIES TO OTHER COUNTRIES.

The demand for the Company's services in all segments is dependent upon general economic conditions. Accordingly, the Company's business tends to suffer during economic downturns. In addition, in the past few years major United States companies, many of which are customers of the Company, have increasingly outsourced business to foreign countries with lower labor rates, less costly employee benefit requirements and fewer regulations than the United States. There could be an adverse effect on the Company if customers and potential customers continue to move manufacturing and servicing operations off-shore, reducing their need for temporary workers within the United States. It is also important for the Company to diversify its pool of available temporary workers to offer greater support to the service sector of the economy and other businesses that have more difficulty in moving off-shore. In addition, the Company's other segments may be adversely affected if they are required to compete from the Company's United States based operations against competitors based in such other countries. Although the Company has begun to expand its operations to certain additional countries, in a limited manner and to serve existing customers in such countries, and has established subsidiaries in some foreign countries, doing so is more difficult than expansion within the United States and there can be no assurance that this effort will be successful or that the Company can successfully compete with competitors based overseas or who have established foreign operations.

The Company's business is dependent upon the continued financial strength of its customers. Customers that experience economic downturns or other negative factors are less likely to use the Company's services.

In the staffing services segment, a weakened economy results in decreased demand for temporary and permanent personnel. When economic activity slows down, many of the Company's customers reduce their use of temporary workers before they reduce the number of their regular employees. There is less need for temporary workers by all potential customers, who are less inclined to add to their costs. Since employees are reluctant to risk changing employers, there are fewer openings and reduced activity in permanent placements as well. In addition, while in many fields there are ample applicants for available positions, variations in the rate of

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

unemployment and higher wages sought by temporary workers in certain technical fields particularly characterized by labor shortages, could affect the Company's ability to meet its customers' demands in these fields and the Company's profit margins. The segment has also experienced margin erosion caused by increased competition, electronic auctions and customers leveraging their buying power by consolidating the number of vendors with which they deal. In addition, increased payroll and other taxes, some of which the Company is unable to pass on to customers, place pressure on margins.

Customer use of the Company's telecommunications services is similarly affected by a weakened economy in that some of the Company's customers reduce their use of outside services in order to provide work to their in-house departments and, in the aggregate, because of the current downturn in the telecommunications industry and continued overcapacity, there is less available work. In addition, the reduction in telecommunications companies' capital expenditure projects during the current economic climate has significantly reduced the segment's operating margins and minimal improvement can be expected until the telecommunications industry begins to increase its capital expenditures. Actions by major long-distance telephone companies to reduce marketing of local residential service and consolidation in the telecommunications industry could also negatively impact both sales and margins of the segment. Despite an emphasis on cost controls, the results of the segment continue to be affected by the decline in capital spending by telephone companies caused by the depressed conditions within the segment's telecommunications industry customer base which has also increased competition for available work, pressuring pricing and gross margins throughout the segment. The continued delay in telecommunications companies' capital expenditure projects has significantly reduced the segment's revenue and resulted in continuing operating losses. Although there has been a modest increase in customer backlog and installation of broadband services by local telephone companies and there is expected to be increased work available as a result of hurricane damage in the southern part of the United States, a return to material profitability will be difficult until the telecommunications industry begins to increase its capital expenditures.

Additionally, the degree and timing of customer acceptance of systems and of obtaining new contracts and the rate of renewals of existing contracts, as well as customers' degree of utilization of the Company's services, could adversely affect the Company's businesses.

MANY OF THE COMPANY'S CONTRACTS EITHER PROVIDE NO MINIMUM PURCHASE REQUIREMENTS OR ARE CANCELABLE DURING THE TERM.

In all segments, many of the Company's contracts, even those master service contracts whose duration spans a number of years, provide no assurance of any minimum amount of work that will actually be available under any contract. Most staffing services contracts are not sole source, so the segment must compete for each placement at the customer. Similarly many telecommunications master contracts require competition in order to obtain each individual work project. In addition, many of the Company's long-term contracts contain cancellation provisions under which the customer can cancel the contract or award no further work, even if the Company is not in default under the contract. Therefore, these contracts do not give the assurances that long-term contracts typically provide.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

THE COMPANY'S STAFFING SERVICES BUSINESS AND ITS OTHER SEGMENTS SUBJECT IT TO EMPLOYMENT-RELATED AND OTHER CLAIMS.

The Company's staffing services business employs individuals on a temporary basis and places them at a customer's workplace. The Company's ability to control the customer workplace is limited, and the Company risks incurring liability to its employees for injury or other harm that they suffer at the customer's workplace. Although the Company has not historically suffered materially for such harm suffered by its employees, there can be no assurance that future claims will not materially adversely affect the Company.

Additionally, the Company risks liability to its customers for certain actions of the Company's temporary employees that may result in harm to the Company's customers. Such actions may be the result of negligence or misconduct on the part of the Company's employees. These same factors apply to all of the Company's business units, although the risk is reduced where the Company itself controls the workplace. Nevertheless, the risk is present in all segments.

The Company may incur fines or other losses and negative publicity with respect to any litigation in which it becomes involved. Although the Company maintains insurance for many such actions, there can be no assurance that its insurance will cover future actions or that the Company will continue to be able to obtain such insurance on acceptable terms, if at all.

NEW AND INCREASED GOVERNMENT REGULATION COULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S BUSINESS, ESPECIALLY ITS CONTINGENT STAFFING BUSINESS.

Certain of the Company's businesses are subject to licensing and regulation in many states and certain foreign jurisdictions. Although the Company has generally not had any difficulty complying with these requirements in the past, there can be no assurance that the Company will continue to be able to do so, or that the cost of compliance will not become material. Additionally, the jurisdictions in which the Company does or intends to do business may:

o create new or additional regulations that prohibit or restrict the types of services that the Company currently provides;

o impose new or additional employee benefit requirements, thereby increasing costs that may not be able to be passed on to customers or which would cause customers to reduce their use of the Company's services, especially in its staffing services segment, which would adversely impact the Company's ability to conduct its business;

o require the Company to obtain additional licenses to provide its services; or

o increase taxes (especially payroll and other employment related taxes) or enact new or different taxes payable by the providers of services such as those offered by the Company, thereby increasing costs, some of which may not be able to be passed on to customers or which would cause customers to reduce their use of the Company's services, especially in its staffing services segment, which would adversely impact the Company's ability to conduct its business.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

In addition, certain private and governmental entities have focused on the contingent staffing industry in particular and, in addition to their potential to impose additional requirements and costs, they and their supporters could cause changes in customers' attitudes toward the use of outsourcing and temporary personnel in general. This could have an adverse effect on the Company's contingent staffing business.

THE COMPANY IS DEPENDENT UPON ITS ABILITY TO ATTRACT AND RETAIN CERTAIN TECHNOLOGICALLY QUALIFIED PERSONNEL.

The Company's future success is dependent upon its ability to attract and retain certain classifications of technologically qualified personnel for its own use, particularly in the areas of research and development, implementation and upgrading of internal systems, as well as in its staffing services segment. The availability of such personnel is dependent upon a number of economic and demographic conditions. The Company may in the future find it difficult or more costly to hire such personnel in the face of competition from other companies.

THE INDUSTRIES IN WHICH THE COMPANY DOES BUSINESS ARE VERY COMPETITIVE.

The Company operates in very competitive industries with, in most cases, limited barriers to entry. Some of the Company's principal competitors are larger and have substantially greater financial resources than the Company. Accordingly, these competitors may be better able than the Company to attract and retain qualified personnel and may be able to offer their customers more favorable pricing terms than the Company. In many businesses, small competitors can offer similar services at lower prices because of lower overheads.

The Company, in all segments, has experienced intense price competition and pressure on margins and lower renewal markups for customers' contracts than previously obtained. While the Company has and will continue to take action to meet competition in its highly competitive markets with minimal impact on margins, there can be no assurance that the Company will be able to continue to do so.

The Company, in certain businesses in all segments, must obtain or produce products and systems, principally in the IT environment, to satisfy customer requirements and to remain competitive. While the Company has been able to do so in the past, there can be no assurance that in the future the Company will be able to foresee changes and to identify, develop and commercialize innovative and competitive products and systems in a timely and cost effective manner and to achieve customer acceptance of its products and systems in markets characterized by rapidly changing technology and frequent new product introductions. In addition, the Company's products and systems are subject to risks inherent in new product introductions, such as start-up delays, cost overruns and uncertainty of customer acceptance, the Company's dependence on third parties for some product components and in certain technical fields particularly characterized by labor shortages, the Company's ability to hire and retain such specialized employees, all of which could affect the Company's ability to meet its customers' demands in these fields and the Company's profit margins.

In addition to these general statements, the following information applies to the specific segments identified below.

The Company's Staffing Services segment is in a very competitive industry with few significant barriers to entry. There are many temporary service firms in the United States and Europe, many with only one or a few offices that service only a small market. On the other hand, some of this segment's principal competitors are larger and have substantially greater financial resources than the Company and service the multinational accounts whose business the Company solicits. Accordingly, these competitors may be better able than the Company to

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

attract and retain qualified personnel and may be able to offer their customers more favorable pricing terms than the Company. Furthermore, all of the staffing industry is subject to the fact that contingent workers are provided to customers and most customers are more protective of their full-time workforce than of contingent workers.

The results of the Company's Computer Systems segment are highly dependent on the volume of calls to this segment's customers which are processed by the segment under existing contracts, the segment's ability to continue to secure comprehensive listings from others at acceptable pricing, its ability to obtain additional customers for these services and its continued ability to sell products and services to new and existing customers. The volume of transactions with this segment's customers is subject to reduction as consumers utilize listings offered on the Internet. This segment's position in its market depends largely upon its reputation, quality of service and ability to develop, maintain and implement information systems on a cost competitive basis. Although the Company continues its investment in research and development, there is no assurance that this segment's present or future products will be competitive, that the segment will continue to develop new products or that present products or new products can be successfully marketed.

The Company's Telecommunications Services segment faces substantial competition with respect to all of its telecommunications services from other suppliers and from in-house capabilities of present and potential customers. Since many of our customers provide the same type of services as the segment, the segment faces competition from its own customers and potential customers as well as from third parties. The Telecommunications Services segment performs much of its services outdoors, and its business can be adversely affected by the degree and effects of inclement weather. Some of this segment's significant competitors are larger and have substantially greater financial resources than the Company. There are relatively few significant barriers to entry into certain of the markets in which the segment operates, and many competitors are small, local companies that generally have lower overhead. In August 2005, the Company restructured the Telecommunications Services segment which is expected to result in a reduction of future overhead within the segment, reducing its overhead headcount, consolidating two business units and closing and consolidating several of its leased locations. The Company's results in this segment are dependent upon its ability to successfully reorganize the segment and reduce overhead while retaining profitable business in this highly competitive market. The Company's ability to compete in this segment depends upon its reputation, technical capabilities, pricing, quality of service and ability to meet customer requirements in a timely manner. The Company believes that its competitive position in this segment is augmented by its ability to draw upon the expertise and resources of the Company's other segments.

THE COMPANY MUST CONTINUE TO SUCCESSFULLY INTEGRATE THE PURCHASED DIRECTORY AND OPERATOR SERVICES BUSINESS INTO THE COMPANY'S COMPUTER SYSTEMS SEGMENT

On August 2, 2004, Volt Delta Resources, LLC ("Volt Delta"), a wholly-owned subsidiary of the Company, acquired from Nortel Networks, Inc. ("Nortel Networks") certain of the assets (consisting principally of customer base and contracts, intellectual property and inventory) and certain specified liabilities of Nortel Networks directory and operator services ("DOS") business, in exchange for a 24% minority equity interest in Volt Delta. Together with its subsidiaries, Volt Delta is reported as the Company's Computer Systems segment. In addition to the factors described elsewhere herein, the Company's results in this segment are dependent upon the Company's ability to continue the successful integration of the acquisition into Volt Delta's business with minimal interference with the segment's business.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

THE COMPANY MUST STAY IN COMPLIANCE WITH ITS SECURITIZATION PROGRAM AND OTHER LOAN AGREEMENTS

The Company is required to maintain a sufficient credit rating to enable it to continue its $150 million Securitization Program and other loan agreements and maintain its existing credit rating in order to avoid any increase in fees under these credit agreements, as well as to comply with the financial and other covenants applicable under the credit agreements and other borrowing instruments.

While the Company was in compliance with all such requirements at the end of the fiscal quarter and believes it will remain in compliance through the next twelve months, there can be no assurance that will be the case or that waivers may not be required.

THE COMPANY'S PRINCIPAL SHAREHOLDERS OWN A SIGNIFICANT PERCENTAGE OF THE COMPANY AND WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER THE COMPANY AND THEIR INTERESTS MAY DIFFER FROM THOSE OF OTHER SHAREHOLDERS.

As of July 31, 2005, William Shaw, Jerome Shaw, Steven A. Shaw and members of their families own in excess of 47% of the Company's outstanding common stock. Accordingly, these shareholders are able to control the composition of the Company's board of directors and many other matters requiring shareholder approval and will continue to have significant influence over the Company's affairs. This concentration of ownership also could have the effect of delaying or preventing a change in control of the Company or otherwise discouraging a potential acquirer from attempting to obtain control of the Company.

THE COMPANY'S STOCK PRICE COULD BE EXTREMELY VOLATILE AND, AS A RESULT, INVESTORS MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE THE PRICE THEY PAID FOR THEM.

Among the factors that could affect the Company's stock price are:

o limited float and a low average daily trading volume, notwithstanding that the Company's stock is traded on the New York Stock Exchange;
o industry trends and the business success of the Company's customers;
o loss of a key customer;
o fluctuations in the Company's results of operations;
o the Company's failure to meet the expectations of the investment community and changes in investment community recommendations or estimates of the Company's future results of operations;
o strategic moves by the Company's competitors, such as product announcements or acquisitions;
o regulatory developments;
o litigation;
o general market conditions; and
o other domestic and international macroeconomic factors unrelated to the Company's performance.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

The stock market has and may in the future experience extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the market price of the Company's common stock.

In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted. If a securities class action suit is filed against the Company, it would incur substantial legal fees and management's attention and resources would be diverted from operating its business in order to respond to the litigation.

Management's discussion and analysis of its financial position and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates, judgments, assumptions and valuations that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. Future reported results of operations could be impacted if the Company's estimates, judgments, assumptions or valuations made in earlier periods prove to be wrong. Management believes the critical accounting policies and areas that require the most significant estimates, judgments, assumptions or valuations used in the preparation of the Company's financial statements are as follows:

Revenue Recognition - The Company derives its revenues from several sources. The revenue recognition methods, which are consistent with those prescribed in Staff Accounting Bulletin 104 ("SAB 104"), "Revenue Recognition in Financial Statements," are described below in more detail for the significant types of revenue within each of its segments.

Staffing Services:
Staffing: Sales are derived from the Company's Staffing Solutions Group supplying its own temporary personnel to its customers, for which the Company assumes the risk of acceptability of its employees to its customers, and has credit risk for collecting its billings after it has paid its employees. The Company reflects revenues for these services on a gross basis in the period the services are rendered. In the first nine months of fiscal 2005, this revenue comprised approximately 76% of net consolidated sales.

Managed Services: Sales are generated by the Company's E-Procurement Solutions subsidiary, ProcureStaff, and for certain contracts, sales are generated by the Company's Staffing Solutions Group's managed services operations. The Company receives an administrative fee for arranging for, billing for and collecting the billings related to staffing companies ("associate vendors") who have supplied personnel to the Company's customers. The administrative fee is either charged to the customer or subtracted from the Company's payment to the associate vendor. The customer is typically responsible for assessing the work of the associate vendor, and has responsibility for the acceptability of its personnel, and in most instances the customer and associate vendor have agreed that the Company does not pay the associate vendor until the customer pays the Company. Based upon the revenue recognition principles in Emerging Issues Task Force

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

("EITF") 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent," revenue for these services, where the customer and the associate vendor have agreed that the Company is not at risk for payment, is recognized net of associated costs in the period the services are rendered. In the first nine months of fiscal 2005, this revenue comprised approximately 2% of net consolidated sales.

Outsourced Projects: Sales are derived from the Company's Information Technology Solutions operation providing outsource services for a customer in the form of project work, for which the Company is responsible for deliverables. The Company's employees perform the services and the Company has credit risk for collecting its billings. Revenue for these services is recognized on a gross basis in the period the services are rendered when on a time and material basis, and when the Company is responsible for project completion, revenue is recognized when the project is complete and the customer has approved the work. In the first nine months of fiscal 2005, this revenue comprised approximately 6% of net consolidated sales.

Shaw & Shaw: Sales of the Company's Shaw & Shaw subsidiary, which ceased operations in the second quarter of fiscal 2005, were generated when the Company provided professional employer organizational services ("PEO") to certain customers. Generally, the customers transferred their entire workforce or employees of specific departments or divisions to the Company, but the customers maintained control over the day-to-day job duties of the employees. In the first nine months of fiscal 2005, this revenue comprised less than 1% of net consolidated sales, due to the Company's reporting of these revenues on a net basis.

Telephone Directory:
Directory Publishing: Sales are derived from the Company's sales of telephone directory advertising for books it publishes as an independent publisher in the United States and Uruguay. The Company's employees perform the services and the Company has credit risk for collecting its billings. Revenue for these services is recognized on a gross basis in the period the books are printed and distributed. In the first nine months of fiscal 2005, this revenue comprised approximately 2% of net consolidated sales.

Ad Production and Other: Sales are generated when the Company performs design, production and printing services, and database management for other publishers' telephone directories. The Company's employees perform the services and the Company has credit risk for collecting its billings. Revenue for these services is recognized on a gross basis in the period the Company has completed its production work and upon customer acceptance. In the first nine months of fiscal 2005, this revenue comprised approximately 1% of net consolidated sales.

Telecommunications Services:
Construction: Sales are derived from the Company supplying aerial and underground construction services. The Company's employees perform the services, and the Company takes title to all inventory and has credit risk for collecting its billings. The Company relies upon the principles in AICPA Statement of Position ("SOP") 81-1, "Accounting for Performance of Construction-Type Contracts," using the completed-contract method, to recognize revenue on a gross basis upon customer acceptance of the project. In the first nine months of fiscal 2005, this revenue comprised approximately 4% of net consolidated sales.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

Non-Construction: Sales are derived from the Company performing design, engineering and business systems integrations work. The Company's employees perform the services and the Company has credit risk for collecting its billings. Revenue for these services is recognized on a gross basis in the period in which services are performed, and if applicable, any completed units are delivered and accepted by the customer. In the first nine months of fiscal 2005, this revenue comprised approximately 2% of net consolidated sales.

Computer Systems:
Database Access: Sales are derived from the Company granting access to its proprietary telephone listing databases to telephone companies, inter-exchange carriers and non-telco enterprise customers. The Company uses its own databases and has credit risk for collecting its billings. The Company recognizes revenue on a gross basis in the period in which the customers access the Company's databases. In the first nine months of fiscal 2005, this revenue comprised approximately 5% of net consolidated sales.

IT Maintenance: Sales are derived from the Company providing hardware maintenance services to the general business community, including customers who have the Company's systems, on a time and material basis or a contract basis. The Company uses its own employees and inventory in the performance of the services, and has credit risk for collecting its billings. Revenue for these services is recognized on a gross basis in the period in which the services are performed, contingent upon customer acceptance when on a time and material basis, or over the life of the contract, as appropriate. In the first nine months of fiscal 2005, this revenue comprised approximately 1% of net consolidated sales.

Telephone Systems: Sales are derived from the Company providing telephone operator services-related systems and enhancements to existing systems, equipment and software to customers. The Company uses its own employees and has credit risk for collecting its billings. The Company relies upon the principles in AICPA SOP 97-2, "Software Revenue Recognition" and EITF 00-21, "Revenue Arrangements with Multiple Deliverables" to recognize revenue on a gross basis upon customer acceptance of each part of the system based upon its fair value. In the first nine months of fiscal 2005, this revenue comprised approximately 1% of net consolidated sales.

The Company records provisions for estimated losses on contracts when losses become evident. Accumulated unbilled costs on contracts are carried in inventory at the lower of actual cost or estimated realizable value.

Allowance for Uncollectible Accounts - The establishment of an allowance requires the use of judgment and assumptions regarding potential losses on receivable balances. Allowances for accounts receivable are maintained based upon historical payment patterns, aging of accounts receivable and actual write-off history. The Company believes that its allowances are adequate; however, changes in the financial condition of customers could have an effect on the allowance balance required and a related charge or credit to earnings.

Goodwill - Under Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," goodwill is no longer amortized, but is subject to annual impairment testing using fair value methodologies. The impairment test for goodwill is a two-step process. Step one consists of a comparison of the equity value ("fair value") of a reporting unit with its book value ("carrying amount"), including the goodwill allocated to the reporting unit. Measurement of the fair value of a reporting unit is based on one or more fair value measures including present value techniques of estimated future cash flows and estimated amounts at which the unit as a whole could be bought or sold in a current transaction between willing parties. If

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

the carrying amount of the reporting unit exceeds the fair value, step two requires the fair value of the reporting unit to be allocated to the underlying assets and liabilities of that reporting unit, resulting in an implied fair value of goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss equal to the excess is recorded in net earnings (loss). The Company performs its impairment testing using comparable multiples of sales and EBITDA and other valuation methods to assist the Company in the determination of the fair value of the reporting units measured.

Long-Lived Assets - Property, plant and equipment are recorded at cost, and depreciation and amortization are provided on the straight-line and accelerated methods at rates calculated to depreciate the cost of the assets over their estimated useful lives. Intangible assets, other than goodwill, and property, plant and equipment are reviewed for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Under SFAS No. 144, these assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Circumstances which could trigger a review include, but are not limited to:
significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; the accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and a current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset or asset group. An impairment loss is recognized when the carrying amount is not recoverable and exceeds the fair value of the asset or asset group. The impairment loss is measured as the amount by which the carrying amount exceeds fair value.

Capitalized Software - The Company's software technology personnel are involved in the development and acquisition of internal-use software to be used in its Enterprise Resource Planning system and software used in its operating segments, some of which are customer accessible. The Company accounts for the capitalization of software in accordance with AICPA SOP No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Subsequent to the preliminary project planning and approval stage, all appropriate costs are capitalized until the point at which the software is ready for its intended use. Subsequent to the software being used in operations, the capitalized costs are transferred from costs-in-process to completed property, plant and equipment, and are accounted for as such. All post-implementation costs, such as maintenance, training and minor upgrades that do not result in additional functionality, are expensed as incurred.

Securitization Program - The Company accounts for the securitization of accounts receivable in accordance with SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." At the time a participation interest in the receivables is sold, that interest is removed from the consolidated balance sheet. The outstanding balance of the undivided interest sold to Three Rivers Funding Corporation ("TRFCO"), an asset backed commercial paper conduit sponsored by Mellon Bank, N.A., was $95.0 million at July 31, 2005 and $70.0 million at October 31, 2004. Accordingly, the trade receivables included on the July 31, 2005 and October 31, 2004 balance sheets have been reduced to reflect the participation interest sold. TRFCO has no recourse to the Company (beyond its interest in the pool of receivables owned by Volt Funding Corp., a wholly-owned special purpose subsidiary of the Company) for any of the sold receivables.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

Primary Casualty Insurance Program - The Company is insured with a highly rated insurance company under a program that provides primary workers' compensation, employer's liability, general liability and automobile liability insurance under a loss sensitive program. In certain mandated states, the Company purchases workers' compensation insurance through participation in state funds and the experience-rated premiums in these state plans relieve the Company of any additional liability. In the loss sensitive program, initial premium accruals are established based upon the underlying exposure, such as the amount and type of labor utilized, number of vehicles, etc. The Company establishes accruals utilizing actuarial methods to estimate the future cash payments that will be made to satisfy the claims, including an allowance for incurred-but-not-reported claims. This process also includes establishing loss development factors, based on the historical claims experience of the Company and the industry, and applying those factors to current claims information to derive an estimate of the Company's ultimate premium liability. In preparing the estimates, the Company considers the nature and severity of the claims, analyses provided by third party actuaries, as well as current legal, economic and regulatory factors. The insurance policies have various premium rating plans that establish the ultimate premium to be paid. Adjustments to premiums are made based upon the level of claims incurred at a future date up to three years after the end of the respective policy period. For the policy year ended March 31, 2003, a maximum premium was predetermined and paid. For subsequent policy years, management evaluates the accrual, and the underlying assumptions, regularly throughout the year and makes adjustments as needed. The ultimate premium cost may be greater or less than the established accrual. While management believes that the recorded amounts are adequate, there can be no assurances that changes to management's estimates will not occur due to limitations inherent in the estimation process. In the event it is determined that a smaller or larger accrual is appropriate, the Company would record a credit or a charge to cost of services in the period in which such determination is made.

Medical Insurance Program - Beginning in April 2004, the Company became self-insured for the majority of its medical benefit programs. The Company remains insured for a portion of its medical program (primarily HMOs) as well as the entire dental program. The Company provides the self-insured medical benefits through an arrangement with a third-party administrator. However, the liability for the self-insured benefits is limited by the purchase of stop loss insurance. Contributed and withheld funds and related liabilities for the self-insured program together with unpaid premiums for the insured programs, other than the current provision, are held in a 501(c)(9) employee welfare benefit trust and do not appear on the balance sheet of the Company. In order to establish the self-insurance reserves, the Company utilized actuarial estimates of expected losses based on statistical analyses of historical data. The provision for future payments is initially adjusted by the enrollment levels in the various plans. Periodically, the resulting liabilities are monitored and will be adjusted as warranted by changing circumstances. Should the amount of claims occurring exceed what was estimated or medical costs increase beyond what was expected, liabilities might not be sufficient, and additional expense may be recorded.

                                                                      Nine Months Ended              Three Months Ended
                                                                ---------------------------     ---------------------------
                                                                  July 31,        August 1,       July 31,        August 1,
                                                                   2005             2004           2005            2004
                                                                -----------     -----------     -----------     -----------
                                                                                (Restated)
                                                                                            (In thousands)
Net Sales:
---------
Staffing Services
   Staffing                                                     $ 1,297,067     $ 1,150,026     $   440,151     $   410,112
   Managed Services                                                 888,105         835,850         278,339         306,054
                                                                -----------     -----------     -----------     -----------
   Total Gross Sales                                              2,185,172       1,985,876         718,490         716,166
   Less: Non-Recourse Managed Services                             (861,790)       (814,770)       (268,305)       (298,354)
                                                                -----------     -----------     -----------     -----------
   Net Staffing Services                                          1,323,382       1,171,106         450,185         417,812
Telephone Directory                                                  56,972          52,118          23,899          19,436
Telecommunications Services                                          93,964         100,445          30,825          37,041
Computer Systems                                                    127,920          80,550          43,806          30,128
Elimination of inter-segment sales                                  (14,843)        (11,049)         (5,200)         (3,685)
                                                                -----------     -----------     -----------     -----------
Total Net Sales                                                 $ 1,587,395     $ 1,393,170     $   543,515     $   500,732
                                                                ===========     ===========     ===========     ===========
Segment Operating Profit (Loss):

Staffing Services                                               $    16,668     $    22,600     $     6,952     $    11,642
Telephone Directory                                                  10,211           7,215           5,603           2,621
Telecommunications Services                                          (3,219)         (1,655)           (983)          1,064
Computer Systems                                                     24,579          19,479           8,050           9,090
                                                                -----------     -----------     -----------     -----------
Total Segment Operating Profit                                       48,239          47,639          19,622          24,417
General corporate expenses                                          (26,503)        (22,897)         (9,220)         (7,704)
                                                                -----------     -----------     -----------     -----------
Total Operating Profit                                               21,736          24,742          10,402          16,713
Interest income and other expense                                    (1,043)         (2,381)           (297)           (952)
Foreign exchange (loss) gain - net                                     (116)            (98)            144             (28)
Interest expense                                                     (1,382)         (1,321)           (428)           (441)
                                                                -----------     -----------     -----------     -----------
Income from Continuing Operations Before Minority Interest and
    Income Taxes                                                $    19,195     $    20,942     $     9,821     $    15,292
                                                                ===========     ===========     ===========     ===========

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

NINE MONTHS ENDED JULY 31, 2005 COMPARED
TO THE NINE MONTHS ENDED AUGUST 1, 2004--Continued

Volt Information Sciences, Inc. ("Volt") is a leading national provider of staffing services and telecommunications and information solutions with a material portion of its revenue coming from Fortune 100 customers. The Company operates in four segments and the management discussion and analysis addresses each. A brief description of these segments and the predominant source of their sales follow:

Staffing Services: This segment is divided into three major functional areas and operates through a network of over 300 branch offices.

o Staffing Solutions fulfills IT and other technical, commercial and industrial placement requirements of its customers, on both a temporary and permanent basis, together with managed staffing services.

o E-Procurement Solutions provides global vendor neutral procurement and management solutions for supplemental staffing using web-based tools through the Company's ProcureStaff subsidiary.

o Information Technology Solutions provides a wide range of information technology consulting and project management services through the Company's VMC Consulting subsidiary.

Telephone Directory: This segment publishes independent telephone directories, provides telephone directory production services, database management and printing.

Telecommunications Services: This segment provides a full spectrum of telecommunications construction, installation, and engineering services in the outside plant and central offices of telecommunications and cable companies as well as for large commercial and governmental entities.

Computer Systems: This segment provides directory and operator systems and services primarily for the telecommunications industry, and provides IT maintenance services.

Several historical seasonal factors usually affect the sales and profits of the Company. The Staffing Services segment's sales are always lowest in the Company's first fiscal quarter due to the Thanksgiving, Christmas and New Year holidays, as well as certain customer facilities closing for one to two weeks. During the third and fourth quarters of the fiscal year, this segment benefits from a reduction of payroll taxes when the annual tax contributions for higher salaried employees have been met, and customers increase the use of the Company's administrative and industrial labor during the summer vacation period. In addition, the Telephone Directory segment's DataNational division publishes more directories during the second half of the fiscal year.

Numerous non-seasonal factors impacted sales and profits in the current nine and three month periods. In the nine months and the current quarter, the sales of the Staffing Services segment, in addition to the factors noted above, were positively impacted by a continued increase in the use of contingent technical staffing, although the growth rate in the third quarter decreased. Operating profits in both periods were lower than their comparable periods due to decreased margins and higher overhead costs incurred to enable the continuation of the growth in the Technical Placement division, including the VMC Consulting business. Operating profits for the segment have decreased in the nine and three-month periods due to a decrease in gross margins and a growth in overhead costs.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

NINE MONTHS ENDED JULY 31, 2005 COMPARED
TO THE NINE MONTHS ENDED AUGUST 1, 2004--Continued

The sales and operating profits of the Telephone Directory segment increased in the nine and three-month periods predominantly due to third quarter sales increases and overhead cost reductions throughout the segment.

The sales and operating results of the Telecommunications Services segment have decreased for the nine and three-month periods predominantly due to the continued sales decline in parts of its business in the current quarter and reduced segment margins for the year. However, the Company continues to carefully monitor the overhead within the segment in order to partially mitigate the effect of the reduced segment sales and margins.

Due to the current state of the telecommunications industry and as a result of recent losses in its Telecommunications Services segment, in August 2005, the Company restructured the Telecommunications Services segment which is expected to result in a reduction of future overhead within the segment of approximately $4.2 million on an annual basis. The restructuring will result in the segment reducing its overhead headcount, consolidating two business units and closing and consolidating several of its leased locations. The Company anticipates taking a charge for employee severance and lease terminations costs approximating $0.4 million in the fourth quarter.

For the nine months and current quarter, the Computer Systems segment's sales continue to be positively impacted by the increase in the segment's ASP directory assistance outsourcing business, in which there continues to be a substantial increase in transaction revenue, as well as revenue from the business acquired from Nortel Networks. The operating profit for the segment increased substantially for the nine-month period, but reflected a decline in the current quarter due to the presence in the prior year of non-recurring income from vendor settlements.

The Company has, and will continue to focus on aggressively increasing its market share, while attempting to maintain margins and minimize overhead increases in order to increase profits.

The Company continues its effort to streamline its processes to manage the business and protect its assets through the continued deployment of its Six Sigma initiatives, upgrading its financial reporting systems, its compliance with the Sarbanes-Oxley Act, and the standardization and upgrading of IT redundancy and business continuity for corporate systems and communications networks. To the extent possible, the Company has been utilizing, and will continue to utilize, internal resources supplemented with temporary staff and consultants to comply with the Sarbanes-Oxley Act by the end of fiscal year 2005. To-date, outside costs of compliance with this Act, including software licenses, equipment, temporary staff, consultants and professional fees amounted to $1.9 million, and it is anticipated that an additional $1.0 million, excluding audit fees, will be expended in the remainder of calendar year 2005.

In the first nine months of fiscal 2005, consolidated net sales increased by $194.2 million, or 14%, to $1.6 billion, from the comparable period in fiscal 2004. The primary increase in fiscal 2005 net sales resulted from increases in Staffing Services of $152.3 million and Computer Systems of $47.4 million.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

NINE MONTHS ENDED JULY 31, 2005 COMPARED
TO THE NINE MONTHS ENDED AUGUST 1, 2004--Continued

Net income for the first nine months of fiscal 2005 was $8.7 million compared to $22.2 million in the prior year's period. The results of the 2004 period included a gain from discontinued operations from the sale of real estate of $9.5 million. The Company reported a pre-tax income from continuing operations before minority interest for the nine months of fiscal 2005 of $19.2 million, compared to $20.9 million in the prior year's period.

The Company's operating segments reported an operating profit of $48.2 million in the nine-month period of 2005, an increase of $0.6 million, or 1%, from the comparable 2004 period. Contributing to the increase were increases in the operating profit of the Computer Systems segment of $5.1 million and the Telephone Directory segment of $3.0 million, partially offset by decreases in the Staffing Services segment of $5.9 million and the Telecommunications Services segment of $1.6 million.

General corporate expenses increased by $3.6 million, or 16%, due to costs incurred to meet the disaster recovery requirements of redundancy and business continuity for corporate systems and communication networks, as well as salary and professional fee increases. In addition, the Company incurred costs related to compliance with the Sarbanes-Oxley Act.

                                                            Nine Months Ended
                                                           -------------------
                                                July 31, 2005             August 1, 2004
                                             -------------------       -------------------
Staffing Services                                           % of                     % of       Favorable        Favorable
------------------                                          Net                       Net     (Unfavorable)    (Unfavorable)
(Dollars in Millions)                        Dollars       Sales        Dollars      Sales       Change          % Change
                                             --------      -----       --------      -----     -----------      -----------
Staffing Sales (Gross)                       $1,297.1                  $1,150.0                  $147.1             12.8%
---------------------------------------------------------------------------------------------------------------------------
Managed Service Sales (Gross) *                $888.1                  $  835.9                  $ 52.2              6.3%
---------------------------------------------------------------------------------------------------------------------------
Sales (Net)                                  $1,323.4                  $1,171.1                  $152.3             13.0%
---------------------------------------------------------------------------------------------------------------------------
Gross Profit                                 $  200.4      15.1%       $  182.1      15.5%       $ 18.3             10.0%
---------------------------------------------------------------------------------------------------------------------------
Overhead                                     $  183.7      13.9%       $  159.5      13.6%      ($ 24.2)           (15.2%)
---------------------------------------------------------------------------------------------------------------------------
Operating Profit                             $   16.7       1.2%       $   22.6       1.9%      ($  5.9)           (26.3%)
---------------------------------------------------------------------------------------------------------------------------

* Included in Managed Service Sales (Gross) are billings for associate vendors which are substantially all excluded from Sales (Net).

The sales increase of the Staffing Services segment in the first nine months of fiscal 2005 from the comparable fiscal 2004 period was due to increased staffing business in both the Technical Placement and the Administrative and Industrial divisions and in the VMC Consulting business of the Technical Placement division. The decrease in operating profit in the segment resulted from the decrease in gross margin percentage and higher overhead costs.

                                                           Nine Months Ended
                                                           -----------------
                                               July 31, 2005                August 1, 2004
                                           ---------------------       ----------------------
Technical Placement Division                              % of                      % of          Favorable          Favorable
----------------------------                               Net                       Net         (Unfavorable)     (Unfavorable)
(Dollars in Millions)                       Dollars       Sales        Dollars      Sales           Change           % Change
                                           --------       -----        -------     -------       -----------        ----------
------------------------------------------------------------------------------------------------------------------------------
Sales (Gross)                              $1,667.4                    $1,506.3                    $161.1              10.7%
------------------------------------------------------------------------------------------------------------------------------
Sales (Net)                                $  823.3                    $  707.9                    $115.4              16.3%
------------------------------------------------------------------------------------------------------------------------------
Gross Profit                               $  136.7       16.6%        $  121.0     17.1%          $ 15.7              13.0%
------------------------------------------------------------------------------------------------------------------------------
Overhead                                   $  113.8       13.8%        $   95.0     13.4%         ($ 18.8)            (19.8%)
------------------------------------------------------------------------------------------------------------------------------
Operating Profit                           $   22.9        2.8%        $   26.0      3.7%         ($  3.1)            (12.0%)
------------------------------------------------------------------------------------------------------------------------------

The Technical Placement division's increase in net sales in the first nine months of fiscal 2005 from the comparable fiscal 2004 period was due to a $99.2 million, or 16%, sales increase in traditional alternative staffing, an $11.3 million, or 15%, increase in VMC Consulting project management and consulting sales and a $4.9 million, or 25% increase in net managed service associate vendor sales. The decrease in the operating profit was the result of the increase in overhead as a percentage of net sales and the decrease in gross margin percentage, partially offset by the increased sales. The decrease in gross margin percentage was due to higher payroll taxes throughout the division and reduced markups within VMC Consulting. The increase in overhead was principally due to an increase in indirect labor and related payroll costs incurred to sustain the sales growth of the division, including the VMC Consulting business.

                                                          Nine Months Ended
                                                          -----------------
                                               July 31, 2005          August 1, 2004
                                            -------------------       --------------
Administrative & Industrial Division                      % of                         % of         Favorable         Favorable
------------------------------------                       Net                          Net        (Unfavorable)    (Unfavorable)
(Dollars in Millions)                       Dollars       Sales       Dollars          Sales         Change           % Change
                                            -------       -----       -------          -----         ------           --------
Sales (Gross)                               $517.8                    $479.6                         $38.2               8.0%
------------------------------------------------------------------------------------------------------------------------------
Sales (Net)                                 $500.1                    $463.2                         $36.9               8.0%
------------------------------------------------------------------------------------------------------------------------------
Gross Profit                                $ 63.7        12.7%       $ 61.1           13.2%         $ 2.6               4.2%
------------------------------------------------------------------------------------------------------------------------------
Overhead                                    $ 69.9        14.0%       $ 64.5           13.9%        ($ 5.4)             (8.4%)
------------------------------------------------------------------------------------------------------------------------------
Operating Loss                             ($  6.2)       (1.3%)     ($  3.4)         (0 .7%)       ($ 2.8)            (82.3%)
------------------------------------------------------------------------------------------------------------------------------

The Administrative and Industrial division's increase in gross sales in the first nine months of fiscal 2005 resulted from revenue from both new accounts and increased business from existing accounts. The increased operating loss was a result of the decreased gross margin percentage and the increase in overhead as a percentage of sales, partially offset by the increased sales. The decrease in gross margin percentage was primarily due to higher payroll taxes and the increase in overhead was due to increases in indirect labor.

Although the markets for the segment's services include a broad range of industries throughout the United States and Europe, general economic difficulties in specific geographic areas or industrial sectors have in the past and could, in the future, affect the profitability of the segment.

                                                           Nine Months Ended
                                                           -----------------
                                               July 31, 2005            August 1, 2004
                                            --------------------    -----------------------
Telephone Directory                                       % of                         % of          Favorable     Favorable
------------------------------------                       Net                          Net        (Unfavorable)  (Unfavorable)
(Dollars in Millions)                       Dollars       Sales       Dollars          Sales         Change        % Change
                                            -------       -----       -------          -----         ------        --------
                                                                     (Restated)     (Restated)
Sales (Net)                                  $57.0                      $52.1                         $4.9              9.3%
-----------------------------------------------------------------------------------------------------------------------------
Gross Profit                                 $30.2         53.0%        $27.9         53.6%           $2.3              8.3%
-----------------------------------------------------------------------------------------------------------------------------
Overhead                                     $20.0         35.1%        $20.7         39.7%           $0.7              3.3%
-----------------------------------------------------------------------------------------------------------------------------
Operating Profit                             $10.2         17.9%        $ 7.2         13.9%           $3.0             41.5%
-----------------------------------------------------------------------------------------------------------------------------

The components of the Telephone Directory segment's sales increase for the first nine months of fiscal 2005 from to the comparable 2004 period were an increase of $2.6 million in systems revenue and a $2.2 million increase in printing revenue in Uruguay, partially offset by a $0.1 million decrease in other sales. Publishing sales increased slightly, with a $1.5 million increase in the sales of the DataNational community telephone directory operation, offset by sales decreases in the Uruguayan directory operation of $0.5 million and the elimination of a domestic directory publication of $0.7 million sold in fiscal 2004. The DataNational and Uruguayan variances in sales were due to the changes in the number of directories printed and delivered. The increase in the segment's operating profit from the comparable period in fiscal 2004 was the result of the sales increase and the decrease in overhead due to $0.7 million of expenses incurred in fiscal 2004 in connection with an investigation in Uruguay, partially offset by lower margins recognized on the Uruguayan telephone directories published in the period.

Other than the DataNational division, which accounted for 66% of the segment's fiscal 2005 first nine months' sales, the segment's business is obtained through submission of competitive proposals for production and other contracts. These short and long-term contracts are re-bid after expiration. Many of this segment's long-term contracts contain cancellation provisions under which the customer can cancel the contract, even if the segment is not in default under the contract and generally do not provide for a minimum amount of work to be awarded to the segment. While the Company has historically secured new contracts and believes it can secure renewals and/or extensions of most of these contracts, some of which are material to this segment, and obtain new business, there can be no assurance that contracts will be renewed or extended, or that additional or replacement contracts will be awarded to the Company on satisfactory terms. In addition, this segment's sales and profitability are highly dependent on advertising revenue for DataNational's directories, which could be affected by general economic conditions.

                                                          Nine Months Ended
                                                          -----------------
                                              July 31, 2005              August 1, 2004
                                            ------------------        --------------------
Telcommunications Services                                % of                        % of         Favorable          Favorable
------------------------------------                       Net                         Net       (Unfavorable)      (Unfavorable)
(Dollars in Millions)                       Dollars       Sales       Dollars         Sales         Change            % Change
                                            -------       -----       -------         ----         --------           --------
Sales (Net)                                 $94.0                     $100.4                         ($6.4)              (6.5%)
-------------------------------------------------------------------------------------------------------------------------------
Gross Profit                                $18.7         19.9%       $ 25.7          25.6%          ($7.0)             (27.1%)
-------------------------------------------------------------------------------------------------------------------------------
Overhead                                    $21.9         23.3%       $ 27.3          27.2%           $5.4               19.8%
-------------------------------------------------------------------------------------------------------------------------------
Operating Loss                             ($ 3.2)       ( 3.4%)     ($ 1.6)          (1.6%)         ($1.6)             (94.5%)
-------------------------------------------------------------------------------------------------------------------------------

The Telecommunications Services segment's sales decrease of $6.4 million, or 7%, in the first nine months of fiscal 2005 from the comparable 2004 period was due to a decline in capital spending by telephone companies. The increase in the operating loss was due to the sales and gross margin decreases, partially offset by a decrease in overhead (which in the 2004 period included a previously reported $1.3 million charge in the nine months of fiscal 2004 related to a domestic consulting contract for services). Despite an emphasis on cost controls, the results of the segment continue to be affected by the decline in capital spending by telephone companies caused by the depressed conditions within the segment's telecommunications industry customer base. This factor has also increased competition for available work, pressuring pricing and gross margins throughout the segment. Actions by major long-distance telephone companies to reduce marketing of local residential service have negatively impacted sales and continue to impact margins of the segment.

Due to the current state of the telecommunications industry and as a result of recent losses in its Telecommunications Services segment, in August 2005, the Company restructured the Telecommunications Services segment which is expected to result in a reduction of future overhead within the segment of approximately $4.2 million on an annual basis. The restructuring will result in the segment reducing its overhead headcount, consolidating two business units and closing and consolidating several of its leased locations. The Company anticipates taking a charge for employee severance and lease terminations costs approximating $0.4 million in the fourth quarter. In accordance with SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", the liability for all of the costs to be recognized under this restructuring is to be recognized when the liability is incurred. The plan for the downsizing, initiated in August 2005, is expected to be completed in the Company's fourth quarter, when such charges will be made within the segment.

A substantial portion of the business in this segment is obtained through the submission of competitive proposals for contracts, which typically expire within one to three years and are re-bid. Many of this segment's long-term contracts contain cancellation provisions under which the customer can cancel the contract, even if the segment is not in default under the contract and generally do not provide for a minimum amount of work to be awarded to the segment. While the Company believes it can secure renewals and/or extensions of most of these contracts, some of which are material to this segment, and obtain new business, there can be no assurances that contracts will be renewed or extended or that additional or replacement contracts will be awarded to the Company on satisfactory terms.

                                                           Nine Months Ended
                                                           -----------------
                                               July 31, 2005              August 1, 2004
                                            -------------------       ----------------------
Computer Systems                                          % of                        % of         Favorable        Favorable
------------------------------------                       Net                         Net        (Unfavorable)    (Unfavorable)
(Dollars in Millions)                       Dollars       Sales        Dollars        Sales          Change          % Change
                                            -------       -----       ----------      ------      ------------      ----------
Sales (Net)                                 $127.9                       $80.5                        $47.4              58.8%
------------------------------------------------------------------------------------------------------------------------------
Gross Profit                                $ 67.8         53.0%         $48.1         59.8%          $19.7              40.9%
------------------------------------------------------------------------------------------------------------------------------
Overhead                                    $ 43.2         33.8%         $28.6         35.6%         ($14.6)            (50.9%)
------------------------------------------------------------------------------------------------------------------------------
Operating Profit                            $ 24.6         19.2%         $19.5         24.2%           $5.1              26.2%
------------------------------------------------------------------------------------------------------------------------------

The Computer Systems segment's sales increase in the first nine months of fiscal 2005 over the comparable 2004 period was due to improvements in the segment's operator services business, including ASP directory assistance, which reflected a $32.7 million, or 81%, growth in sales during the period, a sales increase of $2.9 million, or 50%, in DataServ's data services which are provided to non-telco enterprise customers, a $4.2 million, or 15%, sales growth in the Maintech division's IT maintenance services, and a $7.6 million, or 125%, increase in product revenue recognized. The sales increases noted above included $21.0 million of DOS Business acquired from Nortel Networks, which represented 16% of the segment's sales for the 2005 period. The growth in operating profit from the comparable 2004 period was the result of the increase in sales and the decrease in overhead as a percentage of sales, partially offset by the decrease in gross margin percentage. The lower gross margin percentage in the first nine months of fiscal 2005, as compared to the comparable first nine months of fiscal 2004 was partially due to the favorable settlement of vendor disputes and refunds in the first nine months of fiscal 2004 approximating $1.5 million, lower margins recognized in the first nine months of fiscal 2005 related to product revenue and the absence of Nortel business in the nine months of fiscal 2004, the margins of which are lower than the segment average.

Volt Delta, the entity which operates the Computer Systems segment, acquired certain assets and liabilities of the DOS Business of Nortel Networks on August 2, 2004 in exchange for a 24% equity interest in the segment. This acquisition permits Volt Delta to provide the newly combined customer base with new solutions and an expanded suite of products, content and enhanced services.

This segment's results are highly dependent on the volume of calls to the segment's customers that are processed by the segment under existing contracts with telephone companies, the segment's ability to continue to secure comprehensive telephone listings from others, its ability to obtain additional customers for these services and its continued ability to sell products and services to new and existing customers.

                                                            Nine Months Ended
                                                          ----------------------
                                               July 31, 2005               August 1, 2004
                                            -------------------       ----------------------
Other                                                     % of                        % of         Favorable         Favorable
------------------------------------                       Net                         Net        (Unfavorable)     (Unfavorable)
(Dollars in Millions)                       Dollars       Sales       Dollars          Sales         Change           % Change
                                            -------       -----       -------          -----         ------           --------
Selling & Administrative *                   $66.0       4.2%        $58.5             4.2%         ($7.5)           (12.7%)
-----------------------------------------------------------------------------------------------------------------------------
Depreciation & Amortization                  $22.6       1.4%        $18.8             1.4%         ($3.8)           (20.1%)
-----------------------------------------------------------------------------------------------------------------------------
Interest Income                              $ 1.9       0.1%         $0.7             0.0%          $1.2            173.1%
-----------------------------------------------------------------------------------------------------------------------------
Other Expense                                ($2.9)      0.2%        ($3.1)            0.2%          $0.2             (5.0%)
-----------------------------------------------------------------------------------------------------------------------------
Foreign Exchange Loss                        ($0.1)      0.0%        ($0.1)            0.0%          $0.0            (18.4%)
-----------------------------------------------------------------------------------------------------------------------------
Interest Expense                             ($1.4)      0.1%        ($1.3)            0.1%         ($0.1)            (4.6%)
-----------------------------------------------------------------------------------------------------------------------------

* The first nine months of fiscal 2004 amount has been restated

Other items, discussed on a consolidated basis, affecting the results of operations for the fiscal periods were:

The increase in selling and administrative expenses in the first nine months of fiscal 2005 from the comparable 2004 quarter was a result of increased selling expenses to support the increased sales levels throughout the Company, in addition to increased corporate general and administrative expenses related to costs to meet the disaster recovery requirements of redundancy and business continuity for corporate systems and communications networks. In addition, the Company incurred increased salaries, professional fees and costs related to compliance with the Sarbanes-Oxley Act.

The increase in depreciation and amortization for the first nine months of fiscal 2005 from the comparable 2004 quarter was attributable to increases in fixed assets, primarily in the Computer Systems and Staffing Services segments, and the increased amortization of intangible assets in the Computer Systems segment.

Interest income increased due to higher interest rates together with additional funds available for investment.

Other expense in both fiscal years is primarily the charges related to the Company's Securitization Program as well as business taxes and sundry expenses.

The Company's effective tax rate on its financial reporting pre-tax income from continuing operations was 40.0% in the first nine months of 2005 compared to 39.4% in 2004.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

THREE MONTHS ENDED JULY 31, 2005 COMPARED
TO THE THREE MONTHS ENDED AUGUST 1, 2004--Continued

RESULTS OF OPERATIONS - SUMMARY

In the third quarter of fiscal 2005, consolidated net sales increased by $42.8 million, or 9%, to $543.5 million, from the comparable period in fiscal 2004. The primary increases in fiscal 2005 net sales resulted from increases in Staffing Services of $32.4 million and Computer Systems of $13.7 million.

Net income for the third quarter of fiscal 2005 was $5.0 million compared to $9.2 million in the comparable 2004 third quarter. The Company reported a pre-tax income from continuing operations before minority interest for the third quarter of fiscal 2005 of $9.8 million compared to $15.3 million in the prior year's third quarter.

The Company's operating segments reported an operating profit of $19.6 million in the fiscal 2005 quarter, a decrease of $4.8 million, or 20%, from the comparable 2004 quarter. The segments with decreased operating results were Staffing Services, $4.7 million, Telecommunications Services, $2.0 million and Computer Systems, $1.0 million, partially offset by an increase in the operating profit of the Telephone Directory segment of $3.0 million.

General corporate expenses increased by $1.5 million, or 20%, due to costs incurred to meet the disaster recovery requirements of redundancy and business continuity for corporate systems and communication networks, as well as salary and professional fee increases. In addition, the Company incurred costs related to compliance with the Sarbanes-Oxley Act.

                                                          Three Months Ended
                                                          ------------------
                                                 July 31, 2005            August 1, 2004
                                            ---------------------     ----------------------
Staffing Services                                         % of                        % of         Favorable         Favorable
------------------------------------                       Net                         Net        (Unfavorable)     (Unfavorable)
(Dollars in Millions)                        Dollars       Sales        Dollars        Sales         Change           % Change
                                            --------       -----       ---------      ------         ------           --------

Staffing Sales (Gross)                        $440.2                     $410.1                       $30.1             7.3%
--------------------------------------------------------------------------------------------------------------------------------
Managed Service Sales (Gross) *               $278.3                     $306.1                      ($27.8)           (9.1%)
--------------------------------------------------------------------------------------------------------------------------------
Sales (Net)                                   $450.2                     $417.8                       $32.4             7.8%
--------------------------------------------------------------------------------------------------------------------------------
Gross Profit                                  $ 69.0        15.3%        $ 67.2        16.1%          $ 1.8             2.6%
--------------------------------------------------------------------------------------------------------------------------------
Overhead                                      $ 62.0        13.8%        $ 55.6        13.3%         ($ 6.4)          (11.6%)
--------------------------------------------------------------------------------------------------------------------------------
Operating Profit                              $  7.0         1.5%        $ 11.6         2.8%         ($ 4.6)          (40.3%)
--------------------------------------------------------------------------------------------------------------------------------

* Included in Managed Service Sales (Gross) are billings for associate vendors which are substantially all excluded from Sales (Net).

                                                            Three Months Ended
                                                            -------------------
                                              July 31, 2005              August 1, 2004
                                           -------------------       ----------------------
Technical Placement Division                              % of                        % of         Favorable          Favorable
------------------------------------                       Net                         Net        (Unfavorable)      (Unfavorable)
(Dollars in Millions)                      Dollars       Sales       Dollars          Sales         Change            % Change
                                           -------       -----       -------          -----         ------           ------------
Sales (Gross)                              $544.1                      $543.6                        $ 0.5               0.1%
---------------------------------------------------------------------------------------------------------------------------------
Sales (Net)                                $282.1                      $251.4                        $30.7              12.2%
---------------------------------------------------------------------------------------------------------------------------------
Gross Profit                               $ 47.0         16.7%        $ 44.4          17.7%         $ 2.6               5.7%
---------------------------------------------------------------------------------------------------------------------------------
Overhead                                   $ 38.7         13.7%        $ 33.4          13.3%        ($ 5.3)            (15.8%)
---------------------------------------------------------------------------------------------------------------------------------
Operating Profit                           $  8.3          2.9%        $ 11.0           4.4%        ($ 2.7)            (24.9%)
---------------------------------------------------------------------------------------------------------------------------------

The Technical Placement division's increase in net sales in the third quarter of fiscal 2005 from the comparable fiscal 2004 quarter was primarily due to a $29.8 million, or 14%, sales increase in traditional alternative staffing sales. The decrease in the operating profit was the result of the reduction in gross margin percentage and the increase in overhead as a percentage of sales, partially offset by the increased sales. The decrease in gross margin percentage was due to higher payroll taxes throughout the division and reduced markups within VMC Consulting. The increase in overhead was principally due to an increase in indirect labor and related payroll costs incurred to sustain the forecasted growth of the division, including the VMC Consulting business.

                                                                 Three Months Ended
                                                                 -----------------
                                                    July 31, 2005            August 1, 2004
                                                    -------------            --------------
Administrative & Industrial Division                      % of                        % of         Favorable         Favorable
------------------------------------                       Net                         Net        (Unfavorable)     (Unfavorable)
(Dollars in Millions)                       Dollars       Sales       Dollars          Sales         Change           % Change
                                            -------       -----       -------          -----         ------           --------

Sales (Gross)                               $174.4                    $172.6                           $1.8               1.0%
------------------------------------------------------------------------------------------------------------------------------
Sales (Net)                                 $168.1                    $166.4                           $1.7               1.0%
------------------------------------------------------------------------------------------------------------------------------
Gross Profit                                $ 22.0        13.1%       $ 22.8          13.7%           ($0.8)           (  3.4%)
------------------------------------------------------------------------------------------------------------------------------
Overhead                                    $ 23.3        13.9%       $ 22.2          13.3%           ($1.1)           (  5.3%)
------------------------------------------------------------------------------------------------------------------------------
Operating (Loss) Profit                    ($  1.3)      ( 0.8%)      $  0.6           0.4%           ($1.9)           (309.4%)
------------------------------------------------------------------------------------------------------------------------------

The Administrative and Industrial division's increase in gross sales in the third quarter of fiscal 2005 compared to the fiscal 2004 third quarter resulted from both revenue from new accounts and increased business from

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

THREE MONTHS ENDED JULY 31, 2005 COMPARED
TO THE THREE MONTHS ENDED AUGUST 1, 2004--Continued

STAFFING SERVICES --Continued

existing accounts, partially offset by the elimination of the division's PEO sales ($2.3 million in the third quarter of fiscal 2004), due to the Company terminating this service. The current quarter's operating loss, as compared to the comparable quarter's profit, was due to the reduced gross margins and the increase in overhead as a percentage of sales, partially offset by the slight increase in sales. The decrease in gross margin was due to higher payroll taxes and the increase in overhead was due to an increase in indirect labor.

                                                            Three Months Ended
                                                            ------------------
                                                July 31, 2005              August 1, 2004
                                            -------------------       ----------------------
Telephone Directory                                       % of                         % of         Favorable        Favorable
------------------------------------                       Net                          Net        (Unfavorable)    (Unfavorable)
(Dollars in Millions)                       Dollars       Sales       Dollars          Sales         Change           % Change
                                            -------       -----       -------         ------         ------           --------
 Sales (Net)                                 $23.9                      $19.4                         $4.5              23.0%
 -----------------------------------------------------------------------------------------------------------------------------
 Gross Profit                                $12.7       53.3%          $10.9          56.1%          $1.8              16.7%
 -----------------------------------------------------------------------------------------------------------------------------
 Overhead                                    $ 7.1       29.8%          $ 8.3          42.6%          $1.2              14.0%
 -----------------------------------------------------------------------------------------------------------------------------
 Operating Profit                            $ 5.6       23.4%          $ 2.6          13.5%          $3.0             113.8%
 -----------------------------------------------------------------------------------------------------------------------------

The components of the Telephone Directory segment's sales increase for the third quarter of fiscal 2005 from the comparable 2004 quarter were increases of $1.9 million in the community telephone directory operation of DataNational, $0.7 million in the sales of the telephone directory systems operation, $1.7 million in the printing operation in Uruguay. The DataNational increased revenue was due to a change in the number of directories printed and delivered during the quarter. The segment's increased operating profit was the result of the sales increase and the decrease in overhead due to $0.7 million of expenses incurred in fiscal 2004 in connection with an investigation in Uruguay, partially offset by the decrease in gross margin percentage, primarily due to the product mix within the segment.

                                                              Three Months Ended
                                                              ------------------
                                               July 31, 2005            August 1, 2004
                                            ---------------------      -----------------------
Telecommunications                                         % of                        % of         Favorable         Favorable
------------------------------------                        Net                         Net        (Unfavorable)     (Unfavorable)
(Dollars in Millions)                       Dollars        Sales       Dollars         Sales         Change           % Change
                                            -------       -------      -------         -----         ------            --------
Sales (Net)                                  $30.8                      $37.0                        ($6.2)              (16.8%)
--------------------------------------------------------------------------------------------------------------------------------
Gross Profit                                 $ 6.3         20.5%         $10.5         28.4%         ($4.2)              (40.1%)
--------------------------------------------------------------------------------------------------------------------------------
Overhead                                     $ 7.3         23.6%         $ 9.5         25.5%          $2.2                23.0%
--------------------------------------------------------------------------------------------------------------------------------
Operating (Loss) Profit                     ($ 1.0)        (3.2%)        $ 1.0          2.9%         ($2.0)             (192.4%)
--------------------------------------------------------------------------------------------------------------------------------

The Telecommunications Services segment's sales decrease of $6.2 million, or 17%, in the third quarter of fiscal 2005 from the comparable 2004 quarter was due to a decline in capital spending by telephone companies.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

THREE MONTHS ENDED JULY 31, 2005 COMPARED
TO THE THREE MONTHS ENDED AUGUST 1, 2004--Continued

TELECOMMUNICATIONS SERVICES--Continued

The segment's operating loss for the quarter was due to the sales decrease and the reduction in the gross margin percentage, partially offset by the decreased overhead. Despite an emphasis on cost controls, the results of the segment continue to be affected by the decline in capital spending by telephone companies caused by the depressed conditions within the segment's telecommunications industry customer base. This factor has also increased competition for available work, pressuring pricing and gross margins throughout most of the segment. Actions by major long-distance telephone companies to reduce marketing to local residential service have negatively impacted sales and continue to impact margins of the segment.

                                                             Three Months Ended
                                                             ------------------
                                                July 31, 2005             August 1, 2004
                                            ---------------------     ----------------------
Computer Systems                                          % of                        % of         Favorable         Favorable
------------------------------------                       Net                         Net        (Unfavorable)     (Unfavorable)
(Dollars in Millions)                       Dollars       Sales       Dollars          Sales         Change           % Change
                                            -------       -----       -------          -----         ------           --------
Sales (Net)                                  $43.8                        $30.1                         $13.7             45.4%
--------------------------------------------------------------------------------------------------------------------------------
Gross Profit                                 $23.0          52.5%         $19.6        65.0%            $ 3.4             17.4%
--------------------------------------------------------------------------------------------------------------------------------
Overhead                                     $14.9          34.1%         $10.5        34.8%           ($ 4.4)           (42.4%)
--------------------------------------------------------------------------------------------------------------------------------
Operating Profit                             $ 8.1          18.4%         $ 9.1        30.2%           ($ 1.0)           (11.4%)
--------------------------------------------------------------------------------------------------------------------------------

The Computer Systems segment's sales increase in the third quarter of fiscal 2005 over the comparable 2004 quarter was due to improvements in the segment's operator services business, including ASP directory assistance, which reflected a $9.2 million, or 64%, growth in sales during the quarter, a sales increase of $0.9 million, or 43%, in DataServ's data services which are provided to non-telco enterprise customers, a $1.8 million, or 18%, sales growth in the Maintech division's IT maintenance services, and a $1.8 million, or 49%, increase in product revenue recognized. The sales increases noted above included $6.2 million of DOS Business acquired from Nortel Networks, which represented 14% of the segment's sales for the 2005 quarter. The decrease in operating profit from the comparable 2004 fiscal quarter was the result of the decrease in gross margin percentage and the increase in overhead partially offset by increased sales. The lower gross margin percentage in the current quarter, as compared to the comparable 2004 quarter was partially due to the favorable settlement of vendor disputes and refunds in the 2004 fiscal quarter approximating $1.5 million, lower margins recognized in the current quarter related to product revenue and the absence of Nortel business in the 2004 quarter, the margins of which are lower than the segment average.

Volt Delta, the entity which operates the Computer Systems segment, acquired certain assets and liabilities of the DOS Business of Nortel Networks on August 2, 2004. This acquisition permits Volt Delta to provide the newly combined customer base with new solutions and an expanded suite of products, content and enhanced services.

                                                             Three Months Ended
                                                             -------------------
                                               July 31, 2005              August 1, 2004
                                            --------------------      ----------------------
Other                                                     % of                        % of         Favorable         Favorable
------------------------------------                       Net                         Net        (Unfavorable)    (Unfavorable)
(Dollars in Millions)                       Dollars       Sales       Dollars          Sales         Change          % Change
                                            -------       -----       -------          -----         ------          --------
Selling & Administrative                     $23.0         4.2%        $20.6            4.1%         ($2.4)           (11.6%)
-----------------------------------------------------------------------------------------------------------------------------
Depreciation & Amortization                  $ 7.6         1.4%         $6.5            1.3%         ($1.1)           (17.6%)
-----------------------------------------------------------------------------------------------------------------------------
Interest Income                              $ 0.8         0.1%         $0.3            0.1%          $0.5            194.9%
-----------------------------------------------------------------------------------------------------------------------------
Other Expense                               ($ 1.0)       (0.2%)       ($1.2)          (0.2%)         $0.2             13.4%
-----------------------------------------------------------------------------------------------------------------------------
Foreign Exchange Loss                        $ 0.1         0.0%        ($0.0)           0.0%          $0.1                 -
-----------------------------------------------------------------------------------------------------------------------------
Interest Expense                            ($ 0.4)       (0.1%)       ($0.4)          (0.1%)         $0.0              3.0%
-----------------------------------------------------------------------------------------------------------------------------

Other items, discussed on a consolidated basis, affecting the results of operations for the fiscal periods were:

The increase in selling and administrative expenses in the third quarter of fiscal 2005 from the comparable 2004 quarter was a result of increased selling expenses to support the increased sales levels throughout the Company, in addition to increased corporate general and administrative expenses related to costs to meet the disaster recovery requirements of redundancy and business continuity for corporate systems and communications networks. In addition, the Company incurred increased salaries, professional fees and costs related to compliance with the Sarbanes-Oxley Act.

The increase in depreciation and amortization for the third quarter of fiscal 2005 from the comparable 2004 quarter was attributable to increases in fixed assets, primarily in the Computer Systems and Staffing Services segments, and the increased amortization of intangible assets in the Computer Systems segment.

Interest income increased due to higher interest rates together with additional funds available for investment.

Other expense in both fiscal years is primarily the charges related to the Company's Securitization Program as well as business taxes and sundry expenses.

The Company's effective tax rate on its financial reporting pre-tax income from continuing operations was 40.7% in the third fiscal quarter of 2005 and 39.6% in the comparable quarter of 2004.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents, including restricted cash held in escrow for primarily ProcureStaff customers of $24.2 million and $43.7 million at July 31, 2005 and October 31, 2004, respectively, increased by $1.0 million to $89.0 million in the nine months ended July 31, 2005. Unrestricted cash and cash equivalents increased by $20.6 million to $64.9 million at July 31, 2005.

Operating activities provided $17.1 million of cash in the first nine months of fiscal 2005. In the comparable fiscal 2004 period, operating activities provided $8.1 million in cash.

Operating activities in the first nine months of fiscal 2005, exclusive of changes in operating assets and liabilities, produced $36.9 million of cash, as the Company's net income of $8.7 million included non-cash charges primarily for depreciation and amortization of $22.6 million, accounts receivable provisions of $3.1 million, and minority interest of $4.7 million, partially offset by a deferred tax benefit of $2.3 million. In the first nine months of fiscal 2004, operating activities, exclusive of changes in operating assets and liabilities, produced $30.7 million of cash, as the Company's net income of $22.2 million included non-cash charges primarily for depreciation of $18.8 million, and accounts receivable provisions of $3.8 million, partially offset by income from discontinued operations of $9.5 million and a deferred tax benefit of $4.5 million.

Changes in operating assets and liabilities used $19.8 million of cash, net, in the first nine months of fiscal 2005 principally due to a decrease in the level of accounts payable and accrued expenses of $33.7 million, a decrease in deferred income and other liabilities of $5.3 million, a decrease in income taxes payable of $5.2 million and an increase in prepaid and other assets of $5.1 million, partially offset by an increase in securitization of receivables of $25.0 million and a decrease in the level of accounts receivable of $9.9 million. In the first nine months of fiscal 2004 changes in operating assets and liabilities used $22.6 million of cash, net, principally due to an increase in the level of accounts receivable of $57.4 million and a $10.0 million reduction in the participation interest sold under the Company's Securitization Program, partially offset by an increase in the level of accounts payable and accrued expenses of $29.5 million, an increase in the level of deferred income and other liabilities of $4.3 million and a decrease in the level of inventory of $5.9 million.

The $16.6 million of cash applied to investing activities for the first nine months of fiscal 2005 resulted from the net additions to property, plant and equipment totaling of $17.4 million, offset by the net reduction in investments of $0.3 million. The principal factors in the $5.5 million of cash applied to investing activities for the first nine months of fiscal 2004 were the net additions to property, plant and equipment totaling $24.3 million substantially offset by $18.5 million in proceeds from the sale of real estate previously leased to the Company's former 59%-owned subsidiary.

The principal factor in the $1.1 million of cash provided by financing activities in the first nine months of fiscal 2005 was funds received from employees' exercises of stock options of $1.2 million. The principal factor in the $3.7 million of cash provided by financing activities in the first nine months of fiscal 2004 was an increase in notes payable to banks of $3.5 million.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

There has been no material change through July 31, 2005 in the Company's contractual cash obligations and other commercial commitments from that reported in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2004.

The Company has no off-balance sheet financing arrangements, as that term has meaning in Item 303(a) (4) of Regulation S-K.

In April 2005, the Company amended its $150.0 million accounts receivable securitization program ("Securitization Program") to provide that the expiration date be extended from April 2006 to April 2007. Under the Securitization Program, receivables related to the United States operations of the staffing solutions business of the Company and its subsidiaries are sold from time-to-time by the Company to Volt Funding Corp., a wholly-owned special purpose subsidiary of the Company ("Volt Funding"). Volt Funding, in turn, sells to Three Rivers Funding Corporation ("TRFCO"), an asset backed commercial paper conduit sponsored by Mellon Bank, N.A., an undivided percentage ownership interest in the pool of receivables Volt Funding acquires from the Company (subject to a maximum purchase by TRFCO in the aggregate of $150.0 million). The Company retains the servicing responsibility for the accounts receivable. At July 31, 2005, TRFCO had purchased from Volt Funding a participation interest of $95.0 million out of a pool of approximately $268.8 million of receivables.

The Securitization Program is not an off-balance sheet arrangement as Volt Funding is a 100%-owned consolidated subsidiary of the Company, with accounts receivable only reduced to reflect the fair value of receivables actually sold. The Company entered into this arrangement as it provided a low-cost alternative to other forms of financing.

The Securitization Program is designed to enable the sale of receivables by the Company to Volt Funding to constitute true sales of those receivables. As a result, the receivables are available to satisfy Volt Funding's own obligations to its own creditors before being available, through the Company's residual equity interest in Volt Funding, to satisfy the Company's creditors (subject also, as described above, to the security interest that the Company granted in the common stock of Volt Funding in favor of the lenders under the Company's Credit Facility). TRFCO has no recourse to the Company beyond its interest in the pool of receivables owned by Volt Funding.

In the event of termination of the Securitization Program, new purchases of a participation interest in receivables by TRFCO would cease and collections reflecting TRFCO's interest would revert to it. The Company believes TRFCO's aggregate collection amounts should not exceed the pro rata interests sold. There are no contingent liabilities or commitments associated with the Securitization Program.

The Company accounts for the securitization of accounts receivable in accordance with SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." At the time a participation interest in the receivables is sold, the receivable representing that interest is removed from the consolidated balance sheet (no debt is recorded) and the proceeds from the sale are reflected as cash provided by

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

operating activities. Losses and expenses associated with the transactions, primarily related to discounts incurred by TRFCO on the issuance of its commercial paper, are charged to the consolidated statement of operations.

The Securitization Program is subject to termination at TRFCO's option, under certain circumstances, including, among other things, the default rate, as defined, on receivables exceeding a specified threshold, the rate of collections on receivables failing to meet a specified threshold, the Company failing to maintain a long-term debt rating of "B" or better or the equivalent thereof from a nationally recognized rating organization or a default occurring and continuing on indebtedness for borrowed money of at least $5.0 million. At July 31, 2005, the Company was in compliance with all requirements of its Securitization Program.

In April 2005, the Company amended its secured, syndicated, revolving credit agreement ("Credit Agreement") which was to expire in April 2005, to, among other things, extend the term for three years to April 2008 and increase the line from $30.0 million to $40.0 million. In July 2004, this program was amended to release Volt Delta Resources, LLC ("Volt Delta") as a guarantor and collateral grantor under the Credit Agreement due to the previously announced agreement between Volt Delta and Nortel Networks Inc. ("Nortel Networks"). At July 31, 2005, the Company had credit lines with domestic and foreign banks which provided for borrowings and letters of credit up to an aggregate of $51.3 million, including $40.0 million under the Credit Agreement.

The Credit Agreement established a secured credit facility ("Credit Facility") in favor of the Company and designated subsidiaries, of which up to $15.0 million may be used for letters of credit. Borrowings by subsidiaries are limited to $25.0 million in the aggregate. The administrative agent for the Credit Facility is JPMorgan Chase Bank. The other banks participating in the Credit Facility are Mellon Bank, N.A., Wells Fargo Bank, N.A., Lloyds TSB Bank PLC and Bank of America, N.A..

Borrowings under the Credit Facility are to bear interest at various rate options selected by the Company at the time of each borrowing. Certain rate options, together with a facility fee, are based on a leverage ratio, as defined. Additionally, interest and the facility fees can be increased or decreased upon a change in the Company's long-term debt rating provided by a nationally recognized rating agency. As amended, in lieu of the previous borrowing base formulation, the Credit Agreement now requires the maintenance of specified accounts receivable collateral in excess of any outstanding borrowings. Based upon the Company's leverage ratio and debt rating at July 31, 2005, if a three-month U.S. Dollar LIBO rate were the interest rate option selected by the Company, borrowings would have borne interest at the rate of 4.3% per annum. At July 31, 2005, the facility fee was 0.3% per annum.

The Credit Agreement provides for the maintenance of various financial ratios and covenants, including, among other things, a requirement that the Company maintain a consolidated tangible net worth, as defined; a limitation on cash dividends, capital stock repurchases and redemptions by the Company in any one fiscal year to 50% of consolidated net income, as defined, for the prior fiscal year; and a requirement that the Company maintain a ratio of EBIT, as defined, to interest expense, as defined, of 1.25 to 1.0 for the twelve months ending as of the last day of each fiscal quarter. The Credit Agreement also imposes limitations on, among other things, the incurrence of additional indebtedness, the incurrence of additional liens, sales of assets, the level of annual

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

capital expenditures, and the amount of investments, including business acquisitions and investments in joint ventures, and loans that may be made by the Company and its subsidiaries. At July 31, 2005, the Company was in compliance with all covenants in the Credit Agreement.

The Company is liable on all loans made to it and all letters of credit issued at its request, and is jointly and severally liable as to loans made to subsidiary borrowers. However, unless also a guarantor of loans, a subsidiary borrower is not liable with respect to loans made to the Company or letters of credit issued at the request of the Company, or with regard to loans made to any other subsidiary borrower. Under the April 2005 amendment, five subsidiaries of the Company remain as guarantors of all loans made to the Company or to subsidiary borrowers under the Credit Facility. At July 31, 2005, four of those guarantors have pledged approximately $47.6 million of accounts receivable, other than those in the Securitization Program, as collateral for the guarantee obligations. Under certain circumstances, other subsidiaries of the Company also may be required to become guarantors under the Credit Facility

At July 31, 2005, the Company had total outstanding foreign currency bank borrowings of $8.1 million, $4.2 million of which were under the Credit Agreement. These bank borrowings provide a hedge against devaluation in foreign currency denominated assets.

The Company believes that its current financial position, working capital, future cash flows from operations, credit lines and accounts receivable Securitization Program will be sufficient to fund its presently contemplated operations and satisfy its obligations through, at least, the next twelve months.

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs-an Amendment of ARB No. 43, Chapter 4," which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and spoilage. This Statement requires that these items be recognized as period costs even if the amounts are not considered to be abnormal. The provisions of this Statement are effective for inventory costs incurred in fiscal years beginning after June 15, 2005. The Company does not believe that the adoption of this Statement in fiscal 2006 will have a material impact on the Company's consolidated financial position or results of operations.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets-an Amendment of APB Opinion No. 29," to eliminate the exception for nonmonetary exchanges of similar productive assets and replace it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. The provisions of this Statement are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005, with early application permitted for exchanges beginning after November 2004. The Company does not believe that the adoption of this Statement in fiscal 2005 will have a material impact on the Company's consolidated financial position or results of operations.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued

In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment," which replaces the superseded SFAS No. 123, "Accounting for Stock-Based Compensation." This Statement requires that all entities apply a fair-value-based measurement method in accounting for share-based payment transactions with employees and suppliers when the entity acquires goods or services. The provisions of this Statement are required to be adopted by the Company beginning October 31, 2005. The Company is currently assessing the impact that the adoption will have on the Company's consolidated financial position and results of operations.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections, - a replacement of APB Opinion No. 20 and FASB Statement No. 3". This Statement establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. The provisions of this Statement are effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date this Statement is issued. The Company does not believe that the adoption of this Statement in fiscal 2005 will have a material impact on the Company's consolidated financial position or results of operations.

The American Jobs Creation Act of 2004 (the "Act") provided for a special one-time tax deduction of 85% of certain foreign earnings that are repatriated. The Company is currently assessing the impact the Act will have on the Company's consolidated financial position and results of operations.

During the first nine months of fiscal 2005, the Company paid or accrued $0.7 million to the law firms of which Lloyd Frank, a director of the Company, is of counsel, for services rendered to the Company and expenses reimbursed. During the first nine months, the Company also paid $5,000 to the law firm of which Bruce Goodman, a director of the Company, is a partner, for services rendered to the Company.

The Company rents approximately 2,600 square feet of office space to a corporation owned by Steven A. Shaw, an officer and director, in the Company's El Segundo, California facility, which the Company does not require for its own use, on a month-to-month basis at a rental of $1,750 per month. Based on the nature of the premises and a recent market survey conducted for the Company, the Company believes the rent is the fair market rental for such space.