<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 000-21465
TALX CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-0988805
- ---------------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1850 Borman Ct., St. Louis, Missouri 63146
- ---------------------------------------- --------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 314-434-0046
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Shares of Voting Common Stock outstanding at February 3, 1997: 5,259,827.
Exhibit Index is on page 16.
1
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TALX CORPORATION AND SUBSIDIARIES
PART I - Financial Information
Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996
and December 31, 1996 3
Consolidated Statements of Operations for the Three Months
and Nine Months Ended December 31, 1995 and 1996 4
Consolidated Statements of Cash Flow for the Nine
Months Ended December 31, 1995 and 1996 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-13
Part II - Other Information
Item 5. Other Information 14
Item 6. Exhibit(s) and Reports on Form 8-K 14
Signatures 15
2
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<TABLE>
TALX Corporation and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
<CAPTION>
March 31, December 31,
1996 1996
---------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ......................................................................... $ 56 $ 408
Marketable securities ............................................................................. -- 5,494
Trade receivables, net ............................................................................ 5,918 7,631
Inventories ....................................................................................... 1,389 1,465
Work in progress, less progress billings .......................................................... 761 --
Prepaid expenses and other current assets ......................................................... 306 485
Income tax refund receivable ...................................................................... 260 --
Deferred tax assets, net .......................................................................... 225 133
---------- ----------
Total current assets ........................................................................... 8,915 15,616
Property and equipment, net ............................................................................ 3,579 2,380
Capitalized software development costs, net of amortization of
$3,815 at March 31, 1996 and $4,658 at December 31, 1996 .......................................... 2,621 2,947
Net assets of businesses held for sale ................................................................. -- 2,505
Deferred tax asset, net ................................................................................ 466 325
Other assets ........................................................................................... 263 247
---------- ----------
$ 15,844 $ 24,020
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to bank ............................................................................. $ 4,243 $ --
Current installments of obligations under capital leases .......................................... 226 27
Current installments of long-term debt ............................................................ 500 --
Accounts payable .................................................................................. 2,250 927
Accrued expenses and other liabilities ............................................................ 1,742 1,007
Progress billings in excess of work in progress ................................................... 226 10
Deferred maintenance revenue ...................................................................... 989 1,259
---------- ----------
Total current liabilities ...................................................................... 10,176 3,230
Obligations under capital leases, less current installments ............................................ 463 18
Long-term debt, less current installments .............................................................. 167 --
---------- ----------
Total liabilities .............................................................................. 10,806 3,248
---------- ----------
Commitments and contingencies
Stockholders' equity:
Series A convertible preferred stock, $.01 par value; authorized 2,373,000
shares, issued and outstanding 1,776,479 shares at
March 31, 1996 and none at December 31, 1996 ................................................... 18 --
Series B convertible preferred stock, $.01 par value; authorized
327,000 shares, issued and outstanding 236,873 shares at
March 31, 1996 and none at December 31, 1996 ................................................... 2 --
Series C convertible preferred stock, $.01 par value; authorized
6,000,000 shares, issued and outstanding 615,745 shares at
March 31, 1996 and none at December 31, 1996 ................................................... 6 --
Common stock, $.01 par value; authorized 30,000,000 shares,
issued and outstanding 2,478,214 shares at March 31, 1996
and 5,256,399 at December 31, 1996 ............................................................. 25 53
Additional paid-in capital ........................................................................ 6,431 22,998
Accumulated deficit ............................................................................... (1,444) (2,279)
---------- ----------
Total stockholders' equity ..................................................................... 5,038 20,772
---------- ----------
$ 15,844 $ 24,020
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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<TABLE>
TALX Corporation and Subsidiaries
Consolidated Statements of Operations
(dollars in thousands, except per share information)
(unaudited)
<CAPTION>
Three Months Ended Dec. 31, Nine Months Ended Dec. 31,
---------------------------- -----------------------------
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
The Work Number ............................................... $ 75 $ 449 $ 168 $ 1,032
Outsourced services ........................................... 419 801 778 1,791
Customer premises systems ..................................... 2,086 2,972 6,849 8,459
Maintenance and support ....................................... 653 852 1,926 2,636
------------ ------------ ------------ ------------
Total revenues ............................................. 3,233 5,074 9,721 13,918
------------ ------------ ------------ ------------
Cost of revenues:
The Work Number ............................................... 122 171 325 419
Outsourced services ........................................... 180 292 407 635
Customer premises systems ..................................... 966 1,497 3,123 4,269
Maintenance and support ....................................... 176 255 486 736
------------ ------------ ------------ ------------
Total cost of revenues ..................................... 1,444 2,215 4,341 6,059
------------ ------------ ------------ ------------
Gross margin ............................................... 1,789 2,859 5,380 7,859
------------ ------------ ------------ ------------
Operating expenses:
Selling and marketing ......................................... 1,010 1,550 2,831 4,428
General and administrative .................................... 735 680 2,215 1,975
------------ ------------ ------------ ------------
Total operating expenses ................................... 1,745 2,230 5,046 6,403
------------ ------------ ------------ ------------
Operating income ........................................... 44 629 334 1,456
------------ ------------ ------------ ------------
Other income (expense), net:
Interest income ............................................... -- 72 -- 72
Interest expense .............................................. (92) (53) (251) (436)
Other, net .................................................... (26) (39) (51) (60)
------------ ------------ ------------ ------------
Total other income (expense), net .......................... (118) (20) (302) (424)
------------ ------------ ------------ ------------
Earnings (loss) from continuing operations
before income tax expense ............................... (74) 609 32 1,032
Income tax expense (benefit) ....................................... (30) 225 13 382
------------ ------------ ------------ ------------
Earnings (loss) from continuing operations ................. (44) 384 19 650
Discontinued operations:
Loss from operation of discontinued operations,
net of income taxes ........................................ (538) -- (521) (164)
Loss on disposal of discontinued operations,
net of income taxes ........................................ -- -- -- (350)
------------ ------------ ------------ ------------
Loss from discontinued operations,
net of income taxes ..................................... (538) -- (521) (514)
------------ ------------ ------------ ------------
Earnings (loss) before extraordinary item .................. (582) 384 (502) 136
Extraordinary item - loss on extinguishment of debt ................ -- (971) -- (971)
------------ ------------ ------------ ------------
Net loss ........................................................... $ (582) $ (587) $ (502) $ (835)
============ ============ ============ ============
Pro forma net earnings (loss) per share:
Earnings from continuing operations ........................... $ 0.08 $ 0.16
Loss from discontinued operations ............................. -- (0.13)
Extraordinary loss ............................................ (0.20) (0.24)
------------ ------------
Net loss ...................................................... $ (0.12) $ (0.21)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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<TABLE>
TALX Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
<CAPTION>
Nine Months Ended December 31,
------------------------------------
1995 1996
--------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................................................ $ (501) $ (835)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization ..................................................... 1,772 1,899
Extraordinary item - loss on extinguishment of debt .............................. 0 971
Loss on disposal of discontinued operations, net .................................. 0 190
Deferred taxes .................................................................... (330) (14)
Change in assets and liabilites:
Trade receivables ............................................................. (1,024) (3,527)
Inventories ................................................................... (250) (268)
Work in progress, less progress billings ...................................... 57 (145)
Prepaid expenses and other current assets ..................................... 109 (400)
Income tax refund receivable .................................................. 122 260
Other assets .................................................................. (21) 39
Accounts payable .............................................................. 47 (604)
Accrued expenses and other liabilites ......................................... 191 (72)
Deferred maintenance revenue .................................................. 350 270
--------------- ---------------
Net cash provided by (used in) operating activities ........................ 522 (2,236)
--------------- ---------------
Cash flows from investing activites:
Additions to property and equipment ..................................................... (627) (1,084)
Capitalized software development costs .................................................. (1,130) (1,313)
Purchases of short-term investments ..................................................... 0 (5,494)
--------------- ---------------
Net cash used in investing activities ...................................... (1,757) (7,891)
--------------- ---------------
Cash flows from financing activities ......................................................... 0
Change in notes payable to bank ......................................................... 1,759 (4,243)
Issuance of subordinated debt ........................................................... 0 4,000
Issuance of common stock ................................................................ 8 15,691
Repyament of subordinated debt .......................................................... 0 (4,000)
Repurchase of common stock .............................................................. 0 (1)
Repayments on long-term debt ............................................................ (375) (667)
Payments on capitalized lease obligations ............................................... (124) (166)
Other ................................................................................... 0 (135)
--------------- ---------------
Net cash provided by financing activities .................................. 1,268 10,479
--------------- ---------------
Net increase in cash and cash equivalents .................................. 33 352
Cash and cash equivalents at beginning of period ............................................. 27 56
--------------- ---------------
Cash and cash equivalents at end of period ................................................... $ 60 $ 408
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
5
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TALX Corporation
Notes to Consolidated Financial Statements
1. Basis of Presentation
The consolidated balance sheet of TALX Corporation ("TALX" or the
"Company") at March 31, 1996 was obtained from the Company's audited
balance sheet as of that date. All other financial statements contained
herein are unaudited and, in the opinion of management, contain all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation. Operating results for the three
months and nine months ended December 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending
March 31, 1997. The Company's accounting policies and certain other
disclosures are set forth in the notes to the Company's audited
consolidated financial statements as of and for the year ended March
31, 1996.
2. Initial Public Offering
On October 16, 1996, TALX completed its initial public offering. The
Company issued 2,000,000 shares of common stock, with a price to the
public of $18,000,000. Net proceeds to the Company were $16,740,000,
before offering expenses of approximately $1,053,000. The Company used
approximately $7,500,000 of the proceeds to repay notes payable to
bank, long-term debt, and subordinated note payable.
3. Discontinued Operations
In August 1996, the Company determined to pursue the divestiture of the
database and document services businesses. It is anticipated that the
divestitures will be by a sale of assets within one year. A provision
of $350,000 was made to reflect the estimated losses from operations
until the time of disposal net of income tax benefits of $150,000.
Management anticipates the proceeds from the sales will approximate the
value of net assets held for sale. The Company has classified the
database and document services businesses as a discontinued operation
and has reclassified the prior periods financial statements to reflect
this change.
Summary balance sheet data as of December 31, 1996 is as follows:
Current assets ....................................... $2,867
Property and equipment ............................... 1,268
Other assets ......................................... 447
------
Total assets ............................... 4,582
------
Current liabilities .................................. 1,793
Noncurrent liabilities ............................... 284
------
Total liabilities .......................... 2,077
------
Net assets of businesses held for sale ..... $2,505
======
On January 31, 1997, the Company sold substantially all of the assets
of the document services business to Sterling Direct, Inc., the largest
customer of the division. The sales price, which is subject to a
post-closing adjustment, is estimated to be $1,500,000. Of this amount,
$200,000 is in the form of an 8%, three-year subordinated note and the
remainder is payable in cash. The net assets related to this sale are
approximately $825,000. The excess of the sales price over the net
asset value on this transaction will be reflected as an increase in the
provision for estimated losses, until the remaining business units are
sold.
6
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4. Pro Forma Net Earnings (Loss) Per Share
Pro forma net earnings (loss) per share has been computed using the
weighted average number of shares of common stock and common stock
equivalents outstanding. The number of shares used in computing pro
forma net loss per share was 5,040,575 for the three months ended
December 31, 1996 and 3,943,372 for the nine months then ended.
Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, shares issued and stock options and warrants granted
at prices below the initial public offering price of $9 per share
during the 12-month period preceding the date of the initial filing of
the Company's registration statement have been included in the
calculation of common stock equivalent shares, using the treasury stock
method, as if they were outstanding for all of 1996 and the first three
quarters of 1997.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company's revenues are derived from interactive communications, which
consists of The Work Number, outsourced services, the sale of customer premises
systems, and maintenance and support services related to those systems.
The Work Number service is in the early stage of its life cycle. Accordingly, no
meaningful relationship can be drawn between revenues recognized to date, or in
a given quarter, and the corresponding number of employers that have contracted
for the service or the number of employment records covered by the service.
Revenues derived from The Work Number include fees charged to mortgage lenders
and other verifiers for verification of employment history, including the past
three years of salary history of participating employers' current and former
employees, ongoing maintenance fees charged to employers and one-time conversion
fees from new employers. The lag between the time an employer enters into an
agreement with the Company for The Work Number and the time the employer
converts its records to the service and begins to routinely refer inquiries to
The Work Number can distort normal quarter to quarter revenue comparisons early
in the service's life cycle. Further, revenues to date primarily reflect the
relatively large percentage of conversion fees recognized early in the service's
life cycle as compared to fees from verifications, which can also distort normal
quarter to quarter revenue comparisons at this stage of the service's life
cycle. The Company expects that over time ongoing fees from verifications will
be a greater source of revenues than conversion fees. Additionally, due to the
early stage of the service and the attendant start-up costs, no meaningful
relationship can be drawn between historical gross margins and gross margins
that may be realized in the future.
The Company's customer premises systems business designs and implements customer
premises systems with interactive communications capabilities using computer
telephony to integrate technologies such as IVR, facsimile, e-mail, Internet and
corporate Intranet. The Company's interactive communications solutions enable an
organization's Users to access, input and update information without human
assistance. Revenues from customer premises systems are derived from the license
or sale of software, related hardware and custom applications and are generally
recognized upon shipment of the system. Sales are effected through a direct
sales force and in conjunction with strategic marketing alliances (including
third party resellers). The typical size of a system ranges from $35,000 to
$200,000 or more and averages approximately $75,000. In the case of a third
party reseller, revenues are recognized at the time of shipment to the reseller;
however, the Company does not have any future obligations related to these types
of sales. The Company provides maintenance and support services with respect to
installed customer premises systems. These services include a 24-hour per day,
7-day a week toll-free customer service line. Revenues from maintenance and
support are recognized ratably over the term of the maintenance agreement.
The Company's outsourced services business provides interactive communication
services to organizations that choose not to purchase a customer premises
system. The Company maintains a system on its premises that contains a customer
database and receives incoming requests for access to the information. Revenues
from outsourced services include fees derived from establishment of the service
and transaction-based fees.
In addition to providing interactive communication systems, the Company has
historically provided database and document services. The Company offers
database services, including sales leads and pre-press services for directory
publishers, and document services, including the preparation and mailing of
invoices, statements and confirmation letters for organizations with high volume
requirements. Revenues from database and document services are recognized as the
services are performed through progress billings. These customers' contracts
cover periods generally from one to six months and progress billings are made in
accordance with individual customer contract terms. In August 1996, the Company
determined to pursue the divestiture of the database and document services
businesses and, accordingly, has reflected the results of operations of such
businesses as discontinued operations.
This discussion and analysis contains certain statements that may be considered
forward looking statements ("Forward Looking Statements") within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results could differ
materially from those projected in the Forward Looking Statements as a result of
risks facing the Company. Such risks include, but are not limited to, the
Company's ability to successfully market and expand The Work Number for
Everyone(R) and its other products and services, the successful divestiture
8
<PAGE>
of the database and document services businesses, the continuing development of
its strategic marketing alliances, the development of new and enhanced
technologies which are attractive to the marketplace, intense competition, risks
associated with rapid technological change, limited intellectual property
protection, risks of product defects and product liability and other factors set
forth under "Risk Factors" in the Company's Prospectus, dated October 16, 1996,
filed with the Securities and Exchange Commission.
Results of Operations
The following table sets forth, for the periods indicated, certain items from
the Company's consolidated statements of operations, expressed as a percentage
of total revenues, and the percentage change in the dollar amount of such items
compared to the prior comparable period.
<TABLE>
<CAPTION>
Percentage
Increase (Decrease)
-----------------------------
Three Months Nine Months Three Months Nine Months
Ended December 31, Ended December 31, Ended Dec. 31, Ended Dec. 31,
----------------------- ----------------------- 1996 over 1996 over
1995 1996 1995 1996 1995 1995
---------- ---------- ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues
The Work Number .......................... 2.3% 8.8% 1.7% 7.4% 498.7% 514.5%
Outsourced services ...................... 13.0 15.8 8.0 12.9 91.2 130.1
Customer premises systems ................ 64.5 58.6 70.5 60.8 42.5 23.5
Maintenance and support .................. 20.2 16.8 19.8 18.9 30.5 36.8
---------- ---------- ---------- ----------
Total revenues ....................... 100.0 100.0 100.0 100.0 56.9 43.2
---------- ---------- ---------- ----------
Cost of revenues
The Work Number .......................... 3.8 3.4 3.4 3.0 40.2 28.9
Outsourced services ...................... 5.6 5.8 4.2 4.5 62.2 56.0
Customer premises systems ................ 29.9 29.5 32.1 30.7 55.0 36.7
Maintenance and support .................. 5.4 5.0 5.0 5.3 44.9 51.4
---------- ---------- ---------- ----------
Total cost of revenues ............... 44.7 43.7 44.7 43.5 53.4 39.6
---------- ---------- ---------- ----------
Gross margin ............................... 55.3 56.3 55.3 56.5 59.8 46.1
---------- ---------- ---------- ----------
Operating expenses
Selling and marketing .................... 31.2 30.5 29.1 31.8 53.5 56.4
General and administrative ............... 22.7 13.4 22.8 14.2 (7.5) (10.8)
---------- ---------- ---------- ----------
Total operating expenses ............. 53.9 43.9 51.9 46.0 27.8 26.9
---------- ---------- ---------- ----------
Operating income ........................... 1.4 12.4 3.4 10.5 1329.5 335.8
Other income (expense), net ................ (3.7) (.4) (3.1) (3.1) (83.1) 40.4
---------- ---------- ---------- ----------
Earnings from continuing operations before
income tax expense ....................... (2.3) 12.0 .3 7.4 * *
Income tax expense (benefit) ............... (.9) 4.4 .1 2.7 * *
---------- ---------- ---------- ----------
Earnings (loss) from continuing
operations ............................... (1.4) 7.6 .2 4.7 * *
Discontinued operations, net ............... (16.6) -- (5.4) (3.7) * *
Extraordinary loss ....................... -- (19.1) -- (7.0) * *
---------- ---------- ---------- ----------
Net loss ................................. (18.0)% (11.5)% (5.2)% (6.0)% * *
========== ========== ========== ==========
<FN>
- ----------
* Not meaningful
</TABLE>
9
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Three Months Ended December 31, 1995 and 1996
Revenues. Total revenues increased by 56.9%, from $3.2 million for the three
months ended December 31, 1995 to $5.1 million for the three months ended
December 31, 1996. Revenues from The Work Number increased from $75,000 for the
three months ended December 31, 1995 to $449,000 for the three months ended
December 31, 1996, due to the completion of the pilot phase during fiscal 1996
and commencement of marketing on a nationwide basis. The Company has commenced,
and is continuing, the process of hiring and establishing a sales force
dedicated to The Work Number. Revenues from outsourced services increased from
$419,000 for the three months ended December 31, 1995 to $801,000 for the three
months ended December 31, 1996, due to the Company capitalizing on the trend of
some corporations to outsource their non-core functions. Revenues from customer
premises systems increased from $2.1 million for the three months ended December
31, 1995 to $3.0 million for the three months ended December 31, 1996. This
revenue growth is due to increases in sales and marketing resources effected in
prior periods and continuing in the current period, reflecting the Company's
efforts to increase historic revenue generation. The continuing development of
strategic marketing alliances also contributed to increased revenues. Revenues
from maintenance and support related to the customer premises systems increased
from $653,000 for the three months ended December 31, 1995 to $852,000 for the
three months ended December 31, 1996, reflecting the support provided to an
increased installed base of customer premises systems.
Cost of Revenues. Total cost of revenues increased by 53.4%, from $1.4 million
for the three months ended December 31, 1995 to $2.2 million for the three
months ended December 31, 1996. Cost of revenues from The Work Number increased
40.2% from $122,000 for the three months ended December 31, 1995 to $171,000 for
the three months ended December 31, 1996, due to increased costs incurred with
respect to this service as it moved from the pilot phase to a national service,
offset by a reduction in start-up costs. Due to the early stage of the service
in its life cycle and the attendant start up costs, no meaningful relationship
can be drawn between historical gross margins and gross margins that may be
realized in the future. Cost of revenues from outsourced services increased by
62.2%, from $180,000 for the three months ended December 31, 1995 to $292,000
for the three months ended December 31, 1996. This increase in cost is
attributable to the revenue growth described above. Cost of revenues from
outsourced services as a percentage of revenues from outsourced services
decreased from 43.0% for the three months ended December 31, 1995, to 36.5% for
the three months ended December 31, 1996, reflecting the better utilization of
the fixed personnel and equipment costs incurred starting in 1995. Cost of
revenues from customer premises systems increased by 55.0%, from $1.0 million
for the three months ended December 31, 1995 to $1.5 million for the three
months ended December 31, 1996. Further, cost of revenues for customer premises
systems as a percentage of customer premises system revenue increased from 46.3%
for the three months ended December 31, 1995 to 50.4% for the three months ended
December 31, 1996. These increases are due to an increase in fixed labor costs
as the Company continued to increase staffing to support possible future
increases in revenue. Cost of revenues from maintenance and support related to
customer premises systems increased by 44.9%, from $176,000 for the three months
ended December 31, 1995 to $255,000 for the three months ended December 31,
1996, principally due to an increase in personnel costs to provide a higher
level of customer service.
Selling and Marketing Expenses. Selling and marketing expenses increased 53.5%
from $1.0 million for the three months ended December 31, 1995 to $1.6 million
for the three months ended December 31, 1996. As a percentage of revenues, such
expenses decreased from 31.2% for the three months ended December 31, 1995 to
30.5% for the three months ended December 31, 1996. The increase in dollars
reflects continuing expansion of the Company's sales and marketing efforts,
including development of distribution channels both in domestic and
international markets. The Company anticipates that selling and marketing
expenses will continue to increase in dollar amount as the Company expands its
sales and marketing efforts.
General and Administrative Expenses. General and administrative expenses
decreased 7.5% from $735,000 for the three months ended December 31, 1995 to
$680,000 for the three months ended December 31, 1996. As a percentage of
revenues, such expenses decreased from 22.7% for the three months ended December
31, 1995 to 13.4% for the three months ended December 31, 1996. The decrease
reflects the cost control efforts implemented by the Company throughout fiscal
1996. The Company does not anticipate that general and administrative expenses
will decrease in dollar amount in future periods.
Other Income (Expense). Interest income was $72,000 for the three months ended
December 31, 1996, due to the investment income earned on the net proceeds from
10
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the Company's initial public offering. Interest expense decreased from $92,000
for the three months ended December 31, 1995 to $53,000 for the three months
ended December 31, 1996. This decrease is due to the Company repaying most of
its outstanding borrowings October 22, 1996, with the proceeds of its initial
public offering.
Income Tax Expense. The Company's effective income tax rate was 40.5% for the
three months ended December 31, 1995 and 37.0% for the three months ended
December 31, 1996.
Extraordinary Item. In connection with the issuance of a $4.0 million
subordinated promissory note (the "Subordinated Note") which bore interest at
13.25% (with an effective interest rate of 19.25%), the Company issued to Petra
Capital, LLC (the "Lender") and other participants, warrants for the purchase of
Common Stock at $.01 per share. For financial reporting purposes, the warrants
have been valued based on a $7.00 per share value of the underlying Common Stock
on the date the Subordinated Note was issued. The difference between the face
amount of the Subordinated Note and the amount recorded for financial statement
purposes represented the value of the warrants issued to the Lender and other
participants in connection with such Subordinated Note, which has been treated
as a discount on the Subordinated Note. The unamortized discount and costs
associated with the issuance of the Subordinated Note and warrants amounted to
approximately $1.2 million. Upon repayment of this Subordinated Note, in
connection with the Company's initial public offering, the Company expensed the
unamortized discount and deferred costs associated with the issuance of the
Subordinated Note and warrants. This amount, net of income tax effect, was
approximately $971,000 and is reflected as an extraordinary item.
Nine Months Ended December 31, 1995 and 1996
Revenues. Total revenues increased by 43.2%, from $9.7 million for the nine
months ended December 31, 1995 to $13.9 million for the nine months ended
December 31, 1996. Revenues from The Work Number increased from $168,000 for the
nine months ended December 31, 1995 to $1.0 million for the nine months ended
December 31, 1996, due to the completion of the pilot phase during fiscal 1996
and commencement of marketing on a nationwide basis. The Company has commenced,
and is continuing, the process of hiring and establishing a sales force
dedicated to The Work Number. Revenues from outsourced services increased from
$778,000 for the nine months ended December 31, 1995 to $1.8 million for the
nine months ended December 31, 1996, due to the Company capitalizing on the
trend of some corporations to outsource their non-core functions. Revenues from
customer premises systems increased from $6.8 million for the nine months ended
December 31, 1995 to $8.5 million for the nine months ended December 31, 1996.
This revenue growth is due to increases in sales and marketing resources
effected in prior periods and continuing in the current period, reflecting the
Company's efforts to increase historic revenue generation. The continuing
development of strategic marketing alliances also contributed to increased
revenues. Revenues from maintenance and support related to the customer premises
systems increased from $1.9 million for the nine months ended December 31, 1995
to $2.6 million for the nine months ended December 31, 1996, reflecting the
support provided to an increased installed base of customer premises systems.
Cost of Revenues. Total cost of revenues increased by 39.6%, from $4.3 million
for the nine months ended December 31, 1995 to $6.1 million for the nine months
ended December 31, 1996. Cost of revenues from The Work Number increased 28.9%,
from $325,000 for the nine months ended December 31, 1995 to $419,000 for the
nine months ended December 31, 1996, due to increased costs incurred with
respect to this service as it moved from the pilot phase to a national service,
offset by a reduction in start-up costs. Due to the early stage of the service
in its life cycle and the attendant start up costs, no meaningful relationship
can be drawn between historical gross margins and gross margins that may be
realized in the future. Cost of revenues from outsourced services increased by
56.0%, from $407,000 for the nine months ended December 31, 1995 to $635,000 for
the nine months ended December 31, 1996. This increase in cost is attributable
to the revenue growth described above. Cost of revenues from outsourced services
as a percentage of revenues from outsourced services decreased from 52.3% for
the nine months ended December 31, 1995, to 35.5% for the nine months ended
December 31, 1996, reflecting the better utilization of the fixed personnel and
equipment costs incurred starting in 1995. Cost of revenues from customer
premises systems increased by 36.7%, from $3.1 million for the nine months ended
December 31, 1995 to $4.3 million for the nine months ended December 31, 1996.
This increase is due to the increase in customer premises systems revenue.
Additionally, cost of revenues for customer premises systems as a percentage of
customer premises system revenue increased from 45.6% for the nine months ended
December 31, 1995 to 50.5% for the nine months ended December 31, 1996. This
increase is due to an increase in fixed labor costs as the
11
<PAGE>
Company continued to increase staffing to support possible future increases in
revenue. Cost of revenues from maintenance and support related to customer
premises systems increased by 51.4%, from $486,000 for the nine months ended
December 31, 1995 to $736,000 for the nine months ended December 31, 1996,
principally due to an increase in personnel costs to provide a higher level of
customer service.
Selling and Marketing Expenses. Selling and marketing expenses increased 56.4%
from $2.8 million for the nine months ended December 31, 1995 to $4.4 million
for the nine months ended December 31, 1996. As a percentage of revenues, such
expenses increased from 29.1% for the nine months ended December 31, 1995 to
31.8% for the nine months ended December 31, 1996. The increase reflects
continuing expansion of the Company's sales and marketing efforts, including
development of distribution channels both in domestic and international markets.
The Company anticipates that selling and marketing expenses will continue to
increase in dollar amount as the Company expands its sales and marketing
efforts.
General and Administrative Expenses. General and administrative expenses
decreased 10.8% from $2.2 million for the nine months ended December 31, 1995 to
$2.0 million for the nine months ended December 31, 1996. As a percentage of
revenues, such expenses decreased from 22.8% for the nine months ended December
31, 1995 to 14.2% for the nine months ended December 31, 1996. The decrease
reflects the cost control efforts implemented by the Company throughout fiscal
1996. The Company does not anticipate that general and administrative expenses
will decrease in dollar amount in future periods.
Other Income (Expense). Interest income was $72,000 for the nine months ended
December 31, 1996, due to the investment income earned on the net proceeds from
the Company's initial public offering. Interest expense increased from $251,000
for the nine months ended December 31, 1995 to $436,000 for the nine months
ended December 31, 1996. This increase is due principally to a higher level of
borrowings caused by the net loss incurred during fiscal 1996 and a higher
interest rate on the subordinated note payable issued in June 1996. The Company
repaid most of its outstanding borrowings October 22, 1996, with the proceeds of
its initial public offering.
Income Tax Expense. The Company's effective income tax rate was 40.0% for the
nine months ended December 31, 1995 and 37.0% for the nine months ended
December 31, 1996.
Extraordinary Item. In connection with the issuance of a $4.0 million
subordinated promissory note (the "Subordinated Note") which bore interest at
13.25% (with an effective interest rate of 19.25%), the Company issued to Petra
Capital, LLC (the "Lender") and other participants, warrants for the purchase of
Common Stock at $.01 per share. For financial reporting purposes, the warrants
have been valued based on a $7.00 per share value of the underlying Common Stock
on the date the Subordinated Note was issued. The difference between the face
amount of the Subordinated Note and the amount recorded for financial statement
purposes represented the value of the warrants issued to the Lender and other
participants in connection with such Subordinated Note, which has been treated
as a discount on the Subordinated Note. The unamortized discount and costs
associated with the issuance of the Subordinated Note and warrants amounted to
approximately $1.2 million. Upon repayment of this Subordinated Note, in
connection with the Company's initial public offering, the Company expensed the
unamortized discount and deferred costs associated with the issuance of the
Subordinated Note and warrants. This amount, net of income tax effect, was
approximately $971,000 and is reflected as an extraordinary item.
Discontinued Operations
In August 1996, the Company determined to pursue the divestiture of the database
and document services businesses and, accordingly, has reflected the results of
operations of such businesses as discontinued operations. A provision of
$350,000 was made as of June 30, 1996 to reflect the anticipated loss from
operations until the time of disposal. The Company estimates that the proceeds
from divestiture will approximate the net assets held for sale as of December
31, 1996.
On January 31, 1997, the Company sold substantially all of the assets of the
document services business to Sterling Direct, Inc., the largest customer of the
division. The sales price, which is subject to a post-closing adjustment, is
estimated to be $1,500,000. Of this amount, $200,000 is in the form of an 8%,
three-year subordinated note and the remainder is payable in cash. The net
assets related to this sale are approximately $825,000. The excess of the sales
price over the net asset value on this transaction will be reflected as an
increase in the provision for estimated losses, until the remaining business
units are sold.
12
<PAGE>
Liquidity and Capital Resources
On October 16, 1996, the Company completed its initial public offering of
2,000,000 shares of common stock at a price of $9 per share, for gross proceeds
of $18,000,000, and proceeds net of underwriting discounts and expenses of
approximately $15,687,000.
The Company used a portion of the net proceeds of its initial public offering to
repay its outstanding indebtedness represented by (i) the Subordinated Note in
the aggregate principal amount of $4.0 million, which was due and payable in
July 2001 and accrued interest at an annual rate of 13.25%, with an effective
interest rate of 19.25%, (ii) a promissory note in the principal amount of
approximately $417,000, which was due and payable through August 1997 and
accrued interest at the bank's prime rate plus 0.75%, and (iii) a demand note in
the amount of $3,080,000 representing borrowings under a revolving line of
credit which accrued interest at the bank's prime rate plus 0.875%.
Prior to this offering, the Company has had limited liquidity, due in part to
net losses in the prior two fiscal years. The Company had financed its
operations primarily through cash flow from operations, private placements of
equity and debt securities and bank lines of credit. The Company had a current
ratio of 1.02 to 1, 0.87 to 1, and 4.83 to 1 at March 31, 1995, March 31, 1996
and December 31, 1996, respectively. The Company's working capital was $183,000,
$(1,261,000) and $12,386,000 at March 31, 1995, March 31, 1996 and December 31,
1996, respectively. Working capital at December 31, 1996 reflects the
reclassification of the working capital of the discontinued operations to net
assets of businesses held for sale. Total working capital decreased in fiscal
1996 principally due to current year operating losses and discontinued
operations. Working capital increased during the nine months ended December 31,
1996, due to the proceeds from the initial public offering.
At December 31, 1996, the Company's accounts receivable increased from
$5,918,000 at March 31, 1996 to $7,631,000, which represented 150% of revenues
for the quarter then ended. This increase is attributable principally due to
increased revenues for the quarter ended December 31, 1996 compared to March 31,
1996, a greater percentage of revenues occurring later in the quarter ended
December 31, 1996, offset by the reclassification of the working capital of the
discontinued operations to net assets of businesses held for sale.
The Company's capital expenditures were $1,084,000 for the first nine months of
fiscal 1997. The Company currently has no specific commitments with regard to
capital expenditures, but anticipates spending approximately $1,500,000 in
fiscal 1997 for capital requirements, including expansion of the Company's
computer room facilities, acquisition of additional computer equipment,
installation of leasehold improvements, and establishment of a disaster recovery
facility.
The Company's net increase to capitalized software development costs was
$528,000 in fiscal 1996 and $326,000 in the first nine months of fiscal 1997.
See Notes 1 and 5 of Notes to Consolidated Financial Statements. The Company
intends to continue to make investments in software solutions at comparable or
increasing levels in fiscal 1997.
13
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information.
On January 31, 1997, the Company sold substantially all of the assets of the
document services business to Sterling Direct, Inc., the largest customer of the
division. The sales price, which is subject to a post-closing adjustment, is
estimated to be $1,500,000. Of this amount, $200,000 is in the form of an 8%,
three-year subordinated note and the remainder is payable in cash. The net
assets related to this sale are approximately $825,000. The excess of the sales
price over the net asset value on this transaction will be reflected as an
increase in the provision for estimated losses, until the remaining business
units are sold.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter for which this report
is filed.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TALX CORPORATION
(Registrant)
Date: February 13, 1997 By /s/ William W. Canfield
-------------------------------------
William W. Canfield
Chairman, President and
Chief Executive Officer
Date: February 13, 1997 By /s/ Craig N. Cohen
-------------------------------------
Craig N. Cohen
Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- ----------------------------------------------------------------
3(i) Restated Articles of Incorporation of the Company (incorporated
herein by reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1 as filed with the SEC on August 28, 1996)
3(ii) Form of Amendment to Restated Articles of Incorporation of the
Company (incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1 as filed with the
SEC on August 28, 1996)
3(iii) Bylaws of the Company (incorporated herein by reference to
Exhibit 3.3 to the Company's Registration Statement on Form S-1
as filed with the SEC on August 28, 1996)
11 Computation of Earnings Per Share
27 Financial Data Schedule (provided for the information of the
Securities and Exchange Commission only)
16
<PAGE>
EXHIBIT 11
TALX CORPORATION AND SUBSIDIARIES
Statement Regarding Computation of Earnings Per Share
Three and Nine Months Ended December 31, 1996
Three Months Nine Months
------------ ------------
Shares outstanding - beginning of period ........... 3,394,321 3,228,483
Weighted average number of common and
common equivalent shares issued (1) .............. 1,646,254 714,889
------------ -----------
Weighted average number of common and
common equivalent shares outstanding -
end of period .................................... 5,040,575 3,943,372
============ ===========
Nine months ended December 31, 1996:
Earnings from continuing operations ................ $ 384,000 $ 650,000
Loss from discontinued operations .................. -- (514,000)
Extraordinary item - loss on extinguishment of
debt ............................................. (971,000) (971,000)
------------ -----------
Net loss ........................................... $ (587,000) $ (835,000)
============ ===========
Pro forma loss per common and common equivalent
share:
Earnings from continuing operations ................ $ .08 $ .16
Loss from discontinued operations .................. .00 (.13)
Extraordinary item - loss on extinguishment of
debt ............................................. (.20) (.24)
------------ -----------
Net loss ........................................... $ (.12) $ (.21)
============ ===========
(1) Common and common equivalent shares issued consist of certain effects of
shares issued, stock options, warrants, and preferred stock. Common
equivalent shares from convertible preferred stock (using the if-converted
method) and stock options and warrants (using the treasury stock method)
have been included in the computation. Pursuant to the Securities and
Exchange Commission rules, convertible preferred stock which will be
automatically converted at the date of issuance is included even though
inclusion may be antidilutive. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, shares issued and stock options
and warrants granted by the Company at prices below the public offering
price during the 12-month period preceding the date of the initial filing of
the Registration Statement have been included in the calculation of common
stock equivalent shares, using the treasury stock method, as if they were
outstanding for all of fiscal 1996 and the nine months ended December 31,
1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR TALX CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000917524
<NAME> TALX CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1996
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