<PAGE> 1
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, 1997
---------------------------------------------
[ ] 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 Common Stock, par value $.01 per share, outstanding at February 1,
1998: 5,305,084.
Exhibit Index is on page 15.
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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, 1997
and December 31, 1997 3
Consolidated Statements of Operations for the Three Months
and Nine Months Ended December 31, 1996 and 1997 4
Consolidated Statements of Cash Flows for the Nine Months
Ended December 31, 1996 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Securities Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
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TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, DEC. 31,
1997 1997
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,684 $ 1,497
Short-term investments 4,117 1,026
Trade receivables, net 8,441 10,350
Inventories 1,378 1,515
Prepaid expenses and other current assets 694 858
Income tax refund receivable 195 195
Deferred tax assets, net 511 288
-------------- --------------
Total current assets 17,020 15,729
Property and equipment, net 2,652 3,656
Capitalized software development costs, net of amortization of
$3,683 at March 31, 1997 and $4,360 at December 31, 1997 3,102 3,617
Net assets of business held for sale 707 707
Deferred tax asset, net 372 206
Other assets 219 948
-------------- --------------
$ 24,072 $ 24,863
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of obligations under capital leases $ 36 $ -
Accounts payable 1,145 1,000
Accrued expenses and other liabilities 1,472 1,615
Progress billings in excess of work in progress 35 93
Deferred maintenance revenue 981 1,011
-------------- --------------
Total current liabilities 3,669 3,719
-------------- --------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000 shares and
no shares issued or outstanding at March 31 and December 31, 1997 - -
Common stock, $.01 par value; authorized 30,000,000 shares,
issued and outstanding 5,263,455 shares at March 31, 1997
and 5,305,084 at December 31, 1997 53 53
Additional paid-in capital 23,036 23,182
Accumulated deficit (2,686) (2,091)
-------------- --------------
Total stockholders' equity 20,403 21,144
-------------- --------------
$ 24,072 $ 24,863
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share information)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Dec. 31, Nine Months Ended Dec. 31,
---------------------------- -----------------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
The Work Number $ 449 $ 1,151 $ 1,032 $ 2,862
Outsourced services 801 1,043 1,791 2,513
Customer premises systems 2,972 2,376 8,459 8,628
Maintenance and support 852 1,022 2,636 3,028
------------ ------------- ------------- -------------
Total revenues 5,074 5,592 13,918 17,031
------------ ------------- ------------- -------------
Cost of revenues:
The Work Number 171 496 419 1,220
Outsourced services 292 604 635 1,423
Customer premises systems 1,497 1,590 4,269 4,602
Maintenance and support 255 324 736 937
------------ ------------- ------------- -------------
Total cost of revenues 2,215 3,014 6,059 8,182
------------ ------------- ------------- -------------
Gross margin 2,859 2,578 7,859 8,849
------------ ------------- ------------- -------------
Operating expenses:
Selling and marketing 1,550 1,848 4,428 5,592
General and administrative 680 916 1,975 2,438
------------ ------------- ------------- -------------
Total operating expenses 2,230 2,764 6,403 8,030
------------ ------------- ------------- -------------
Operating income (loss) 629 (186) 1,456 819
------------ ------------- ------------- -------------
Other income (expense), net:
Interest income 72 51 72 201
Interest expense (53) - (436) (2)
Other, net (39) (74) (60) (73)
------------ ------------- ------------- -------------
Total other income (expense), net (20) (23) (424) 126
------------ ------------- ------------- -------------
Earnings (loss) from continuing operations
before income tax expense 609 (209) 1,032 945
Income tax expense (benefit) 225 (77) 382 350
------------ ------------- ------------- -------------
Earnings (loss) from continuing operations 384 (132) 650 595
Discontinued operations:
Loss from operation of discontinued operations,
net of income taxes - - (164) -
Loss on disposal of discontinued operations,
net of income taxes - - (350) -
Loss from discontinued operations,
------------ ------------- ------------- -------------
net of income taxes - - (514) -
------------ ------------- ------------- -------------
Earnings (loss) before extraordinary item 384 (132) 136 595
Extraordinary item - loss on extinguishment of debt (971) - (971) -
------------ ------------- ------------- -------------
Net earnings (loss) $ (587) $ (132) $ (835) $ 595
============ ============= ============= =============
Basic and diluted earnings (loss) per share:
Earnings (loss) from continuing operations 0.08 $ (0.02) 0.16 $ 0.11
Loss from discontinued operations - - (0.13) -
Extraordinary loss (0.20) - (0.24) -
------------ ------------- ------------- -------------
Net earnings (loss) (0.12) $ (0.02) (0.21) $ 0.11
============ ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended December 31,
------------------------------------
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (835) $ 595
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,899 1,952
Extraordinary item - loss on extinguishment of debt 971 -
Loss on disposal of discontinued operations, net 190 -
Deferred taxes (14) 349
Change in assets and liabilites:
Trade receivables (3,527) (1,909)
Inventories (268) (137)
Work in progress, less progress billings (145) 59
Prepaid expenses and other current assets (400) (124)
Income tax refund receivable 260 -
Other assets 39 (730)
Accounts payable (604) (144)
Accrued expenses and other liabilites (72) 141
Deferred maintenance revenue 270 29
--------------- --------------
Net cash provided by (used in) operating activities (2,234) 81
--------------- --------------
Cash flows from investing activites:
Additions to property and equipment (1,084) (1,734)
Capitalized software development costs (1,313) (1,735)
Maturities of short-term investments - 3,091
Purchases of short-term investments (5,494) -
--------------- --------------
Net cash used in investing activities (7,891) (378)
--------------- --------------
Cash flows from financing activities
Change in notes payable to bank (4,243) -
Issuance of subordinated debt 4,000 -
Issuance of common stock 15,691 146
Repayment of subordinated debt (4,000) -
Repurchase of common stock (1) -
Repayments on long-term debt (667) -
Payments on capitalized lease obligations (166) (36)
Other (135) -
--------------- --------------
Net cash provided by financing activities 10,480 110
--------------- --------------
Net increase (decrease) in cash and cash equivalents 355 (187)
Cash and cash equivalents at beginning of period 56 1,684
--------------- --------------
Cash and cash equivalents at end of period $ 411 $ 1,497
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
5
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TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated balance sheet of TALX Corporation ("TALX" or the
"Company") at March 31, 1997 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, 1997 are not
necessarily indicative of the results that may be expected for the
year ending March 31, 1998. 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, 1997.
2. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share has been computed using the weighted
average number of shares of common stock outstanding. Diluted
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 basic and diluted
earnings per share were 5,285,057 and 5,494,065, respectively, for the
nine months ended December 31, 1997. 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 the first three quarters of fiscal 1997. Subsequent
to this period, the weighted average number of shares was based on
common stock outstanding and common stock equivalents.
6
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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 web and interactive voice
response solutions for self-service transactions, which consist of The Work
Number(R), outsourced services, the sale of customer premises systems and
maintenance and support services related to those systems.
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. As The Work Number is still in the early
stage of its life cycle, the Company expects that over time fees from
verifications will be a greater percentage of The Work Number revenues than
they have been historically.
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 interactive voice
response, 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 $90,000. 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 the establishment of the
service and transaction-based fees.
In addition to providing interactive web and interactive voice response
solutions, the Company has historically provided database and document
services. Database services include sales leads and pre-press services for
directory publishers, and document services include 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. In
January 1997, the document services business was sold.
This discussion and analysis contains certain statements regarding expectations
about business prospects or future performance 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,
intense competition in the interactive web and interactive voice response
industry, dependence on certain strategic marketing alliances, risks associated
with rapid technological change, a lengthy sales cycle, the Company's ability
to successfully market and expand The Work Number for Everyone(R) and its other
products and services, the successful divestiture of the remaining assets of
the discontinued operations, and other factors set forth in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
7
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All subsequent written and oral Forward Looking Statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the foregoing cautionary statements. The Company does not
undertake any obligation to release publicly any revisions to Forward Looking
Statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
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 Change
Three Months Nine Months -----------------------------
Ended Dec. 31, Ended Dec. 31, Three Months Nine Months
---------------- --------------- Ended Dec. 31, Ended Dec. 31,
1996 1997 1996 1997 1997 over 1997 over
---- ---- ---- ---- 1996 1996
---- ----
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
The Work Number 8.8% 20.6% 7.4% 16.8% 156.3% 177.3%
Outsourced services 15.8 18.6 12.9 14.8 30.2 40.3
Customer premises systems 58.6 42.5 60.8 50.6 (20.1) 2.0
Maintenance and support 16.8 18.3 18.9 17.8 20.0 14.9
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0 10.2 22.4
----- ----- ----- -----
Cost of revenues
The Work Number 3.4 8.9 3.0 7.1 190.1 191.2
Outsourced services 5.8 10.8 4.5 8.4 106.8 124.1
Customer premises systems 29.5 28.4 30.7 27.0 6.2 7.8
Maintenance and support 5.0 5.8 5.3 5.5 27.1 27.3
----- ----- ----- -----
Total cost of revenues 43.7 53.9 43.5 48.0 36.1 35.0
----- ----- ----- -----
Gross Margin 56.3 46.1 56.5 52.0 (9.8) 12.6
----- ----- ----- -----
Operating expenses
Selling and marketing 30.5 33.0 31.8 32.9 19.2 26.3
General and administrative 13.4 16.4 14.2 14.3 34.7 23.4
----- ----- ----- -----
Total operating expenses 43.9 49.4 46.0 47.2 23.9 25.4
----- ----- ----- -----
Operating income (loss) 12.4 (3.3) 10.5 4.8 (129.6) (43.8)
Other income (expense), net (0.4) (0.4) (3.1) 0.7 15.0 *
----- ----- ----- -----
Earnings (loss) from continuing operations
before income tax expense (benefit) 12.0 (3.7) 7.4 5.5 (134.3) (8.4)
Income tax expense (benefit) 4.4 (1.4) 2.7 2.0 (134.3) (8.4)
----- ----- ----- -----
Earnings (loss) from continuing
operations 7.6 (2.3) 4.7 3.5 (134.3) (8.4)
Discontinued operations, net 0.0 0.0 (3.7) 0.0 - (100.0)
Extraordinary loss (19.1) 0.0 (7.0) 0.0 (100.0) (100.0)%
----- ----- ----- -----
Net earnings (loss) (11.5)% (2.3)% (6.0)% 3.5% (77.6)% *
===== ===== ===== =====
</TABLE>
* Not meaningful
Three Months Ended December 31, 1996 and 1997
Revenues. Total revenues increased by 10.2%, from $5.1 million for the three
months ended December 31, 1996 to $5.6 million for the three months ended
December 31, 1997. Revenues from The Work Number increased 156.3% from $449,000
for the three months ended December 31, 1996 to $1.2 million for the three
months ended December 31, 1997, due to the expansion of marketing on a
nationwide basis and an increase in the number of employment records on the
system. Revenues from outsourced services increased by 30.2% from $801,000 for
the three months ended December 31, 1996 to $1.0 million for the three months
ended December 31, 1997, due to the Company capitalizing on the trend of some
corporations to outsource their non-core functions. Revenues from customer
premises systems decreased 20.1% from $3.0 million for the three months ended
December 31, 1996 to $2.4 million for the three months ended December 31, 1997.
Management believes that the revenue decrease is due to a lengthened sales
cycle, as customers study the impact of incorporating web-based capabilities in
their self-service systems. Revenues from maintenance and support related to
the customer premises systems increased by 20.0%, from $852,000 for the three
months
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<PAGE> 9
ended December 31, 1996 to $1.0 million for the three months ended December 31,
1997, reflecting the support provided to an increased installed base of
customer premises systems.
Cost of Revenues. Total cost of revenues increased by 36.1%, from $2.2 million
for the three months ended December 31, 1996 to $3.0 million for the three
months ended December 31, 1997. Cost of revenues from The Work Number
increased by 190.1% from $171,000 for the three months ended December 31, 1996
to $496,000 for the three months ended December 31, 1997, due principally to
the revenue growth of this service. Cost of revenues from outsourced services
increased by 106.8%, from $292,000 for the three months ended December 31, 1996
to $604,000 for the three months ended December 31, 1997. This increase in cost
is attributable to the revenue growth described above and the increase of fixed
labor costs and telephone and network infrastructure to support possible future
increases in revenue. Cost of revenues from customer premises systems
increased by 6.2%, from $1.5 million for the three months ended December 31,
1996 to $1.6 million for the three months ended December 31, 1997. This
increase in cost is primarily attributable to the increase of fixed labor costs
to support higher levels of revenue. Cost of revenues from maintenance and
support related to customer premises systems increased by 27.1%, from $255,000
for the three months ended December 31, 1996 to $324,000 for the three months
ended December 31, 1997, principally due to revenue growth and an increase in
personnel costs to provide a higher level of customer service.
Selling and Marketing Expenses. Selling and marketing expenses increased 19.2%
from $1.6 million for the three months ended December 31, 1996 to $1.8 million
for the three months ended December 31, 1997. As a percentage of revenues, such
expenses increased from 30.5% for the three months ended December 31, 1996 to
33.1% for the three months ended December 31, 1997. 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
increased 34.7% from $680,000 for the three months ended December 31, 1996 to
$916,000 for the three months ended December 31, 1997. As a percentage of
revenues, such expenses increased from 13.4% for the three months ended
December 31, 1996 to 16.4% for the three months ended December 31, 1997. The
increase in such expenses reflects the increased infrastructure costs of a
growing workforce. The increase in general and administrative expenses as a
percentage of revenues is due to revenues falling below anticipated levels.
The Company anticipates that general and administrative expenses will increase
in dollar amount in future periods.
Other Income (Expense), net. Interest income decreased 29.2% from $72,000 for
the three months ended December 31, 1996 to $51,000 for the three months ended
December 31, 1997, due to a lower level of average invested funds. Interest
expense decreased from $53,000 for the three months ended December 31, 1996 to
$0 for the three months ended December 31, 1997. This decrease is due to the
Company's repayment of most of its outstanding borrowings on October 22, 1996,
with the proceeds of its initial public offering.
Income Tax Expense. The Company's effective income tax rate was 37.0% for the
three months ended December 31, 1996 and 36.8% for the three months ended
December 31, 1997.
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.
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Nine Months Ended December 31, 1996 and 1997
Revenues. Total revenues increased by 22.4%, from $13.9 million for the nine
months ended December 31, 1996 to $17.0 million for the nine months ended
December 31, 1997. Revenues from The Work Number increased by 177.3%, from $1.0
million for the nine months ended December 31, 1996 to $2.9 million for the
nine months ended December 31, 1997, due to the expansion of marketing on a
nationwide basis and an increase in the number of employment records on the
system. Revenues from outsourced services increased by 40.3%, from $1.8
million for the nine months ended December 31, 1996 to $2.5 million for the
nine months ended December 31, 1997, due to the Company capitalizing on the
trend of some corporations to outsource their non-core functions. Revenues
from customer premises systems increased by 2.0%, from $8.5 million for the
nine months ended December 31, 1996 to $8.6 million for the nine months ended
December 31, 1997. The revenue growth is due to increases in sales and
marketing resources and the development of strategic marketing alliances,
offset by the revenue decrease in the third fiscal quarter described above.
Revenues from maintenance and support related to the customer premises systems
increased by 14.9%, from $2.6 million for the nine months ended December 31,
1996 to $3.0 million for the nine months ended December 31, 1997, reflecting
the support provided to an increased installed base of customer premises
systems.
Cost of Revenues. Total cost of revenues increased by 35.0%, from $6.1 million
for the nine months ended December 31, 1996 to $8.2 million for the nine months
ended December 31, 1997. Cost of revenues from The Work Number increased by
191.2%, from $419,000 for the nine months ended December 31, 1996 to $1.2
million for the nine months ended December 31, 1997, due principally to the
revenue growth of this service. Cost of revenues from outsourced services
increased by 124.1%, from $635,000 for the nine months ended December 31, 1996
to $1.4 million for the nine months ended December 31, 1996. This increase in
cost is attributable to the revenue growth described above and the increase of
fixed labor costs and telephone and network infrastructure to support possible
future increases in revenue. Cost of revenues from customer premises systems
increased by 7.8%, from $4.3 million for the nine months ended December 31,
1996 to $4.6 million for the nine months ended December 31, 1997. This
increase in cost is primarily attributable to the revenue growth described
above and an increase of fixed labor costs to support higher levels of revenue.
Cost of revenues from maintenance and support related to customer premises
systems increased by 27.3%, from $736,000 for the nine months ended December
31, 1996 to $937,000 for the nine months ended December 31, 1997, principally
due to the increase in revenues described above and an increase in personnel
costs to provide a higher level of customer service.
Selling and Marketing Expenses. Selling and marketing expenses increased 26.3%
from $4.4 million for the nine months ended December 31, 1996 to $5.6 million
for the nine months ended December 31, 1997. As a percentage of revenues, such
expenses increased from 31.8% for the nine months ended December 31, 1996 to
32.8% for the Nine months ended December 31, 1997. 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
increased 23.4% from $2.0 million for the nine months ended December 31, 1996
to $2.4 million for the nine months ended December 31, 1997. As a percentage of
revenues, such expenses increased from 14.2% for the nine months ended December
31, 1996 to 14.3% for the nine months ended December 31, 1997. The increase in
dollars reflects the increased infrastructure costs of a growing workforce.
The increase in general and administrative expenses as a percentage of revenues
is due to revenues falling below anticipated levels. The Company anticipates
that general and administrative expenses will increase in dollar amount in
future periods.
Other Income (Expense), net. Interest income increased 179.2% from $72,000 for
the nine months ended December 31, 1996 to $201,000 for the nine months ended
December 31, 1997, due to a higher level of average invested funds. Interest
expense decreased from $436,000 for the nine months ended December 31, 1996 to
$2,000 for the nine months ended December 31, 1997. This decrease is due to
the Company's repayment of most of its outstanding borrowings on October 22,
1996, with the proceeds of its initial public offering.
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<PAGE> 11
Income Tax Expense. The Company's effective income tax rate was 37.0% for the
nine months ended December 31, 1996 and 37.0% for the nine months ended
December 31, 1997.
Extraordinary Item. In connection with the issuance of the Subordinated Note
which bore interest at 13.25% (with an effective interest rate of 19.25%), the
Company issued to 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. 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, after giving effect to the post-closing adjustments, was $1,241,000. Of
this amount, $200,000 was in the form of a subordinated note, and the remainder
was paid in cash. The net assets related to this sale were approximately
$566,000. At March 31, 1997, the Company determined that an additional
provision for loss in the amount of $550,000 was required to reflect the
anticipated results from operations and the estimated proceeds from the sale of
the database business. The Company anticipates disposition of the remaining
operations through sale within the next year.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering, the Company had limited liquidity, due in
part to net losses in fiscal 1995 and 1996. The Company had financed its
operations primarily through cash flow from operations, private placements of
equity and debt securities and bank lines of credit. 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
$15,587,000.
The Company used a portion of the net proceeds of its initial public offering
to repay its outstanding indebtedness represented by (I) a 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%.
The Company had a current ratio of 0.87 to 1, 4.64 to 1 and 4.23 to 1 at March
31, 1996, March 31, 1997 and December 31, 1997, respectively. The Company's
working capital was $(1,261,000), $13,351,000 and $12,010,000 at March 31,
1996, March 31, 1997 and December 31, 1997, respectively. Total working
capital increased in fiscal 1997 principally due to the net proceeds from the
initial public offering. Total working capital decreased during the nine
months ended December 31, 1997 due to current year earnings offset by capital
additions.
11
<PAGE> 12
The Company's accounts receivable increased from $8,441,000 at March 31, 1997
to $10,350,000 at December 31, 1997. The increase is due to increased billings
in the third quarter of fiscal 1998 compared to the fourth quarter of fiscal
1997. As a percentage of the Company's total revenues for the respective
quarter, accounts receivable decreased from 189% of revenues at March 31, 1997
to 185% of revenues at December 31, 1997.
The Company's capital expenditures were $1,550,000 in fiscal 1997 and
$1,734,000 for the first nine months of fiscal 1998. At December 31, 1997, the
Company had no significant capital spending or purchase commitments other than
normal purchase commitments and commitments under facilities and operating
leases. The Company believes that its working capital, together with its
anticipated cash flows from operations will be sufficient to meet its working
capital and capital expenditure requirements for at least the next 12 months.
The Company is in the process of establishing a working capital line of credit
with a commercial bank.
The Company's net increase to capitalized software development costs was
$481,000 in fiscal 1997 and $515,000 in the first nine months of fiscal 1998.
See Notes 1 and 5 of Notes to Consolidated Financial Statements contained in
the Company's 10-K. The Company intends to continue to make investments in
software solutions at comparable or increasing levels in fiscal 1998.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard No. 130, "Reporting Comprehensive Income."
This Statement establishes standards for reporting and displaying comprehensive
income and its components in the financial statements. The Company is in the
process of determining the impact of adopting its disclosure requirements. This
Statement is effective for fiscal years beginning after December 15, 1997.
Also in June 1997, the FASB issued Statement of Financial Accounting Standard
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
The Statement establishes standards for the manner in which public business
enterprises report information about operating segments in annual financial
statements and requires those enterprises to report selected information about
operating segments in interim financial reports issued to shareholders. This
Statement is effective for financial statements for periods beginning after
December 15, 1997, and the Company has not yet determined the impact of
adopting its disclosure requirements.
In October 1997, the AICPA issued Statement of Position (SOP) 97-2, "Software
Revenue Recognition." This SOP establishes standards for accounting for
entities that license, sell, lease or otherwise market computer software. This
Statement is effective for transactions for periods beginning after December
15, 1997, and the Company is in the process of determining the impact of
adopting its requirements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
Not applicable.
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.
13
<PAGE> 14
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, 1998 By /s/ William W. Canfield
----------------------------------
William W. Canfield
Chairman, President and
Chief Executive Officer
Date: February 13, 1998 By /s/ Craig N. Cohen
----------------------------------
Craig N. Cohen
Chief Financial Officer
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.1 Restated Articles of Incorporation, as amended
(incorporated by reference from Exhibit 3.1 to
the Company's Form 10-K for the fiscal year ended
March 31, 1997 (File No. 000-21465))
3.2 Bylaws of the Company (incorporated by reference from
Exhibit 3.2 to the Company's Registration Statement on
Form S-1 (File No. 333-10969))
11 Statement Regarding Computation of Earnings Per Share
27 Financial Data Schedule
(provided for the information of the Securities and
Exchange Commission only)
</TABLE>
15
<PAGE> 1
EXHIBIT 11
TALX CORPORATION AND SUBSIDIARIES
Statement Regarding Computation of Earnings Per Share
Nine Months Ended December 31, 1997
<TABLE>
<S> <C>
Basic Earnings Per Share:
Actual shares outstanding - beginning of period 5,263,455
Weighted average number of common shares issued 21,602
---------
Weighted average number of common - end of period 5,285,057
=========
Nine months ended December 31, 1997:
Earnings from continuing operations $ 595,000
Discontinued operations -
---------
Net earnings $ 595,000
=========
Basic earnings per common share:
Earnings from continuing operations $ .11
Discontinued operations -
---------
Net earnings $ .11
=========
Diluted Earnings Per Share:
Shares outstanding - beginning of period 5,263,455
Weighted average number of common shares issued and
common equivalent shares (1) 230,610
---------
Weighted average number of common and
common equivalent shares outstanding - end of period 5,494,065
=========
Nine months ended December 31, 1997:
Earnings from continuing operations $ 595,000
Discontinued operations -
Net earnings $ 595,000
=========
Diluted earnings per common and common equivalent share:
Earnings from continuing operations $ .11
Discontinued operations -
Net earnings $ .11
=========
</TABLE>
(1) Common and common equivalent shares issued consist of certain
effects of shares issued, stock options and warrants. Common
equivalent shares from stock options and warrants have been included
in the computation using the treasury stock method.
1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,497
<SECURITIES> 1,026
<RECEIVABLES> 10,385
<ALLOWANCES> 35
<INVENTORY> 1,515
<CURRENT-ASSETS> 15,729
<PP&E> 6,187
<DEPRECIATION> 2,531
<TOTAL-ASSETS> 24,863
<CURRENT-LIABILITIES> 3,719
<BONDS> 0
0
0
<COMMON> 53
<OTHER-SE> 21,091
<TOTAL-LIABILITY-AND-EQUITY> 24,863
<SALES> 17,031
<TOTAL-REVENUES> 17,031
<CGS> 8,182
<TOTAL-COSTS> 8,182
<OTHER-EXPENSES> 8,103
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 945
<INCOME-TAX> 350
<INCOME-CONTINUING> 595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 595
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
