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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission File Number 000-21465
TALX CORPORATION
(Exact name of registrant as specified in its charter)
MISSOURI 43-0988805
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 BORMAN COURT, ST. LOUIS, MO 63146
(Address of principal executive offices) (Zip Code)
(314) 434-0046
(Registrant's telephone
number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [x] Yes [ ]No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x ]
As of June 1, 1998, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $17,664,777. For purpose of
this calculation only, without determining whether the following are affiliates
of the Registrant, the Registrant has assumed that (I) its directors and
executive officers are affiliates and (ii) entities controlled by such persons
are affiliates.
As of June 1, 1998 there were 5,322,885 shares of the Registrant's Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference portions of the definitive Proxy Statement
for the Registrant's 1998 Annual Meeting of Stockholders to be filed with the
Commission not later than 120 days after the end of the fiscal year covered by
this Form.
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PART I
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K (including, without limitation, Item 1 -- "Business" and Item 7
- -- " Management's Discussion and Analysis of Financial Condition and Results of
Operations") 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 (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All
statements other than statements of historical facts included herein are Forward
Looking Statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Factors that have
affected, and in the future could affect, the Company's actual results and could
cause such results during fiscal 1998 and beyond to differ materially from those
expressed in any Forward Looking Statements made by or on behalf of the Company
include, but are not limited to, those discussed under Item 1 -- "Business --
Risk Factors" hereinbelow.
ITEM 1. BUSINESS
GENERAL
TALX Corporation ("TALX" or the "Company") provides interactive Web, interactive
voice response ("IVR"), and computer telephony ("CTI") software and services to
large organizations such as Fortune 500 companies and federal government
agencies. The Company's software and services enable an organization's
employees, customers, vendors and business partners ("Users") to access, input
and update information without human assistance. The Company's software and
services are designed to enhance service levels, improve productivity and reduce
costs by enabling Users to perform self-service transactions. Historically, the
Company has designed and implemented "tailored" systems that provide an
organization's Users with access to databases of information relating to that
organization.
In early 1995, the Company introduced a "branded" service, The Work Number for
Everyone(R) ("The Work Number(R)"), which is a national service providing
automated access to information from multiple organizations. The Work Number
provides automated employment verification to mortgage lenders and other
verifiers. Using The Work Number, verifiers are able to confirm employment
information regarding participating employers' current and former employees,
including their past three years of salary history. The Work Number reduces an
employer's cost of providing this information and at the same time increases the
timeliness and accuracy of the delivery of such information to mortgage lenders
and other verifiers.
Tailored software and services are offered by TALX to its clients either
installed at the client's site or on an outsourced services basis. The Company
has provided tailored software and services for installation at clients' sites
since the early 1980s. In 1993, the Company introduced its outsourced services
business which allows a client to realize the benefits of the Company's software
solutions without incurring the administrative or maintenance responsibilities
of operating such a system. For outsourced services clients, the Company
maintains the client's database on a system at the Company's facilities, where
incoming requests for access to the information are received.
In addition to providing software and services, the Company has historically
provided database and document services. 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. Database services include providing 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. In January 1997, the document
services business was sold.
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The Company was incorporated under Missouri law in 1973. Following the purchase
of a 20% interest in the Company by Intech Group Inc. ("Intech Group") in 1987,
the Company became primarily involved in designing and implementing interactive
communications solutions. At the time of Intech Group's initial purchase of TALX
capital stock, the Company's only other shareholders were MiTek, Inc. ("MiTek")
and Gateway Venture Partners II, L.P. ("Gateway"). In fiscal 1994, the Company
acquired from Intech Group and its affiliates, on a pooling-of-interests basis,
TALX Information Services Corporation, formerly known as EKI, Incorporated,
which was engaged in the business of providing database and document services.
As indicated above, these operations have been divested or identified for
divestiture, and the results of these operations are reflected as discontinued
operations. In July 1996, at which time Intech Group's only asset was TALX
capital stock, the Company acquired Intech Group in a merger transaction, the
practical effect of which was a tax-free distribution of Intech Group's holdings
of TALX capital stock to Intech Group's shareholders. Immediately prior to such
merger, Intech Group owned approximately 31.46% of the outstanding TALX capital
stock. At such time, the Company had 21 other shareholders, three of whom,
Gateway, MiTek and Intech Partners, L.P. ("Intech Partners"), each beneficially
owned more than ten percent of the outstanding TALX capital stock.
PRODUCTS AND SERVICES
The Work Number
In early 1995, the Company introduced a "branded" service, The Work Number for
Everyone(R) ("The Work Number(R)"), which is a national service providing
automated access to information from multiple organizations. The Work Number
provides automated employment verification to mortgage lenders and other
verifiers. Using The Work Number, verifiers are able to confirm employment
information regarding participating employers' current and former employees,
including their past three years of salary history. The Work Number reduces an
employer's cost of providing this information and at the same time increases the
timeliness and accuracy of the delivery of such information to mortgage lenders
and other verifiers. For most organizations, the process of handling these
requests is cumbersome and requires implementation of procedures unrelated to an
employer's line of business. In addition, requests can be disruptive and divert
employer resources in order to respond to telephone calls and written requests
for employment information. The Work Number reduces an employer's cost of
providing this information.
For mortgage lenders and other verifiers, The Work Number represents a fast and
accurate way to verify both employment and salary information in one telephone
call, thereby accelerating their underwriting process and reducing their
verification cost. Additionally, The Work Number reduces the opportunity for
fraud in the loan application process, as the applicant's employment and salary
information is provided to verifiers by a source less susceptible to fraud. The
traditional employment verification process requires the employee to provide a
verifier with paper documents such as W-2 forms, tax returns or paycheck stubs,
which in the era of desktop publishing and high quality laser printers may be
susceptible to forgery, thus increasing the risk of fraud. However, the Company
believes The Work Number reduces this risk by removing the need to rely on
documents that may be supplied directly or indirectly by the employee. Verifiers
using The Work Number receive employment verification directly from an
electronic database which contains records provided by the employer. Due to the
national scope of The Work Number, mortgage lenders can obtain employment
information from a standard source as opposed to a number of different sources,
with respect to employees of participating employers.
Utilizing a toll-free telephone number, subscribing verifiers can choose to hear
the verification information voiced back immediately, have the complete set of
information faxed directly to them at their office or have an electronic data
interchange transaction sent. For non-subscribing verifiers, verification
information is available through an AT&T business 1-900 telephone number. An
employee's salary information is designed to be available for access only to
those who have been preauthorized by such employee.
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The Work Number provides revenues primarily from fees charged to mortgage
lenders and other verifiers for verification of employment history and salary
information and, to a lesser extent, from employer conversion and ongoing
maintenance fees.
As of March 31, 1998, 202 employers had contracted for specified terms,
generally three years, to provide approximately 17.1 million employment records
of current and former employees. The Company's objective is to expand its
existing database of employment records by marketing to the approximately 910
private sector employers with 10,000 or more employees (based on Hunt-Scanlon's
Select Guide to Human Resource Executives 1997). These employers have an
aggregate of over 30 million current employees, representing an estimated 50
million total employment records, including those of former employees. See "Risk
Factors -- Certain Risks Associated with The Work Number" and "-- Risks Related
to Use of Confidential Information With The Work Number."
The following table reflects the approximate total number of employment records
which employers have contracted to provide for The Work Number as of the end of
each fiscal quarter since its introduction.
<TABLE>
<CAPTION>
TOTAL NUMBER OF
EMPLOYMENT RECORDS(1)
(000's)
---------------------
TOTAL
NUMBER OF
FISCAL QUARTER EMPLOYERS ON-LINE BACKLOG(2)
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<S> <C> <C> <C>
1st Quarter 1996 .................................... 5 273 181
2nd Quarter 1996...................................... 15 348 2,621
3rd Quarter 1996...................................... 40 2,378 1,486
4th Quarter 1996...................................... 61 3,237 2,130
1st Quarter 1997 .................................... 69 4,034 1,705
2nd Quarter 1997...................................... 93 5,061 3,000
3rd Quarter 1997...................................... 117 5,682 4,250
4th Quarter 1997...................................... 139 7,017 3,621
1st Quarter 1998...................................... 148 7,764 3,622
2nd Quarter 1998...................................... 171 10,180 3,842
3rd Quarter 1998...................................... 192 11,755 4,754
4th Quarter 1998...................................... 202 13,115 4,019
</TABLE>
(1) Employment records include records of current and former employees (covering
the past three years of employment history).
(2) Represents employment records under contract but not yet on-line.
Tailored Software and Services
Tailored software and services are offered by TALX to its clients, primarily
Fortune 500 and other large organizations, either installed at the client's site
or on an outsourced services basis. The Company has established the broad
utility of its software and services for complex business problems in a wide
variety of industries. The Company believes it is a leader in providing such
solutions for human resource applications, which include 401(k) plan
administration, benefit plan enrollment and modification, staffing, scheduling
and payroll. The Company has targeted two additional applications categories
usable by a broad range of businesses regardless of the industry in which they
operate (i.e., horizontal application segments): financial applications (e.g.,
status inquiry for accounts payable or accounts receivable) and
distribution/logistics applications (e.g., order entry and inventory status).
The Company is pursuing each of these horizontal marketing initiatives both
through direct sales and through strategic marketing alliances with providers of
enterprise software applications. TALX entered into such an alliance with
PeopleSoft, Inc. ("PeopleSoft") in 1993. More recently, it has entered into
similar alliances with Oracle Corporation ("Oracle") and SAP AG ("SAP"). All
three are leading providers of enterprise-wide client/server business
applications, with
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PeopleSoft, similarly to the Company, being particularly well established in
human resource applications. The Company has also developed and markets
specialized implementations of its products targeted at specific industries
(i.e., vertical market segments) such as health care (e.g., prescription refill
and appointment scheduling and cancellation) and financial services (e.g.,
account balance inquiry, funds transfer and credit card balance inquiry).
Outsourced Services
The Company's outsourced services business provides tailored offsite software
and services to those Fortune 500 and other large organizations which are
interested in outsourcing self-service solutions. In 1993, the Company
introduced its outsourced services business, which allows a client to realize
the benefits of the Company's software and services without incurring the
administrative or maintenance burdens of operating such a system. Using a
toll-free telephone number, Users are able to perform self-service transactions,
access information and manipulate data stored in the client's database or in the
Company's systems located at the Company's headquarters in St. Louis. Customers
are charged a one-time set up fee as well as availability and transaction-based
fees.
Examples of the applications provided by the outsourced services business
include: benefit plan enrollment, receipt and validation of voting with respect
to employee benefit plan amendments, job posting and self-nomination process,
collection of time, attendance and labor data, and providing the front-end to
call centers with interactive voice response and/or Web self-service
capabilities.
Customer Premises Systems
The Company has provided tailored software for installation at client sites
since the early 1980s. TALXWare is the Company's integrated visual development
environment and software system that has been designed to support the creation
and management of self-service solutions. TALXWare runs on Intel-based hardware
platforms using International Business Machine Corporation's ("IBM's") OS/2
operating system. The Windows NT operating system version is expected to be
available for general release early in fiscal 1999. The software supports both
Natural MicroSystems, Inc. ("NMS") and TALX computer telephony ("CT") processing
hardware. See "--Technology and Product Development."
TECHNOLOGY AND PRODUCT DEVELOPMENT
Fundamental to all of the Company's software and services is the integration of
"best-of-class" technologies as such technologies become available. This open
architecture approach enables TALXWare to include popular interactive features
such as computer telephony integration, voice recognition, text-to-speech,
facsimile, e-mail and client/server database interfaces to be used in creating
tailored software solutions for clients. The Company's product strategy
emphasizes the development of software rather than hardware.
TALXWare
TALXWare is an integrated visual development environment and software system
that has been designed to support the creation and management of self-service
solutions. TALXWare currently runs on IBM's OS/2 operating system. The Windows
NT operating system version is expected to be available for general release
early in fiscal 1999. The two main components of TALXWare are EasyScript and
TALXWare Runtime.
EasyScript. EasyScript is the object-oriented visual development environment
used by the Company and its licensed clients to create, modify and maintain
self-service applications. EasyScript's object-oriented approach to software
development allows application designers to position icons on the workspace grid
to define application logic, business rules, computational functions, telephony
integration, database access, and host application screens, and then
automatically generate the underlying computer code. EasyScript incorporates
advanced editing, self-documenting, testing, and code-sharing capabilities to
expedite the development of tailored software solutions. By providing developers
the ability to cut and paste sections of
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one application into another application or copy an application so it can be
modified to create a new application, EasyScript facilitates the use of reusable
software modules. The self-documenting features of EasyScript automatically
create specifications, documentation, and test plans from the applications
themselves. Included with EasyScript is the EasySim testing tool, which enables
developers to test EasyScript applications from a PC keyboard. Another key
feature of EasyScript is that it permits a single application to provide
database access to users with multiple types of self-service access devices such
as the telephone, facsimile, e-mail, telephone device for the deaf ("TDD"),
Internet, corporate Intranet and other technologies. Allowing all devices to
share a common set of centralized business rules can leverage software
development across the enterprise, reduce development time and simplify making
changes or adding enhancements. EasyScript is optional and licensed on a per
server basis.
TALXWare Runtime. The TALXWare Runtime software is licensed on a concurrent user
basis and is a required component of each TALX interactive communications
solution. The functions incorporated into the TALXWare Runtime software include
the management of self-service applications, physical resources and network
connections, as well as tracking and compiling operating statistics,
facilitating operations and storing configuration settings. These features
simplify complex deployments by eliminating the need to include such functions
within each application and allow system administrators to effect changes
without modifying the application software.
Hardware
In addition to software, the Company provides a hardware platform as part of a
total self-service solution. TALXWare runs on open, standard Intel-based PCS and
uses both NMS and TALX proprietary CT processing hardware (the "VP/2000"). The
VP/2000 uses industry standard components such as Intel processors and Texas
Instrument digital signal processors ("DSPs") and is capable of supporting 48
simultaneous users ("lines") in a single system and being networked to support
over 240 lines. The NMS hardware is capable of supporting 24 lines in a single
system.
The Company does not manufacture or perform significant modifications on any
hardware components. Rather, the Company's hardware production consists
primarily of final assembly and quality-control testing of materials,
components, subassemblies and systems.
Product Development
The Company's current development efforts are directed with a view to enhancing
its current products, finalizing the Microsoft Windows NT version of its
TALXWare software and developing new products. The new products are directed at
the markets served by the Company's strategic marketing allies as well as
offering enhanced functionality to its existing human resources, benefits and
payroll markets. Anticipated future enhancements include further extending the
features and capabilities of the Company's interactive Web software solutions
and introducing a kiosk-based product. The Company also anticipates further
enhancing its computer telephony integration ("CTI") capabilities for call
centers. For the markets served by the Company's strategic marketing allies who
offer enterprise-wide client/server applications, the Company plans to continue
to introduce complementary product suites to more tightly integrate and
facilitate interaction between the TALX software and the allies' business
applications. More specifically, for distribution to PeopleSoft customers, the
Company has recently developed financial applications (e.g., accounts payable
and accounts receivable) and for SAP customers, intends to develop
distribution/logistic applications (e.g., order entry, order status and product
information). There can be no assurance that these new enhancements or products
will progress beyond their current state of development or be successfully
marketed.
The Company licenses and integrates complementary technologies into the products
it develops and seeks to provide "best-of-class" technologies to its customers.
Some of the features which are licensed from third party suppliers by the
Company pursuant to non-exclusive license or resale agreements ("Supplier
Agreements") or purchased under open market arrangements and then integrated
into the Company's
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products are voice recognition, text-to-speech, facsimile, e-mail and
client/server database interfaces to be used in creating self-service solutions.
Additionally, the Company is a reseller for IBM's CallPath Enterprise CTI server
software. See "Risk Factors--Risks Associated with Technological Change" for
additional risks associated with the Supplier Agreements.
Product development costs incurred were $1.9 million in fiscal 1996, $2.0
million in fiscal 1997, and $2.6 million in fiscal 1998. The total product
development staff consisted of 25 full-time employees as of March 31, 1998. The
Company believes that significant investments in product development are
required to remain competitive. See "Risk Factors -- Risks Associated with Rapid
Technological Change."
MARKETING
The Company's marketing strategy is to focus on targeted markets through a
direct sales force in conjunction with strategic marketing alliances. The
Company's direct sales force is based in St. Louis with representatives also
located in Atlanta, Bethesda, Chicago, Dallas, Massachusetts, New Jersey,
Phoenix, San Francisco, Virginia, and London, England. The sales force is
comprised of sales managers who are supported by product consultants, client
representatives and business development representatives. Historically, the
direct sales force was responsible for selling all of the Company's product
lines. Beginning in late fiscal 1997, the Company designated certain members of
the sales force to focus solely on selling The Work Number service. The
Company's sales force is supported by a product management group which
identifies and develops target markets, manages product direction, directs
marketing efforts and provides sales assistance.
STRATEGIC MARKETING ALLIANCES
An integral part of the Company's strategy is to develop and maintain alliances
with companies producing complementary software products in order to obtain
customer referrals and introductions, increase market exposure and reduce
delivery time and costs. These companies generally represent major software
suppliers that offer enterprise-wide business application software to the
Company's markets. The Company's most established enterprise-wide alliance is
with PeopleSoft. The Company has entered into similar relationships with SAP and
Oracle.
PeopleSoft, Inc.: As one of the leading companies that has designed
enterprise-wide client/server business applications, PeopleSoft markets
worldwide client/server applications for human resources, payroll,
financials, manufacturing and distribution through industry business units
such as federal government, health care, financial services and retail.
Focusing on the human resources, benefits and payroll markets, TALX entered
into a cooperative marketing relationship with PeopleSoft. TALX creates
interactive application suites that tie directly to PeopleSoft's core
business applications. The first suite focused on the PeopleSoft human
resources, benefits and payroll applications. PeopleSoft has followed with
client/server applications for other areas of the enterprise. Similar to
the human resources suite, TALX has introduced a financial suite and plans
to introduce a distribution suite, for implementation at PeopleSoft
clients.
SAP AG: As a leading global provider of client/server business application
solutions, SAP is one of the largest and fastest growing enterprise-wide
software application suppliers of products for financial accounting, human
resources and manufacturing. The Company intends to develop a suite of
applications to integrate with SAP's software.
Oracle Corporation: One of the world's largest suppliers of database
software, Oracle offers a multimedia relational database and client/server
application products for financial accounting, human resources and
manufacturing.
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Future customer premises systems revenues will be dependent to a significant
extent on the market success of companies with which the Company maintains
strategic market alliances and the effectiveness of the alliances. These
strategic marketing alliances are generally reflected by non-exclusive
contractual arrangements that are terminable at will. The success of the Company
is dependent on the interest and commitment of these companies to promote and
coordinate product development and marketing efforts with the Company, which is
entirely at the discretion of these companies. These companies maintain similar
relationships with certain of the Company's competitors. See "Risk Factors --
Dependence on Strategic Marketing Alliances."
The Company has recently formed strategic marketing alliances in The Work Number
line of business. TALX has entered into marketing arrangements with four
unemployment insurance consulting organizations: Employers Unity, Inc.; Gates,
McDonald and Company; Gibbens Company; and R.E. Harrington, a Division of
HealthPlan Services Inc. These organizations have over 600 large corporate
clients that are potential candidates for The Work Number. Of these, forty have
become clients of The Work Number. Additionally, by offering The Work Number
service to their clients, these allies broaden the scope of services that they
offer their client base.
CLIENTS
Application software solutions are tailored to meet specific client needs for
self-service solutions. The Company's strategy focuses on specific interactive
applications within large corporations and institutions. No single client of the
Company represented 10% or more of the Company's revenues in fiscal 1998. One
client, Kaiser Permanente, represented approximately 14% and 12% of revenues in
fiscal 1996 and 1997, respectively.
PROFESSIONAL SERVICES AND SUPPORT
The Company believes that achieving a high level of customer satisfaction is
critical to its long-term success. The Company delivers its self-service
solutions, in both the outsourced services and customer premises systems lines
of business, through trained professionals who define specific customer
requirements and, utilizing EasyScript, tailor a solution for each customer. In
addition, the Company offers training and education for customers and
representatives of its strategic marketing allies. The Company also maintains a
comprehensive maintenance and support program, providing 7-day, 24-hour per day
support through a toll-free hotline.
COMPETITION
The markets in which the Company sells its self-service solutions are rapidly
evolving, extremely competitive and subject to rapid technological change. The
Company expects competition to increase in the future from existing competitors
and from companies that may enter the Company's existing or future markets with
similar or substitute solutions that may be less costly or provide better
performance or functionality than the Company's products. Many of the Company's
current and potential competitors have greater name recognition, larger
installed customer bases and significantly greater financial, technical,
marketing and other resources than the Company. To be successful in the future,
the Company must continue to respond promptly and effectively to the challenges
of changing client requirements, technological change and competitors'
innovations. Increased competition may result in price reductions, reduced gross
margins and loss of market share, any of which could materially adversely affect
the Company's business, financial condition, results of operations and business
prospects. Additionally, the Company may be required to reduce prices or
increase spending in response to competition in order to pursue new market
opportunities or to invest in research and development efforts and, as a result,
the Company's operating results in the future may be adversely affected. There
can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not materially adversely affect the Company's business,
financial condition, results of operations and business prospects.
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The Company competes in its markets with computer telephony (CT) system hardware
suppliers and systems integrators assembling systems from available components.
Companies offering competing CT systems include Computer Communications
Specialists, Inc., Edify Corporation, InterVoice, Inc., Lucent Technologies,
Inc. and Periphonics Corporation. The Company's business is heavily dependent on
sales to the human resources departments of large organizations. In fiscal 1998,
sales to human resources departments represented approximately 44% of customer
premises systems revenues. In response to clients' desires to outsource certain
aspects of database access functionality, the Company provides services to
organizations which choose not to license software and maintain systems. This
outsourced service business competes with employee benefit plan consulting firms
and accounting firms, including Hewitt Associates LLC, Towers, Perrin, Forster &
Crosby, Inc., William M. Mercer Companies, Inc., and Watson Wyatt & Company,
which provide comprehensive packages of plan design, administration and
consulting services, including automated access services. See "Risk Factors --
Intense Competition."
Several competitors of The Work Number have emerged: Advanced HR Solutions, A
ChoicePoint Company, The Frick Company, and John Jay Associates. There are no
significant barriers to entry in this area and, thus, there can be no assurance
that other companies will not choose to create similar employment verification
systems. Additionally, the Company is aware of a number of employers who have
established similar systems for their internal use. The Company believes that it
is the market leader in this area, but anticipates that additional competitors
will emerge, and is unable to predict what its relative competitive position
will be in a more mature market. See "Risk Factors -- Certain Risks Associated
with The Work Number."
PROPRIETARY RIGHTS
The Company's success is heavily dependent upon its proprietary software
technology. Although the Company copyrights certain elements of its products,
the primary means of protecting its products and services is through
non-disclosure agreements, which provide only limited protection. As part of its
confidentiality procedures, the Company generally enters into non-disclosure
agreements with its employees, distributors and allies, subject to certain
exceptions, and limits access to and distribution of its software, documentation
and other proprietary information. The Company also seeks to protect its
software, documentation and other written materials through trade secret and
copyright laws. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use the
Company's products or technology that the Company considers proprietary, and
third parties may attempt to develop similar technology independently. In
particular, the Company provides its existing and potential distribution
partners with access to its product architecture and other proprietary
information underlying the Company's licensed software. In addition, effective
protection of intellectual property rights may be unavailable or limited in
certain countries. Accordingly, there can be no assurance that the Company's
means of protecting its proprietary rights will be adequate or that the
Company's competitors will not independently develop similar technology.
In the past, the Company has received and may in the future receive
communications from third parties asserting that the Company's products,
trademarks or other proprietary rights require a license of intellectual
property rights or infringe, or may infringe, on their proprietary rights. Based
on the information currently available, the Company is not aware of any valid
claims indicating that it is infringing upon the intellectual property rights of
others, or which, if infringed, would result in any material adverse effect to
the Company's financial condition or results of operations. As the number of
software products in the industry increases, and the functionality of these
products further overlaps, the Company believes that software developers may
become increasingly subject to infringement claims. Any such claims, with or
without merit, could be time consuming, result in costly litigation, cause
product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to the Company, or at all, which could have a
material adverse effect on the Company's business, financial condition, results
of operations and business prospects. In addition, the Company may initiate
claims or litigation against third parties for infringement of the Company's
proprietary rights or to establish the validity of the Company's proprietary
rights. Litigation to determine the validity of any claims
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could result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel from productive tasks, whether or
not such litigation is determined in favor of the Company. In the event of an
adverse ruling in any such litigation, the Company may be required to pay
substantial damages, discontinue the use and sale of infringing products, expend
significant resources to develop non-infringing technology or obtain licenses to
infringing technology. The failure of the Company to develop or license a
substitute technology could have a material adverse effect on the Company's
business, financial condition, results of operations and business prospects.
The Company has obtained trademark registrations for the names TALX and
EasyScript and service mark registrations for The Work Number For Everyone(R)
and The Work Number(R) with the United States Patent and Trademark Office.
TALXWare is a trademark of the Company. Employee Central and TALX Online are
service marks of the Company. The Company regards its trademarks, as well as its
other intellectual property, as having significant value and being an important
factor in the development and marketing of its products. See "Risk Factors --
Limited Intellectual Property Protection."
DATABASE AND DOCUMENT SERVICES BUSINESSES
In addition to providing interactive communications solutions, the Company, in
1994, acquired its database and document services businesses. These businesses
have been operated on a stand-alone basis. Further, the majority of the
operations of such businesses are located separately from the continuing
operations of the Company. See Item 2 -- "Properties."
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. The primary reason for
divesting these businesses was to enable the Company to focus its management and
financial resources towards its core software and services business. 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 Company is actively pursuing the divestiture of the database
services business. See Item 7 -- "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Discontinued Operations" and Note
2 of the Notes to Consolidated Financial Statements contained in Item 8 herein.
The database services business offers a broad range of services to franchise and
independent directory publishers, with an emphasis on publishers who seek to use
a single service supplier for both yellow and white pages. These services
include providing sales leads, sales campaign organization and sales management
tools for use during the advertising sales process. Additionally, the database
services business offers pre-press production capabilities that aid in
constructing a telephone directory. The database services business also provides
to university and private libraries and library automation vendors, specialized
database services including review and correction of automated library files,
text conversion, database design, construction and maintenance. In performing
these services, the database services business utilizes internally developed
proprietary software.
The database services business operates in a highly competitive market and any
of its competitors could use its superior financial resources, market power and
installed base of customers to compete effectively against it. Further,
competition for the customers of the database services businesses may increase
as a result of the Company's determination to pursue the divestiture of such
business. There can be no assurance that the database services business can
maintain its competitive position against current and potential competitors,
especially those with significantly greater financial, marketing, service,
support, technical and other resources. Such competition could materially
adversely affect its ability to sustain current pricing levels and could have a
material adverse effect on the Company's business, financial condition, results
of operations and business prospects.
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EMPLOYEES
As of March 31, 1998, the Company employed 216 full-time and 8 part-time
employees in addition to the 58 full-time and 31 part-time employees which are
employed by the database services business. The Company has never had a work
stoppage and no employees are represented by a labor organization. The Company
considers its employee relations to be good.
The Company's future performance depends to a significant degree upon the
continued contributions of its officers and key management, sales and technical
personnel, many of whom would be difficult to replace. The loss of any of these
individuals could have a material adverse effect on the Company's business,
financial condition, results of operations and business prospects. In addition,
the Company's future success and ability to manage growth will be dependent upon
its ability to hire additional highly skilled employees for a variety of
management, engineering, technical and sales and marketing positions. The
competition for such personnel is intense, however, and there can be no
assurance that the Company will be able to attract, assimilate or retain
sufficient qualified personnel to achieve its future business objectives. The
failure to do so could have a material adverse effect on the Company's business,
financial condition, results of operations and business prospects. See "Risk
Factors -- Dependence on Key Personnel."
YEAR 2000 COMPLIANCE
Many installed computer systems used by numerous companies to run a variety
of applications are not capable of processing date sensitive information that
falls beyond the twentieth century. Unless these computer systems are replaced
or upgraded prior to the year 2000 to process such date sensitive information,
the systems may experience severe operating difficulties or system failures.
Based on a review and testing of its software products and other products, the
Company believes that its current products are century compliant. The Company's
assessment of its current products is partially dependent upon the accuracy of
representations concerning century compliance made by its suppliers, such as
Microsoft and IBM. Many of the Company's customers are, however, using earlier
versions of the Company's software products and other products that may not be
century compliant. The Company has instituted programs to warn these customers
of the risks associated with using software and other products which may not be
century compliant, and to encourage such customers to migrate to the Company's
current products. In addition, the Company's products are generally integrated
with a customer's enterprise system, which typically utilize software products
developed by other vendors. A customer may mistakenly believe that century
compliance problems with its enterprise system are attributable to products
provided by the Company. The Company may in the future be subject to claims
based on century compliance issues related to a customer's enterprise system or
other products provided by third parties, custom modifications to the Company's
products made by third parties, or issues arising from the integration of the
Company's products with other products. The Company has not been a party to any
proceeding involving its products or services in connection with century
compliance issues, however, there is no assurance that the Company will not in
the future be required to defend its products or services in such proceedings
against claims of century compliance issues, and any resulting liability of the
Company for damages could have a material adverse effect on the Company's
business, operating results and financial condition.
During fiscal 1998, the Company initiated a program to replace and upgrade
its internal use information systems to accommodate the Company's growth,
improve productivity and remedy any century compliance problems. This program
should be substantially completed before the year 2000. Additionally, the
Company is in the process of reviewing its internal use information systems and
will assess and resolve any century compliance issues that are found. The
Company also is attempting to ensure that any replacements and upgrades to the
Company's information systems are century compliant. The Company believes that
its internal use information systems will be century compliant prior to the year
2000. However, there is no assurance that the Company will identify and resolve
any and all century compliance problems with its internal use information
systems in timely manner, that the expenses associated with such remedial
efforts will not be significant, or that such problems will not have a material
adverse effect on the Company's business, operating results and financial
condition.
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RISK FACTORS
In addition to the other information included or incorporated by reference in
this Form 10-K, the following factors should be considered carefully.
HISTORY OF NET LOSSES
The Company has incurred net losses in each of the last three fiscal years. The
Company's accumulated deficit as of March 31, 1998 was $3,770,000. Future
operating results will depend on many factors, including the demand for the
Company's software and services, the level of product and price competition, the
Company's success in expanding its sales and distribution channels, the
Company's success in attracting and retaining motivated and qualified personnel,
the ability of the Company to develop and market new products and services and
control costs, the acceptance and the profitability of The Work Number and other
branded services the Company may introduce, and general economic conditions.
Operating results for future periods are subject to numerous uncertainties, and
there can be no assurance that the Company will return to or sustain
profitability on an annual or quarterly basis or otherwise be successful in
addressing such uncertainties. See "--Certain Risks Associated with Divestiture
of the Database Services Business" and Item 7 -- "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company's revenues, margins and operating results have fluctuated in the
past, and are expected to continue to fluctuate in the future, on an annual and
quarterly basis as a result of a number of factors. These factors include the
length of the sales cycle, the timing of orders from and shipments to customers,
delays in development and client acceptance of custom software applications, new
product introductions or announcements by the Company or its competitors, levels
of market acceptance for new products and the hiring and training of additional
staff, as well as general economic conditions. In particular, the Company plans
to continue to increase its operating expenses to expand its sales and marketing
efforts, expand its distribution channels and fund greater levels of product
development. A relatively high percentage of the Company's expenses are fixed in
the short term as the Company's expense levels are based, in part, on its
expectations as to future revenues. If revenues fall below expectations,
expenditure levels could be disproportionately high as a percentage of total net
revenues, and operating results would be immediately and adversely affected. As
a result, the Company's results of operations for any quarter may not be
indicative of results for any future period.
The Company historically has operated with little backlog because its customer
premises systems are generally delivered shortly after orders are received. As a
result, customer premises systems revenues, which historically represented the
largest percentage of the Company's total revenues, in any quarter depend on the
volume and timing of, and the Company's ability to fill, orders received in that
quarter. Individual orders for the Company's customer premises systems typically
are for relatively large dollar amounts. The Company believes the purchase of
its customer premises systems is relatively discretionary. Therefore, any
downturn in any potential customer's business, or any loss or delay of
individual orders for any reason, would have a significant impact on the
Company's revenues and quarterly results. In addition, because the Company
typically recognizes a substantial portion of its customer premises systems
revenue from transactions booked and shipped in the last weeks, or even days, of
the quarter, the magnitude of quarterly fluctuations may not become evident
until very late in a particular quarter. The Company's customer premises systems
sales cycle, including initial order, provision of services and follow-on sales,
varies substantially from client to client. There can be no assurance that the
Company will be able to sustain its level of total revenue or its rate of
revenue growth on a quarterly or annual basis. It is likely that, in some future
quarters, the Company's operating results will be below the Company's targets
and below the expectations of stock market analysts and investors. In such
event, the price of the Company's Common Stock could be materially adversely
affected. See Item 7 -- "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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CERTAIN RISKS ASSOCIATED WITH THE WORK NUMBER
There are no significant barriers to entry in this area and, the Company is
aware of several other companies that have begun to market similar services:
Advanced HR Solutions, A ChoicePoint Company, The Frick Company, and John Jay
Associates. Additionally, the Company is aware of a number of employers who have
established similar systems for their internal use. The Company believes that it
is the market leader in this area, but anticipates that additional competitors
will emerge, and is unable to predict what its relative competitive position
will be in a more mature market. In 1995, the Company began marketing The Work
Number, which provides automated responses to requests by lenders and other
verifiers for employment confirmation, employment history and salary history.
Although, as of March 31, 1998, 202 employers had contracted to provide
approximately 17.1 million employment records of current and former employees,
there can be no assurance that additional employers will contract with the
Company to provide employment records, or that existing employers will renew
their contracts with the Company. The ultimate demand for, and market acceptance
of, The Work Number by lenders and other verifiers is unproven and therefore
subject to a high level of uncertainty. In addition, revenues are dependent on
the cooperation of contracting employers in converting employment records to The
Work Number format and referring verification requests to The Work Number. If
the relatively new market for The Work Number fails to develop or be sustained,
develops slowly or becomes subject to significant competition, the Company's
business, financial condition, results of operations and business prospects
would be materially adversely affected.
RISKS RELATED TO USE OF CONFIDENTIAL INFORMATION WITH THE WORK NUMBER
The Work Number depends on the accuracy of highly confidential information
regarding employment and salary history provided to the Company by employers and
converted by the Company for use as part of The Work Number. Although the
Company has certain protective measures in place, any inaccuracies in such
information (whether in the recording of such information or due to the
unauthorized access of information, or otherwise) or the inability by the
Company to keep such information confidential, may give rise to potential claims
against the Company and adversely affect market acceptance of The Work Number.
If any claims should be asserted which are ultimately decided adversely to the
Company, the Company's business, financial condition, results of operations and
business prospects may be materially adversely affected. See "Business --
Services and Products --The Work Number."
CERTAIN RISKS ASSOCIATED WITH DIVESTITURE OF THE DATABASE SERVICES BUSINESS
In August 1996, the Company decided 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 recorded 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. At March 31,
1997 and 1998, the Company provided additional provisions for loss, net of tax
effect, in the amount of $550,000 and $374,000, respectively. The Company has
estimated that the proceeds from such divestiture of the database business will
approximate the net assets held for sale as of March 31, 1998. However, if the
proceeds from the divestiture are insufficient to cover the costs of the
divestiture, or if the costs of the divestiture are significant, such events
could have a material adverse effect on the Company's results of operations and
financial condition. See Item 7 -- "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Item 8 -- Note 2 of the Notes
to Consolidated Financial Statements.
INTENSE COMPETITION
The markets in which the Company sells its software and services are rapidly
evolving, extremely competitive and subject to rapid technological change. The
Company expects competition to increase in the future from existing competitors
and from companies that may enter the Company's existing or future markets with
similar or substitute solutions that may be less costly or provide better
performance or
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functionality than the Company's products. To be successful in the future, the
Company must continue to respond promptly and effectively to the challenges of
changing client requirements, technological change and competitors' innovations.
Increased competition may result in price reductions, reduced gross margins and
loss of market share, any of which could materially adversely affect the
Company's business, financial condition, results of operations and business
prospects. Additionally, the Company may be required to reduce prices or
increase spending in response to competition in order to pursue new market
opportunities or to invest in research and development efforts, and, as a
result, the Company's operating results in the future may be adversely affected.
There can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not materially adversely affect the Company's business,
financial condition, results of operations and business prospects.
The Company competes in its markets with CT system hardware suppliers and
systems integrators assembling systems from available components. Companies
offering competing CT systems include Computer Communications Specialists, Inc.,
Edify Corporation, InterVoice, Inc., Lucent Technologies, Inc. and Periphonics,
Inc. The Company's business is heavily dependent on sales to the human resources
departments of large organizations. In fiscal 1998, sales to human resources
departments represented approximately 44% of customer premises systems revenues.
In response to clients' desires to outsource certain aspects of database access
functionality, the Company provides services to organizations which choose not
to license software and maintain systems. This outsourced services business
competes with employee benefit plan consulting firms and accounting firms,
including Hewitt Associates LLC, William M. Mercer Companies, Inc., Towers,
Perrin, Forster & Crosby, Inc. and Watson Wyatt & Company, which provide
comprehensive packages of plan design, administration and consulting services,
including automated access services.
Many of the Company's current and potential competitors have greater name
recognition, larger installed customer bases and significantly greater
financial, technical, marketing and other resources than the Company. Any such
competitor could use its superior financial resources, market power, service or
technical resources and installed base of customers to compete effectively
against the Company. Such competition could materially adversely affect the
Company's ability to sustain current pricing levels and could have a material
adverse effect on the Company's business, financial condition, results of
operations and business prospects. Further, competition for the customers of the
database services businesses may increase as a result of the Company's
determination to pursue the divestiture of such businesses. See "Business --
Competition" and "Business -- Database and Document Services Businesses."
DEPENDENCE ON STRATEGIC MARKETING ALLIANCES
An integral part of the Company's growth strategy is to develop and utilize
alliances with companies producing complementary software products in order to
obtain introductions or referrals to potential clients, as well as to coordinate
the development of the Company's complementary software products directly with
such companies to enhance interoperability and performance. Future customer
premises systems revenues will be dependent to a significant extent on the
market success of such companies and the effectiveness of the alliances. Factors
that adversely affect the revenues of these companies, such as competition,
technological changes or product failures, may have a substantial adverse effect
upon the Company's financial results. These strategic marketing alliances are
generally reflected by non-exclusive contractual arrangements that are
terminable at will. The success of the Company is dependent on the interest and
commitment of these companies to promote and coordinate product development and
marketing efforts with the Company, which is entirely at the discretion of these
companies. The Company's strategic marketing allies maintain similar
relationships with certain of the Company's competitors. There is intense
competition by other companies to establish such relationships, and there can be
no assurance that the Company will be able to maintain or expand its network of
strategic marketing alliances in the future, or that such companies will
continue to support the Company or not choose to favor one of the Company's
competitors. Additionally, one the companies with which the Company maintains
such an alliance has decided to compete with the Company in the interactive Web
business. To date, the impact of such competition has not been
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significant. The loss of any of these relationships, or the inability of the
Company to attract and develop new strategic marketing alliances with other
leading software companies, or adverse developments affecting the business or
prospects of such companies, could have a material adverse effect on the
Company's business, financial condition, results of operations and business
prospects. See "Business -- Technology and Product Development," "Business --
Marketing" and "Business -- Strategic Marketing Alliances."
RISKS ASSOCIATED WITH RAPID TECHNOLOGICAL CHANGE
The markets for the Company's software and services are characterized by rapid
technological advancement, changes in client requirements, frequent new product
introductions and enhancements and emerging industry standards. The Company must
continually change and improve its products and services in response to changes
in operating systems, application software, computer and telephony hardware,
communications, database and networking systems, programming tools and computer
language technology. The introduction of products or services embodying new
technologies and the emergence of new industry standards can render existing
products and services obsolete and unmarketable. In particular, the market for
self-service applications through the Internet's World Wide Web, corporate
Intranets, and dial-up browser software has only recently begun and is rapidly
developing. The Company's success will depend upon its ability to enhance, on a
timely and cost-effective basis, its current products and services (e.g., to
effectively add new Internet and corporate Intranet capabilities) and to develop
new products and services that meet changing market conditions, which include
changing client needs, new competitive product and service offerings, emerging
industry standards and changing technology. There can be no assurance that the
Company will be successful in developing and marketing, on a timely and
cost-effective basis or at all, fully functional and integrated product
enhancements or new products or services that respond to technological change,
updates or enhancements to third party products or services used in conjunction
with the Company's products or services, changes in customer requirements or
emerging industry standards, or that the Company's enhanced or new products and
services will be accepted by clients. Any failure by the Company to anticipate
or respond adequately to changing market conditions, or any significant delays
in product or service development or introduction, could have a material adverse
effect on the Company's business, financial condition, results of operations and
business prospects.
The current version of the Company's TALXWare software runs on IBM's OS/2
operating system and the Company is therefore dependent upon the continued
viability of the OS/2 operating system and upon IBM's continuing support for the
OS/2 operating system. However, the Company believes that some potential
customers will not purchase the Company's products unless and until it runs on
an alternative operating system. Accordingly, the Company has devoted
significant engineering and product development resources to design and develop
a fully functional version of its TALXWare software to run on the Microsoft
Windows NT operating system.
It is possible that the Company's intention to develop a fully functional
Windows NT-based version of its TALXWare software will cause potential customers
to defer or forgo purchases of current or future versions of the TALXWare
software until it is available on the Windows NT operating system, which could
have a material adverse effect on the Company's business, financial condition,
results of operations and business prospects. Failure by the Company to develop
a Windows NT-based version of the TALXWare software successfully and in a timely
and cost effective manner may have a material adverse effect on the Company's
business, financial condition, results of operations and business prospects.
Further, when the Company markets a Windows NT-based version of its TALXWare
software, the Company will be dependent upon the viability of that operating
environment. The Company has begun field testing of its Windows NT version of
TALXWare and anticipates that it will be available for general release early in
fiscal 1999. The Company is therefore dependent upon the continued viability of
the Windows NT operating system and upon Microsoft's continuing support for the
Windows NT operating system.
The Company's products not only involve integration with operating systems but
also with products developed by others. For example, the Company has introduced
a lower cost version of TALXWare utilizing
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NMS standards-based computer telephony hardware boards and software drivers. The
Company believes that marketing this product as an alternative to the
VP/2000-based TALX system may provide a means to gain increased access to
certain markets. Currently, this product is available only in a form with
reduced performance and functionality compared to the VP/2000-based TALX system.
Although the Company is devoting significant resources to enhance this new
product to be a fully functional counterpart to the VP/2000-based TALX system,
this project could take a year or longer. There can be no assurance that delays
in increasing the functionality of this product will not adversely affect sales
opportunities, as clients may purchase competitive standards-based systems. Such
delays would have a material adverse effect on the Company's business, financial
condition, results of operations and business prospects.
If any of these third-party products, including IBM OS/2, Microsoft Windows NT
or the NMS boards and drivers, should become unavailable for any reason, fail in
their operation with the Company's products or fail to be supported by their
respective vendors, it would be necessary for the Company to redesign its
products. There can be no assurance that any redesign could be accomplished in a
cost-effective or timely manner. The Company or its clients could also
experience difficulties integrating the Company's products with other hardware
and software. Further, should new releases of these operating systems, computer
telephony hardware boards and software drivers, remote communications software,
database connectivity software or facsimile hardware boards and software drivers
occur before the Company develops products compatible with such new releases, if
ever, any resulting decline in demand for the Company's products could have a
material adverse effect on the Company's business, financial condition, results
of operations and business prospects.
Additionally, the Company licenses and integrates complementary technologies
into the software it develops and seeks to provide the "best-of-class"
technologies to its clients. Some of the features which are licensed from third
party suppliers by the Company pursuant to non-exclusive license or resale
agreements (the "Supplier Agreements") or purchased under open market purchase
arrangements and then integrated into the Company's products are voice
recognition, text-to-speech, facsimile, e-mail and client/server database
interfaces used in creating software solutions. The Company believes that if any
Supplier Agreement expires or is canceled or otherwise terminated, or if a third
party supplier refuses to sell to the Company pursuant to the existing open
market purchase arrangements, as the case may be, and the existing third party
supplier refuses to enter into a subsequent agreement or other arrangement, the
Company could enter into a similar agreement or arrangement with any number of
different suppliers. However, if a new supplier is necessary, the integration of
the relevant technology from the new supplier would require a significant amount
of time, resulting in a meaningful delay in the Company's ability to offer the
particular enhancement currently being purchased under Supplier Agreements or
pursuant to open market purchase arrangements. The Company could also experience
difficulties integrating the new supplier's technology with all of its products.
Additionally, there can be no assurance that any such integration could be
accomplished in a cost-effective manner. Significant delays in the offering of
product enhancements due to integration of technology from new suppliers could
have a material adverse effect on the Company's business, financial condition,
results of operations and business prospects. See "Business -- Services and
Products" and "Business -- Technology and Product Development."
LENGTHY SALES CYCLE
Purchases of TALX software and services are often the result of a
multi-department decision by prospective clients and generally require the
Company to engage in a lengthy sales cycle to provide a significant level of
education to prospective clients regarding the use and benefits of the TALX
interactive communications solutions. Due in part to the mission-critical nature
of certain of the TALX software applications and the associated investment in
hardware, software and consulting expenditures, potential clients tend to be
cautious in making product acquisition decisions. For these and other reasons,
the sales cycle for the Company's products and services can range from one month
to over one year and is subject to a number of significant risks, including
clients' budgetary constraints and internal acceptance reviews, over which the
Company has little or no control. Consequently, if sales anticipated from
specific clients for a particular quarter are not realized in that quarter, the
Company is unlikely to be able to generate revenue from
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alternative sources in time to compensate for the shortfall. As a result, lost
or delayed sales could have a material adverse effect on the Company's quarterly
operating results. Moreover, to the extent that significant sales occur earlier
than expected, operating results for subsequent quarters may be adversely
affected.
DEPENDENCE ON KEY PERSONNEL
The Company's future performance depends to a significant degree upon the
continued contributions of its officers and key management, sales and technical
personnel, many of whom would be difficult to replace. The loss of any of these
individuals could have a material adverse effect on the Company's business,
financial condition, results of operations and business prospects. The Company
has entered into employment agreements with William W. Canfield, its Chairman,
President and Chief Executive Officer, and certain other senior management
members. See Item 10 -- "Directors and Executive Officers of the Registrant" and
Item 11 -- "Executive Compensation." In addition, the Company's future success
and ability to manage growth will be dependent upon its ability to hire
additional highly skilled employees for a variety of management, engineering,
technical and sales and marketing positions. The competition for such personnel
is intense. Further, the Company anticipates that retention of existing
personnel of its database services business may become more difficult as a
result of the Company's determination to pursue the divestiture of such
business. There can be no assurance that the Company will be able to attract,
assimilate or retain sufficient qualified personnel to achieve its future
business objectives. The failure to do so could have a material adverse effect
on the Company's business, financial condition, results of operations and
business prospects.
RISKS OF PRODUCT DEFECTS; PRODUCT LIABILITY
As a result of their complexity, hardware and software products may contain
undetected errors or failures when first introduced or as new versions are
released. There can be no assurance that, despite testing by the Company and
testing and use by current and potential clients, errors will not be found in
systems after implementation. The occurrence of such errors could result in loss
or delay in market acceptance of the Company's products or services, which could
have a material adverse effect on the Company's business, financial condition,
results of operations and business prospects. The Company's Internet and
corporate intranet applications may result in unauthorized access and similar
disruptive problems caused by the Internet or other users. Such unauthorized
access and other disruptions could jeopardize the security of information stored
in and transmitted through the computer systems of the Company's clients, which
may result in significant liability to the Company and deter potential clients.
The Company's license agreements with its clients typically contain provisions
designed to limit the Company's exposure to potential product liability claims.
It is possible, however, that the limitation of liability provisions contained
in the Company's license agreements may not be effective under the laws of
certain jurisdictions. Although the Company has not experienced any product
liability claims to date, the sale and support of the Company's products or
services may entail the risk of such claims. While the Company maintains
insurance for product liability risks, there can be no assurance the Company's
insurance will be adequate in the event of a material product liability claim.
Furthermore, litigation to determine the validity of any product liability
claims could result in significant expense to the Company and divert the efforts
of the Company's technical and management personnel from productive tasks,
whether or not such litigation is determined in favor of the Company. A
successful product liability claim in excess of the Company's insured limits
brought against the Company could have a material adverse effect on the
Company's business, financial condition, results of operations and business
prospects.
LIMITED INTELLECTUAL PROPERTY PROTECTION
The Company's success is heavily dependent upon its proprietary software
technology. Although the Company copyrights certain elements of its products,
the primary means of protecting its products and services is through
non-disclosure agreements, which provide only limited protection. As part of its
confidentiality procedures, the Company generally enters into non-disclosure
agreements with its employees, distributors and strategic marketing allies,
subject to certain exceptions, and limits access to and distribution
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of its software, documentation and other proprietary information. The Company
also seeks to protect its software, documentation and other written materials
through trade secret and copyright laws. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use the Company's products or technology that the Company
considers proprietary, and third parties may attempt to develop similar
technology independently. In particular, the Company provides certain
distributors with access to its product architecture and other proprietary
information underlying the Company's licensed software. In addition, effective
protection of intellectual property rights may be unavailable or limited in
certain countries. Accordingly, there can be no assurance that the Company's
means of protecting its proprietary rights will be adequate or that the
Company's competitors will not independently develop similar technology.
In the past, the Company has received and may in the future receive
communications from third parties asserting that the Company's products,
trademarks or other proprietary rights require a license of intellectual
property rights or infringe, or may infringe, on their proprietary rights. Based
on the information currently available, the Company does not believe there are
any valid claims of which it is aware which it is infringing or which, if
infringed, would result in any material adverse effect on the Company's
financial condition or results of operations. As the number of software products
in the industry increases, and the functionality of these products further
overlaps, the Company believes that software developers may become increasingly
subject to infringement claims. Any such claims, with or without merit, could be
time consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company, or at all, which could have a material adverse effect on the
Company's business, financial condition, results of operations and business
prospects. In addition, the Company may initiate claims or litigation against
third parties for infringement of the Company's proprietary rights or to
establish the validity of the Company's proprietary rights. Litigation to
determine the validity of any claims could result in significant expense to the
Company and divert the efforts of the Company's technical and management
personnel from productive tasks, whether or not such litigation is determined in
favor of the Company. In the event of an adverse ruling in any such litigation,
the Company may be required to pay substantial damages, discontinue the use and
sale of infringing products, expend significant resources to develop
non-infringing technology or obtain licenses to infringing technology. The
failure of the Company to develop or license a substitute technology could have
a material adverse effect on the Company's business, financial condition,
results of operations and business prospects. See "Business -- Proprietary
Rights."
COMPUTER NETWORK AND TELEPHONE OPERATIONS; RISK OF INTERRUPTION
Significant portions of the Company's operations are dependent on the Company's
ability to protect its computer equipment and the information stored in its data
processing centers against damage that may be caused by fire, power loss,
telecommunications failures, unauthorized intrusion and other events. The
Company's data processing center is located in St. Louis, Missouri. Software and
related data files are backed-up regularly and stored off-site. There can be no
assurance that these measures are sufficient to eliminate the risk of extended
interruption in the Company's operations. The Company also relies on local and
long-distance telephone companies to provide dial-up access, Internet and
corporate intranet access to the Company's services. The Company is currently in
the process of evaluating the establishment of an alternate disaster recovery
facility. Any damage or failure that interrupts the Company's operations could
have a material adverse effect on the Company's business, financial condition,
results of operations and business prospects.
SIGNIFICANT SHARE OWNERSHIP; CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's directors, officers and principal (5% or more) shareholders, taken
as a group, beneficially own in the aggregate approximately 43.3% of the
Company's outstanding Common Stock, based on their holdings as of June 1, 1998.
Certain principal shareholders and their representatives are directors or
executive officers of the Company. As a result of such ownership, these
shareholders can influence matters requiring approval by the shareholders of the
Company, including the election of directors, and the
17
<PAGE> 19
management and affairs of the Company. In addition, certain provisions of
Missouri law and of the Company's Restated Articles of Incorporation, as amended
("Articles"), and Bylaws ("Bylaws") could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company. Such provisions could also limit
or depress the price that certain investors might be willing to pay in the
future for shares of the Company's Common Stock. The Company is also authorized
to issue preferred stock with rights senior to, and that may adversely affect,
the Common Stock, without the necessity of shareholder approval and with such
rights, preferences and privileges as the Company's Board of Directors may
determine. The Company, however, has no present plans to issue any shares of
preferred stock.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the shares of Common Stock is likely to be highly volatile
and could be subject to wide fluctuations in response to factors such as actual
or anticipated variations in the Company's operating results, announcements of
technological innovations, new products or new contracts by the Company or its
competitors, developments with respect to patents, copyrights or proprietary
rights, changes in financial estimates by securities analysts, conditions and
trends in the software and other technology industries, adoption of new
accounting standards affecting the software industry, general market conditions
and other factors. Further, the stock market has experienced extreme price and
volume fluctuations that have particularly affected the market prices of equity
securities of many high technology companies and that often have been unrelated
or disproportionate to the operating performance of such companies. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against such
companies. Such litigation, if instituted, could result in substantial costs and
a diversion of management attention and resources, which would have a material
adverse effect on the Company's business, financial condition, results of
operations and business prospects. These market fluctuations, as well as general
economic, political and market conditions such as recessions or international
currency fluctuations, may adversely affect the market price of the Common
Stock.
NO DIVIDENDS
The Company does not anticipate paying dividends on the Common Stock for the
foreseeable future. The Company anticipates that it will reinvest its net
income, if any, in its businesses. See Item 5 -- "Market for the Registrant's
Common Stock and Related Stockholder Matters."
ITEM 2. PROPERTIES
The Company's headquarters and executive offices are located in a 38,000 square
foot office building located at 1850 Borman Court, St. Louis, Missouri 63146
pursuant to a lease expiring in 2002 with an annual base rental of approximately
$413,000, subject to increases for taxes, insurance and operating expenses.
The Company has entered into a lease agreement expiring in 2003 for
approximately 15,000 square feet of additional office space located near the
headquarters with an annual base rental of approximately $140,000, subject to
increases for taxes, insurance and operating expenses. The Company also leases
office space in Atlanta, Bethesda, Chicago, Massachusetts, New Jersey, Phoenix,
and London, England for sales representatives. The Company's database services
business currently occupies approximately 15,000 square feet of office space
under leases expiring in 2002. The Company believes its facilities have been
generally well maintained, are in good operating condition and are adequate for
its current requirements.
Significant portions of the Company's operations are dependent on the Company's
ability to protect its computer equipment and the information stored in its data
processing centers against damage that may be caused by fire, power loss,
telecommunications failures, unauthorized intrusion and other events. The
Company's data processing centers are located in St. Louis, Missouri. Software
and related data files are backed-up regularly and stored off-site. There can be
no assurance that these measures are sufficient to eliminate the risk of
extended interruption in the Company's operation. The Company also relies on
local and long-distance telephone companies to provide dial-up access and
Internet and corporate intranet access to
18
<PAGE> 20
the Company's services. The Company is currently in the process of evaluating
the establishment of an alternate disaster recovery facility. Any damage or
failure that interrupts the Company's operations could have a material adverse
effect on the Company's business, financial condition, results of operations and
business prospects.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant from time to time in routine lawsuits incidental to
its business. Based on the information currently available, the Company believes
that none of such current proceedings, individually or in the aggregate, will
have a material adverse effect upon the Company. See also Item 1 -- "Risk
Factors -- Limited Intellectual Property Protection" and "Business --
Proprietary Rights."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is listed on the Nasdaq National Market under the
symbol "TALX." The table below sets forth the high and low prices of the Common
Stock during the period subsequent to the Company's initial public offering.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ----------------- ------- ------
<S> <C> <C>
FISCAL 1997
Third Quarter (since October 17, 1996) $ 9.50 $ 5.75
Fourth Quarter $ 9.88 $ 7.38
FISCAL 1998
First Quarter $ 7.75 $ 3.50
Second Quarter $10.00 $ 3.75
Third Quarter $ 9.00 $ 6.00
Fourth Quarter $ 7.00 $ 4.13
</TABLE>
The approximate number of holders of record of the Company's Common Stock at
June 1, 1998 was 103. This number does not include shareholders for whom shares
are held in a "nominee" or "street" name.
The Company has not paid any cash dividends and does not anticipate that it will
do so in the foreseeable future. The Company currently intends to retain future
earnings, if any, to provide funds for the growth and development of the
Company's business. Any future determination to pay dividends will be at the
discretion of the Company's Board of Directors and will be dependent upon the
Company's earnings, capital requirements and operating and financial condition,
and such other factors as the Board of Directors may deem relevant.
19
<PAGE> 21
ITEM 6. SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Consolidated Financial Statements, and the notes thereto.
<TABLE>
<CAPTION>
YEARS ENDED MARCh 31,
-------------------------------
1998 1997 1996 1995 1994
------ ------ ------ -------- -----
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
The Work Number............................. $ 4,270 $ 1,642 $ 453 $ 74 $ --
Outsourced services......................... 2,925 2,173 998 515 776
Customer premises systems................... 9,886 11,013 9,442 6,957 8,497
Maintenance and support..................... 4,192 3,559 2,624 2,310 1,949
---------- ---------- ---------- --------- ---------
Total revenues.......................... 21,273 18,387 13,517 9,856 11,222
---------- ---------- ---------- --------- ---------
Cost of revenues
The Work Number............................. 1,807 678 429 48 --
Outsourced services......................... 2,010 941 493 260 190
Customer premises systems................... 5,967 5,560 4,489 4,143 3,902
Maintenance and support..................... 1,325 1,025 619 793 767
---------- ---------- ---------- --------- ---------
Total cost of revenues.................. 11,109 8,204 6,030 5,244 4,859
---------- ---------- ---------- --------- ---------
Gross margin............................ 10,164 10,183 7,487 4,612 6,363
---------- ---------- ---------- --------- ---------
Operating expenses
Selling and marketing....................... 7,952 5,902 4,084 2,854 2,700
General and administrative.................. 3,496 2,613 2,828 2,556 2,268
---------- ---------- ---------- --------- ---------
Total operating expenses................ 11,448 8,515 6,912 5,410 4,968
---------- ---------- ---------- --------- ---------
Operating income (loss)................. (1,284) 1,668 575 (798) 1,395
Other (income) expense, net..................... (158) 409 395 284 153
Income tax expense (benefit).................... (416) 466 57 (328) 7
---------- ---------- ---------- --------- ---------
Earnings (loss) from continuing operations...... (710) 793 123 (754) 1,235
---------- ---------- ---------- --------- ---------
Discontinued operations:
Earnings (loss) from operations of
discontinued operations, net.............. -- (164) (703) (410) 474
Loss on disposal of discontinued
operations, net (374) (900) -- -- --
---------- ---------- ---------- --------- ---------
Earnings (loss) from discontinued
operations, net (374) (1,064) (703) (410) 474
---------- ---------- ---------- --------- ---------
Earnings (loss) before extraordinary item....... (1,084) (271) (580) (1,164) 1,709
Extraordinary item.............................. -- (971) -- -- --
---------- ---------- ---------- --------- ---------
Net earnings (loss)............................. $ (1,084)$ (1,242)$ (580) $ (1,164) $ 1,709
========== ========== ========== ========= =========
Basic and diluted earnings (loss) per share (1):
Earnings (loss) from continuing operations.. $ (.13)$ .18 $ .04
Loss from discontinued operations........... (.07) (.25) (.21)
Extraordinary item.......................... -- (.22) --
---------- ---------- ----------
Net loss................................ $ (.20)$ (.29)$ (.17)
========== ========== ==========
Weighted average number of
shares outstanding (1)...................... 5,291,381 4,330,239 3,391,621
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
AS OF MARCH 31,
-------------------------------
1998 1997 1996 1995 1994
------ ------- ------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and short-term investments................. $ 2,879 $ 5,801 $ 56 $ 27 $ 145
Working capital................................. 9,079 13,351 (1,261) 183 2,449
Net assets of business held for sale............ 1,157 707 -- -- --
Total assets.................................... 24,121 24,072 15,844 14,476 12,824
Notes payable to bank........................... -- -- 4,243 2,654 1,100
Current installments of long-term debt and
obligations under capital leases.............. -- 36 726 722 602
Long-term debt and obligations under capital
leases, less current installments............. -- -- 630 1,318 620
Stockholders' equity............................ 19,508 20,403 5,038 5,610 6,774
</TABLE>
(1) Basic and diluted earnings (loss) per share has been computed using the
number of shares of common stock and common stock options and warrants
outstanding. The weighted average number of shares was based on common
stock outstanding for basic earnings (loss) per share and common stock
outstanding and common stock options and warrants for diluted earnings
(loss) per share in periods when such common stock options and warrants are
not antidilutive.
21
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues are derived from interactive Web, interacted voice
response (IVR), computer telephony (CTI) software and services, which consist of
The Work Number, 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
become a greater percentage of The Work Number revenues than they have been
historically.
The Company's customer premises systems business provides interactive Web,
interactive voice response (IVR), computer telephony (CTI) software and
services that 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, custom applications, and
related hardware 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 establishment of the service
and transaction-based fees.
In addition to providing software and services, 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.
22
<PAGE> 24
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)
------------------------------
FISCAL 1998 FISCAL 1997
OVER OVER
YEARS ENDED MARCH 31, FISCAL 1997 FISCAL 1996
------------------------- ----------- -----------
1998 1997 1996
------- ------- -----
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenues:
The Work Number ............. 20.0% 8.9% 3.3% 160.0% 262.5%
Outsourced services ......... 13.8 11.8 7.4 34.6 117.7
Customer premises systems ... 46.5 59.9 69.9 (10.2) 16.6
Maintenance and support ..... 19.7 19.4 19.4 17.8 35.6
------ ------ ------
Total revenues .......... 100.0 100.0 100.0 15.7 36.0
------ ------ ------
Cost of revenues:
The Work Number ............. 8.5 3.7 3.2 166.5 58.0
Outsourced services ......... 9.5 5.1 3.6 113.6 90.9
Customer premises systems ... 28.0 30.2 33.2 7.3 23.9
Maintenance and support ..... 6.2 5.6 4.6 29.3 65.6
------ ------ ------
Total cost of revenues . 52.2 44.6 44.6 35.4 36.1
------ ------ ------
Gross margin .................. 47.8 55.4 55.4 (0.2) 36.0
------ ------ ------
Operating expenses:
Selling and marketing ....... 37.4 32.1 30.2 34.7 44.5
General and administrative .. 16.4 14.2 20.9 33.8 (7.6)
------ ------ ------
Total operating
expenses .............. 53.8 46.3 51.1 34.4 23.2
------ ------ ------
Operating income (loss) ....... (6.0) 9.1 4.3 (177.0) 190.1
Other income (expense), net ... 0.7 (2.3) (2.9) * 3.5
------ ------ ------
Earnings (loss) from continuing
operations before income tax
expense (benefit) ........... (5.3) 6.8 1.4 (189.4) 599.4
Income tax expense (benefit) .. (2.0) 2.5 0.5 (189.4) 717.5
------ ------ ------
Earnings (loss) from continuing
operations .................. (3.3) 4.3 0.9 (189.5) 544.7
Discontinued operations, net .. (1.8) (5.8) (5.2) (64.8) *
Extraordinary item ........... -- (5.3) -- (100.0) *
------ ------ ------
Net loss ...................... (5.1)% (6.8)% (4.3)% (12.7) (114.1)
====== ====== ======
</TABLE>
*Not meaningful.
23
<PAGE> 25
FISCAL YEARS ENDED MARCH 31, 1998 AND 1997
Revenues. Total revenues increased by 15.7%, from $18.4 million in fiscal 1997
to $21.3 million in fiscal 1998. Revenues from The Work Number increased by
160.0%, from $1.6 million in fiscal 1997 to $4.3 million in fiscal 1998, due to
the continued 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 34.6%, from $2.2 million in fiscal 1997 to $2.9 million in
fiscal 1998, due to the Company capitalizing on the trend of some corporations
to outsource their non-core functions. Revenues from customer premises systems
decreased by 10.2%, from $11.0 million in fiscal 1997 to $9.9 million in fiscal
1998. Management believes that the revenue decrease, which occurred in the
second half of the fiscal year, is due principally 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 17.8%, from $3.6 million in fiscal 1997
to $4.2 million in fiscal 1998, reflecting the support provided to an increased
installed base of customer premises systems.
Cost of Revenues. Total cost of revenues increased by 35.4%, from $8.2 million
in fiscal 1997 to $11.1 million in fiscal 1998. Cost of revenues from The Work
Number increased 166.5%, from $678,000 in fiscal 1997 to $1.8 million in fiscal
1998, due principally to the growth in revenues. Cost of revenues from
outsourced services increased by 113.6%, from $941,000 in fiscal 1997 to $2.0
million in fiscal 1998. 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 7.3%, from $5.6 million in
fiscal 1997 to $6.0 million in fiscal 1998. This increase in costs is primarily
attributable to an increase in fixed labor costs to support possible higher
levels of revenue. Cost of revenues from maintenance and support related to
customer premises systems increased by 29.3%, from $1.0 million in fiscal 1997
to $1.3 million in fiscal 1998, due to the 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 34.7%
from $5.9 million in fiscal 1997 to $8.0 million in fiscal 1998. As a percentage
of revenues, such expenses increased from 32.1% in fiscal 1997 to 37.4% in
fiscal 1998. These increases reflect continuing expansion of the Company's sales
and marketing efforts, including development of additional distribution
channels. The Company anticipates that selling and marketing expenses will
continue to increase in dollar amount as the Company expands its sales and
marketing effort.
General and Administrative Expenses. General and administrative expenses
increased 33.8% from $2.6 million in fiscal 1997 to $3.5 million in fiscal 1998.
As a percentage of revenues, such expenses increased from 14.2% in fiscal 1997
to 16.4% in fiscal 1998. 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 increased 57.0% from $151,000 in
fiscal 1997 to $237,000 in fiscal 1998. The increase is due to a higher average
level of invested funds during the year. Interest expense decreased from
$438,000 in fiscal 1997 to $2,000 in fiscal 1998. This decrease is due to the
Company repaying 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% in fiscal
1997 and 36.9% in fiscal 1998. See Note 9 of the Notes to Consolidated Financial
Statements.
24
<PAGE> 26
FISCAL YEARS ENDED MARCH 31, 1997 AND 1996
Revenues. Total revenues increased by 36.0%, from $13.5 million in fiscal 1996
to $18.4 million in fiscal 1997. Revenues from The Work Number increased by
262.5%, from $453,000 in fiscal 1996 to $1.6 million in fiscal 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
117.7%, from $1.0 million in fiscal 1996 to $2.2 million in fiscal 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 16.6%,
from $9.4 million in fiscal 1996 to $11.0 million in fiscal 1997. This revenue
growth is due to increases in sales and marketing resources, 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 by 35.6%, from $2.6 million in fiscal 1996 to $3.6 million in
fiscal 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 $6.0 million
in fiscal 1996 to $8.2 million in fiscal 1997. Cost of revenues from The Work
Number increased 58.0%, from $429,000 in fiscal 1996 to $678,000 in fiscal 1997,
due to the revenue growth, offset by a reduction in start-up costs. Due to the
relatively early stage of the service in its life cycle, 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 90.9%, from $493,000 in fiscal 1996 to $941,000 in fiscal 1997, due
to the revenue growth described above. Cost of revenues from customer premises
systems increased by 23.9%, from $4.5 million in fiscal 1996 to $5.6 million in
fiscal 1997. This increase is due to the increase in customer premises systems
revenue. Cost of revenues for customer premises systems as a percentage of
customer premises systems revenue increased from 47.5% in fiscal 1996 to 50.5%
in fiscal 1997. This increase is 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 65.6%, from $619,000 in fiscal 1996 to $1.0
million in fiscal 1997, due to the 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 44.5%
from $4.1 million in fiscal 1996 to $5.9 million in fiscal 1997. As a percentage
of revenues, such expenses increased from 30.2% in fiscal 1996 to 32.1% in
fiscal 1997. These increases reflect continuing expansion of the Company's sales
and marketing efforts, including development of distribution channels both in
domestic and international markets.
General and Administrative Expenses. General and administrative expenses
decreased 7.6% from $2.8 million in fiscal 1996 to $2.6 million in fiscal 1997.
As a percentage of revenues, such expenses decreased from 20.9% in fiscal 1996
to 14.2% in fiscal 1997. The decrease reflects the expansion of the Company's
infrastructure to respond to increased levels of revenues, offset by cost
control efforts implemented by the Company throughout fiscal 1996. The Company
anticipates that general and administrative expenses will increase in dollar
amount and decrease as a percentage of revenues in future periods.
Other Income (Expense), net. Interest expense, which is the primary component of
other income (expense), net, increased from $343,000 in fiscal 1996 to $438,000
in fiscal 1997. This increase is due principally to a higher average level of
borrowings caused by financing the net losses in fiscal 1995 and 1996 with
additional borrowings. The Company repaid most of its outstanding borrowings on
October 22, 1996, with the proceeds of its initial public offering. Interest
income on the invested net proceeds amounted to $151,000 during fiscal 1997.
Income Tax Expense. The Company's effective income tax rate was 31.7% in fiscal
1996 and 37.0% in fiscal 1997. See Note 9 of the Notes to Consolidated Financial
Statements.
25
<PAGE> 27
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 is 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. As of
March 31, 1997 and 1998, the Company provided additional provisions for loss,
net of tax, in the amount of $550,000 and $374,000, respectively. The Company
anticipates disposition of the remaining operations through sale during fiscal
1999. See Note 2 of the Notes to Consolidated Financial Statements.
26
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statement of operations data
for each of the four quarters in fiscal 1997 and 1998, as well as the percentage
of the Company's total revenues represented by each item. The unaudited
financial statements have been prepared on the same basis as the audited
financial statements contained herein and include all adjustments (consisting
only of normal recurring adjustments) that the Company considers necessary for a
fair presentation of such information when read in conjunction with the
Company's financial statements and notes thereto appearing elsewhere in this
report. The Company believes that quarter-to-quarter comparisons of its
financial results are not necessarily meaningful and should not necessarily be
relied upon as an indication of future performance.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1996 1996 1996 1997 1997 1997 1997 1998
-------- --------- -------- --------- -------- --------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
The Work Number..................... $ 251 $ 332 $ 449 $ 610 $ 777 $ 934 $ 1,151 $ 1,408
Outsourced services................. 330 660 801 382 575 895 1,043 412
Customer premises
systems.......................... 2,844 2,643 2,972 2,554 3,074 3,178 2,376 1,258
Maintenance and support............. 868 916 852 923 994 1,012 1,022 1,164
-------- --------- -------- --------- -------- --------- -------- ---------
Total revenues.................. 4,293 4,551 5,074 4,469 5,420 6,019 5,592 4,242
-------- --------- -------- --------- -------- --------- -------- ---------
Cost of revenues:
The Work Number..................... 111 137 171 259 308 416 496 587
Outsourced services................. 128 215 292 306 293 526 604 587
Customer premises
systems.......................... 1,447 1,325 1,497 1,291 1,500 1,512 1,590 1,365
Maintenance and support............. 237 244 255 289 308 305 324 388
-------- --------- -------- --------- -------- --------- -------- ---------
Total cost of revenues.......... 1,923 1,921 2,215 2,145 2,409 2,759 3,014 2,927
-------- --------- -------- --------- -------- --------- -------- ---------
Gross margin.......................... 2,370 2,630 2,859 2,324 3,011 3,260 2,578 1,315
-------- --------- -------- --------- -------- --------- -------- ---------
Operating expenses:
Selling and marketing............... 1,369 1,509 1,550 1,474 1,875 1,869 1,848 2,360
General and administrative.......... 637 658 680 638 766 756 916 1,058
-------- --------- -------- --------- -------- --------- -------- ---------
Total operating
expenses...................... 2,006 2,167 2,230 2,112 2,641 2,625 2,764 3,418
-------- --------- -------- --------- -------- --------- -------- ---------
Operating income (loss)............... 364 463 629 212 370 635 (186) (2,103)
======== ========= ======== ========= ======== ========= ======== =========
Loss from discontinued
operations, net..................... (514) -- -- (550) -- -- -- (374)
======== ========= ======== ========= ======== ========= ======== =========
Extraordinary item -- loss
on debt extinguishment,
net of tax....................... -- -- (971) -- -- -- -- --
======== ========= ======== ========= ======== ========= ======== =========
Net earnings (loss)................... $ (373) $ 125 $ (587) $ (407) $ 283 $ 444 $ (132) $ (1,679)
======== ========= ======== ========= ======== ========= ======== =========
Basic and diluted earnings
(loss) per share:................
Earnings (loss) from
continuing operations....... $ .04 $ .04 $ .08 $ .03 $ .05 $ .08 $ (.02) $ (.25)
Loss from discontinued
operations.................. (.15) -- -- (.10) -- -- -- (.07)
Extraordinary loss............... -- -- (.20) -- -- -- -- --
-------- --------- -------- --------- -------- --------- -------- ---------
Net earnings (loss)................ $ (.11) $ .04 $ (.12) $ (.07) $ .05 $ .08 $ (.02) $ (.32)
======== ========= ======== ========= ======== ========= ======== =========
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1996 1996 1996 1997 1997 1997 1997 1998
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Percent of Total Revenues:
Revenues:
The Work Number................ 5.8% 7.3% 8.8% 13.7% 14.4% 15.5% 20.6% 33.2%
Outsourced services............ 7.7 14.5 15.8 8.5 10.6 14.9 18.6 9.7
Customer premises systems...... 66.3 58.1 58.6 57.1 56.7 52.8 42.5 29.7
Maintenance and support........ 20.2 20.1 16.8 20.7 18.3 16.8 18.3 27.4
------ ------ ----- ----- ----- ----- ----- -----
Total revenues............. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ----- ----- ----- ----- ----- -----
Cost of revenues:
The Work Number................ 2.6 3.0 3.4 5.8 5.7 6.9 8.9 13.8
Outsourced services............ 3.0 4.7 5.8 6.8 5.4 8.7 10.8 13.8
Customer premises systems...... 33.7 29.1 29.5 28.9 27.7 25.1 28.4 32.2
Maintenance and support........ 5.5 5.4 5.0 6.5 5.7 5.1 5.8 9.2
------ ------ ----- ----- ----- ----- ----- -----
Total cost of revenues..... 44.8 42.2 43.7 48.0 44.5 45.8 53.9 69.0
------ ------ ----- ----- ----- ----- ----- -----
Gross margin..................... 55.2 57.8 56.3 52.0 55.5 54.2 46.1 31.0
------ ------ ----- ----- ----- ----- ----- -----
Operating expenses
Selling and marketing.......... 31.9 33.1 30.5 33.0 34.6 31.1 33.0 55.6
General and administrative..... 14.8 14.5 13.4 14.3 14.1 12.6 16.4 25.0
------ ------ ----- ----- ----- ----- ----- -----
Total operating
expenses................. 46.7 47.6 43.9 47.3 48.7 43.7 49.4 80.6
------ ------ ----- ----- ----- ----- ----- -----
Operating income (loss).......... 8.5 10.2 12.4 4.7 6.8 10.5 (3.3) (49.6)
====== ====== ===== ===== ===== ===== ===== =====
Loss from discontinued
operations, net................ (12.0) -- -- (12.3) -- -- -- (8.8)
====== ====== ===== ===== ===== ===== ===== =====
Extraordinary item --
loss on debt extinguishment,
net of tax..................... -- -- (19.1) -- -- -- -- --
====== ====== ===== ===== ===== ===== ===== =====
Net earnings (loss).............. (8.7)% 2.8% (11.6)% (9.1)% 5.2% 7.4% (2.3)% (39.6)%
====== ====== ===== ===== ===== ===== ===== =====
</TABLE>
The Company's revenues, margins, and operating results have fluctuated in the
past, and are expected to continue to fluctuate in the future, on an annual and
quarterly basis, as a result of a number of factors. These factors include the
length of the sales cycle, the timing of orders from and shipments to customers,
delays in development and customer acceptance of custom software applications,
new product introductions or announcements by the Company or its competitors,
levels of market acceptance for new products and the hiring and training of
additional staff, as well as general economic conditions. The size and timing of
the Company's customer premises systems transactions have historically varied
substantially from quarter to quarter, and the Company expects such variations
to continue in future periods. The Company is typically able to deliver a
customer premises system within several months of when the order is received
and, therefore, does not customarily have a significant long-term backlog.
Because a significant portion of the Company's overhead is fixed in the
short-term, the Company's results of operations may be adversely affected if
revenues fall below the Company's expectations.
Revenues from outsourced services are seasonally higher during the second and
third quarters of the Company's fiscal year due to the nature of the services
being provided. The revenues have increased on a quarter by quarter comparison
in fiscal 1998 over fiscal 1997, due to the Company capitalizing on an increased
trend by some corporations to outsource these services. Revenues from customer
premises systems decreased during the third and fourth quarters of fiscal 1998.
Management believes that the revenue decreases during these quarters is due
principally to a lengthened sales cycle, as customers study the impact of
incorporating web-based capabilities in their self-service systems.
28
<PAGE> 30
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 4.64 to 1 and 2.97 to 1 at March 31, 1997 and
March 31, 1998, respectively. The Company's working capital was $13,351,000 and
$9,079,000 at March 31, 1997 and 1998, respectively. Total working capital
decreased in fiscal 1998 due to the Company's net loss in fiscal 1998, and
investments in property and equipment and capitalized software development
costs.
The Company's accounts receivable decreased from $8,441,000 at March 31, 1997 to
$8,422,000 at March 31, 1998. The decrease is due to decreased revenues in the
fourth quarter of fiscal 1998 compared to March 31, 1997, offset by extended
payment terms to certain customers. As a percentage of the Company's total
revenues for the fourth quarter of each fiscal year, the accounts receivable at
fiscal year-end increased from 189% at March 31, 1997 to 199% at March 31, 1998.
The Company's capital expenditures were $2,300,000 in fiscal 1998. At March 31,
1998, the Company has 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, should be sufficient to meet its
working capital and capital expenditure requirements for at least the next 12
months. Subsequent to year-end, the Company secured a $5,000,000 line of credit
facility with a commercial bank. Outstanding borrowings, if any, will bear
interest at LIBOR plus 2.25% and will be secured by accounts receivable and
inventory.
The Company's net increase to capitalized software development costs was
$735,000 in fiscal 1998. See Notes 1 and 5 of Notes to Consolidated Financial
Statements. The Company intends to continue to make investments in its software
products at comparable or increasing levels in fiscal 1999.
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 the Company's 1999 fiscal year.
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 the Company's 1999 fiscal year, and the Company is in
the process of determining the impact of adopting its disclosure requirements.
29
<PAGE> 31
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 the Company's 1999 fiscal year. The adoption of SOP 97-2 will
cause the Company to recognize revenue on certain contracts on a deferred basis.
However, the effect on any given quarter's revenues can not be determined.
30
<PAGE> 32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report.......................................... 32
Consolidated Balance Sheets as of March 31, 1998 and 1997............. 33
Consolidated Statements of Operations for the years ended
March 31, 1998, 1997 and 1996......................................... 34
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1998, 1997 and 1996............................. 35
Consolidated Statements of Cash Flows for the years ended
March 31, 1998, 1997 and 1996 ........................................ 36
Notes to Consolidated Financial Statements............................ 37
See Item 7 -- "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Quarterly Results of Operations" for supplementary
financial information required by Item 302 of Regulation S-K.
31
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
TALX Corporation:
We have audited the accompanying consolidated balance sheets of TALX Corporation
and subsidiaries as of March 31, 1997 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended March 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TALX Corporation and
subsidiaries as of March 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the years in the three-year period ended March
31, 1998, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
St. Louis, Missouri
May 15, 1998
32
<PAGE> 34
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1998 1997
-------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................................ $ 2,879 $ 1,684
Short-term investments ............................................................... -- 4,117
Trade receivables, net ............................................................... 8,422 8,441
Inventories .......................................................................... 1,452 1,378
Prepaid expenses and other current assets ............................................ 754 694
Income tax refund receivable ......................................................... 14 195
Deferred tax assets, net ............................................................. 171 511
-------- --------
Total current assets .......................................................... 13,692 17,020
Property and equipment, net ............................................................. 3,956 2,652
Capitalized software development costs, net of amortization of $4,697 in 1998 and
$3,683 in 1997 ................................................................... 3,837 3,102
Net assets of business held for sale .................................................... 1,157 707
Deferred tax assets, net ................................................................ 1,324 372
Other assets ............................................................................ 155 219
-------- --------
$ 24,121 $ 24,072
LIABILITIES AND STOCKHOLDERS' EQUITY ======== ========
Current liabilities:
Current installments of obligations under capital leases ............................. $ -- $ 36
Accounts payable ..................................................................... 1,778 1,145
Accrued expenses and other liabilities ............................................... 1,702 1,472
Progress billings in excess of work in progress ...................................... 176 35
Deferred maintenance revenue ......................................................... 957 981
-------- --------
Total current liabilities ..................................................... 4,613 3,669
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000 shares and no shares issued or
outstanding at March 31, 1998 and 1997 .......................................... -- --
Common stock, $.01 par value; authorized 30,000,000 shares, issued and outstanding
5,316,032 shares at March 31, 1998 and 5,263,455 shares at March 31, 1997 ....... 53 53
Additional paid-in capital ........................................................... 23,225 23,036
Accumulated deficit .................................................................. (3,770) (2,686)
-------- --------
Total stockholders' equity .................................................... 19,508 20,403
-------- --------
$ 24,121 $ 24,072
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 35
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1998, 1997, AND 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1998 1997 1996
------- -------- -----
<S> <C> <C> <C>
Revenues:
The Work Number................................................... $ 4,270 $ 1,642 $ 453
Outsourced services............................................... 2,925 2,173 998
Customer premises systems......................................... 9,886 11,013 9,442
Maintenance and support........................................... 4,192 3,559 2,624
----------- ---------- ---------
Total revenues............................................. 21,273 18,387 13,517
----------- ---------- ---------
Cost of revenues:
The Work Number................................................... 1,807 678 429
Outsourced services............................................... 2,010 941 493
Customer premises systems......................................... 5,967 5,560 4,489
Maintenance and support........................................... 1,325 1,025 619
----------- ---------- ---------
Total cost of revenues..................................... 11,109 8,204 6,030
----------- ---------- ---------
Gross margin............................................... 10,164 10,183 7,487
----------- ---------- ---------
Operating expenses:
Selling and marketing............................................. 7,952 5,902 4,084
General and administrative........................................ 3,496 2,613 2,828
----------- ---------- ---------
Total operating expenses................................... 11,448 8,515 6,912
----------- ---------- ---------
Operating income (loss).................................... (1,284) 1,668 575
----------- ---------- ---------
Other income (expense):
Interest income................................................... 237 151 --
Interest expense.................................................. (2) (438) (343)
Other, net........................................................ (77) (122) (52)
----------- ---------- ---------
Total other income (expense), net.......................... 158 (409) (395)
----------- ---------- ---------
Earnings (loss) from continuing operations before
income tax expense (benefit)............................ (1,126) 1,259 180
Income tax expense (benefit)......................................... (416) 466 57
----------- ---------- ---------
Earnings (loss) from continuing operations................. (710) 793 123
----------- ---------- ---------
Discontinued operations:
Loss from operations of discontinued operations, net of
income taxes.................................................. -- (164) (703)
Loss on disposal of discontinued operations, net of
income taxes.................................................. (374) (900) --
----------- ---------- ---------
Loss from discontinued operations, net of income taxes..... (374) (1,064) (703)
----------- ---------- ---------
Loss before extraordinary item............................. (1,084) (271) (580)
Extraordinary item - loss on extinguishment of debt, net of
income taxes...................................................... -- (971) --
----------- ---------- ---------
Net loss................................................... $ (1,084) $ (1,242) $ (580)
=========== ========== =========
Basic and diluted earnings (loss) per share:
Earnings (loss) from continuing operations....................... $ (.13) $ .18 $ .04
Loss from discontinued operations................................ (.07) (.25) (.21)
Extraordinary loss............................................... -- (.22) --
----------- ---------- ---------
Net loss.................................................. $ (.20) $ (.29) $ (.17)
=========== ========== =========
Weighted average number of shares outstanding....................... 5,291,381 4,330,239 3,391,621
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 36
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1998, 1997, AND 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
RETAINED
EARNINGS
ADDITIONAL (ACCUM- TOTAL
COMMON PAID-IN ULATED STOCKHOLDERS'
CONVERTIBLE PREFERRED STOCK STOCK CAPITAL DEFICIT) EQUITY
--------------------------- ------ --------- --------- -------------
SERIES A SERIES B SERIES C
-------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995 ................. $ 18 $ 2 $ 6 $ 25 $ 6,423 $ (864) $ 5,610
Issuance of 1,714 shares of common stock
upon exercise of stock options .......... -- -- -- -- 8 -- 8
Net loss .................................. -- -- -- -- -- (580) (580)
-------- -------- -------- ------- -------- -------- --------
Balance at March 31, 1996 ................. 18 2 6 25 6,431 (1,444) 5,038
Repurchase and retirement of 144 shares
of common stock and 38 shares of
Series A preferred stock ................ -- -- -- -- (1) -- (1)
Issuance of common stock warrants ......... -- -- -- -- 879 -- 879
Issuance of 2,000,000 shares of common
stock upon initial public offering ..... -- -- -- 20 15,567 -- 15,587
Conversion of 1,776,441 shares of Series A,
236,873 shares of Series B, and 615,745
shares of Series C preferred stock to
751,111 shares of common stock upon
initial public offering ................ (18) (2) (6) 8 18 -- --
Issuance of 30,989 shares of common
stock upon exercise of stock options ... -- -- -- -- 120 -- 120
Issuance of 3,285 shares of common stock
under employee stock purchase plan ..... -- -- -- -- 22 -- 22
Net loss .................................. -- -- -- -- -- (1,242) (1,242)
-------- -------- -------- ------- -------- -------- --------
Balance at March 31, 1997 ................. -- -- -- 53 23,036 (2,686) 20,403
Issuance of 17,676 shares of common
stock upon exercise of stock options ... -- -- -- -- 48 -- 48
Issuance of 34,901 shares of common stock
under employee stock purchase plan ..... -- -- -- -- 141 -- 141
Net loss .................................. -- -- -- -- -- (1,084) (1,084)
-------- -------- -------- ------- -------- -------- --------
Balance at March 31, 1998 ................. $ -- $ -- $ -- $ 53 $ 23,225 $ (3,770) $ 19,508
========= ======== ======== ======= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE> 37
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998, 1997, AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------
1998 1997 1996
-------- -------- ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .......................................................... $ (1,084) $ (1,242) $ (580)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization..................................... 2,556 2,519 2,449
Extraordinary item - loss on extinguishment of debt........... -- 971 --
Loss on disposal of discontinued operations, net.................. (450) 515 --
Gain on sale of assets............................................ -- -- (7)
Gain on sale of marketable securities............................. -- -- (106)
Deferred taxes.................................................... (651) (192) (39)
Change in assets and liabilities:
Trade receivables.............................................. 19 (4,550) (896)
Inventories.................................................... (74) (171) (185)
Work in progress, less progress billings, net.................. 141 137 (126)
Prepaid expenses and other current assets...................... (20) (661) 59
Income tax refund receivable................................... 181 65 33
Other assets................................................... 64 70 (14)
Accounts payable............................................... 633 (353) 293
Accrued expenses and other liabilities......................... 230 334 341
Deferred maintenance revenue................................... (24) (8) 315
-------- ------- -------
Net cash provided by (used in) operating activities.......... 1,521 (2,566) 1,537
-------- ------- -------
Cash flows from investing activities:
Proceeds from sale of property and equipment........................ -- 1,041 9
Additions to property and equipment................................. (2,302) (1,550) (852)
Capitalized software development costs.............................. (2,294) (1,789) (1,712)
Proceeds from maturity of short-term investments.................... 4,117 -- 187
Purchases of short-term investments................................. -- (4,117) --
-------- ------- -------
Net cash used in investing activities........................ (479) (6,415) (2,368)
-------- ------- -------
Cash flows from financing activities:
Change in notes payable to bank..................................... -- (4,243) 1,588
Borrowings of subordinated notes payable and issuance of warrants... -- 4,000 --
Repayments on long-term debt........................................ -- (667) (500)
Repayment of subordinated notes payable............................ -- (4,000) --
Payments on capitalized lease obligations........................... (36) (209) (235)
Issuance of common stock............................................ 189 15,729 7
Repurchase of common and preferred stock............................ -- (1) --
-------- ------- -------
Net cash provided by financing activities.................... 153 10,609 860
-------- ------- -------
Net increase in cash and cash equivalents.................... 1,195 1,628 29
Cash and cash equivalents at beginning of year......................... 1,684 56 27
-------- ------- -------
Cash and cash equivalents at end of year............................... $ 2,879 $ 1,684 $ 56
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 38
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
TALX Corporation ("TALX" or the "Company") provides interactive Web, interactive
voice response (IVR), computer telephony (CTI) software and services to large
organizations such as Fortune 500 companies and federal government agencies. The
Company's software and services enable an organization's employees, customers,
vendors and business partners ("Users") to access, input and update information
without human assistance. The Company's software and services enhance service
levels, improve productivity and reduce costs by enabling Users to perform
self-service transactions. Historically, the Company has designed and
implemented "tailored" systems that provide an organization's Users with access
to databases of information relating to that organization.
The Work Number for Everyone(R) ("The Work Number(R)") is a national service
providing automated access to information from multiple organizations. The Work
Number provides automated responses to requests by mortgage lenders or other
verifiers for confirmation of employment information about a participating
employer's current and former employees.
Tailored software and services are offered by TALX to its customers either
installed on customers' premises or on an outsourced services basis. The Company
has provided tailored software and services installed at customers' premises
since the early 1980s. In 1993, the Company introduced its outsourced services
business which allows a client to realize the benefits of the Company's software
without incurring the administrative or maintenance responsibilities of
operating such a system. For outsourced services customers, the Company
maintains the client's database on a system at the Company's facilities, where
incoming requests for access to the information are received.
In addition to providing software and services described above, the Company has
historically provided database and document services. Database services include
providing sales leads and prepress services for directory publishers. Document
services include the preparation and mailing of invoices, statements, and
confirmation letters for organizations with high-volume requirements. See Note 2
of the Notes to Consolidated Financial Statements.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of TALX Corporation
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash and cash equivalents.
(d) Short-term Investments
Short-term investments at March 31, 1997 consisted of U.S. government agency
debt instruments. The Company classifies its debt and marketable equity
securities in one of two categories: available-for-sale or held-to maturity.
Held-to-maturity securities are those securities which the Company has the
ability and intent to hold until maturity. All other securities are classified
as available-for-sale. All of the Company's
37
<PAGE> 39
securities were classified as held-to-maturity at March 31, 1997. Interest
income is recognized when earned. Debt securities classified as held-to-maturity
are stated at amortized cost. The estimated fair value of the short-term
investments was approximately the cost basis at March 31, 1997. There were no
short-term investments at March 31, 1998.
(e) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories consist primarily of hardware and spare parts.
(f) Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation and
amortization. Depreciation is computed using straight-line and accelerated
methods over the estimated useful lives of the assets. Amortization of leasehold
improvements and assets recorded under capital leases is computed using the
straight-line method over the lesser of the useful life of the asset or lease
term.
(g) Product Development and Capitalized Software Development Costs
Product development costs are charged to operations as incurred. Software
development costs are expensed as incurred until technological feasibility is
achieved, after which they are capitalized on a product-by-product basis.
Amortization of capitalized software development costs is the greater of the
amount computed using (i) the ratio that current gross revenues for a product
bear to the total of current and anticipated future gross revenues for that
product or (ii) the straight-line method over the remaining estimated economic
life of the product. Amortization of capitalized software development costs
starts when the product is available for general release to customers.
(h) Revenue Recognition, Work in Progress, and Progress Billings
Revenues from The Work Number are recognized from fees charged to Users for
verifications of employment history and salary and from employer conversion and
maintenance fees. Customer premises systems revenue is generally recognized upon
shipment of the system. The Company sells some customer premises systems through
certain strategic alliance relationships. In these instances, revenues are
recognized at the time of shipment to the strategic alliance's customer;
however, the Company does not have any future obligations related to these types
of sales. Outsourced services revenue is recognized as the services are
provided. Revenue from maintenance contracts is deferred and recognized ratably
over the maintenance period. Deferred maintenance revenue represents the
unearned portion of maintenance fees.
(i) Concentration of Credit Risk
The Company sells its sofware and services in a variety of industries. One
customer represented approximately 12% and 14%, of revenues in fiscal 1997 and
1996, respectively. No customer represented over 10% of revenues in fiscal 1998.
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral; however, it maintains a
security interest in hardware until payment is received. Credit losses from
customers have been within management's expectations, and management believes
the allowance for doubtful accounts adequately provides for any expected losses.
(j) Income Taxes
The Company records income taxes under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to
38
<PAGE> 40
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(k) Fair Value of Financial Instruments
The Company discloses estimated fair values for its financial instruments. A
financial instrument is defined as cash or a contract that both imposes on one
entity a contractual obligation to deliver cash or another financial instrument
to a second entity and conveys to that second entity a contractual right to
receive cash or another financial instrument from the first entity.
(l) Stock Option Plans
On April 1, 1996, the Company adopted the Financial Accounting Standards Board
Statement of Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
later years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(m) Management's Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
(n) Net Earnings (Loss) Per Share
Effective with the fiscal year ended March 31, 1998, the Company adopted
Statement of Financial Accounting Standards No. 128 (SFAS No. 128). SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of stock options. Diluted
earnings per share is similar to the previously reported fully diluted earnings
per share. For all years presented, basic and diluted earnings per share are the
same, and there was no effect on previously reported earnings per share.
Earnings (loss) per share has been computed using the number of shares of common
stock and common stock options and warrants outstanding, assuming conversion of
all outstanding preferred stock to 751,111 shares of common stock. The weighted
average number of shares used in computing both basic and diluted earnings
(loss) per share was 3,391,621, 4,330,239, and 5,291,381 for fiscal 1996, 1997,
and 1998, respectively. The weighted average number of shares was based on
common stock outstanding for basic earnings (loss) per share and common stock
outstanding and common stock options and warrants for diluted earnings (loss)
per share in periods when such common stock options and warrants are not
antidilutive.
(2) 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 the amount,
$200,000 is in the
39
<PAGE> 41
form of an 8%, three-year subordinated note and the remainder was paid in cash.
The net assets related to this sale were approximately $566,000. As of March 31,
1997 and 1998, the Company provided additional provisions for loss, net of tax,
in the amount of $550,000 and $374,000, respectively. The Company anticipates
disposition of the remaining operations through sale during fiscal 1999.
The Company has classified the database and document services businesses as a
discontinued operation and has reclassified the prior period's statements of
operations to reflect this change.
Summary balance sheet data as of March 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current assets .......................................... $1,392 $1,740
Property and equipment, net ............................. 650 732
Other assets ............................................ 100 260
------ ------
Total assets .................................. 2,142 2,732
Current liabilities, including provision for loss of $400
in 1998 and $1,190 in 1997 985 2,025
------ ------
Net assets of business held for sale .......... $1,157 $ 707
====== ======
</TABLE>
The results of operations for the discontinued businesses for the years ended
March 31, 1998, 1997, and 1996 were as follows:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues .............................. $ 4,284 $ 8,633 $11,149
======= ======= =======
Loss from discontinued operations ..... -- (260) (1,052)
Income tax benefit .................... -- (96) (349)
------- ------- -------
Loss from operations of discontinued
operations ....................... -- (164) (703)
------- ------- -------
Loss on disposal ...................... (592) (1,428) --
Income tax benefit .................... (218) (528) --
------- ------- -------
Loss on disposal, net .............. (374) (900) --
------- ------- -------
Net loss .............................. $ (374) $(1,064) $ (703)
======= ======= =======
</TABLE>
(3) TRADE RECEIVABLES
Trade receivables consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
----------------
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Billed receivables...................... $6,581 $6,149
Unbilled receivables.................... 1,919 2,311
------ ------
8,500 8,460
Less allowance for doubtful accounts.... 78 19
------ ------
$8,422 $8,441
====== ======
</TABLE>
Billings to customers are made in accordance with the terms of the individual
contracts.
40
<PAGE> 42
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Range of
Estimated
Useful Lives MARCH 31,
(in years) ----------------
------------
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Computer equipment................................. 3--5 $4,401 $3,824
Office furniture and equipment..................... 5--7 931 926
Leasehold improvements............................. 3--10 1,426 878
------ ------
6,758 5,628
Less accumulated depreciation and amortization..... 2,802 2,976
------ ------
$3,956 $2,652
====== ======
</TABLE>
(5) PRODUCT DEVELOPMENT AND CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Product development and capitalized software development costs for the years
ended March 31, 1998, 1997, and 1996 were as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1998 1997 1996
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Product development costs incurred.................................. $ 2,615 $ 2,015 $ 1,894
Additions to capitalized software development costs................. (2,293) (1,789) (1,712)
-------- -------- --------
Product development costs charged to general and administrative
expenses......................................................... $ 322 $ 226 $ 182
======== ======== ========
Amortization of capitalized software development costs.............. $ 1,558 $ 1,161 $ 1,184
======== ======== ========
</TABLE>
(6) ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities for the years ended March 31, 1998 and
1997 consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Accrued compensation and benefits..... $ 637 $ 561
Other................................. 1,065 911
------- ------
$ 1,702 $1,472
======= ======
</TABLE>
41
<PAGE> 43
(7) FINANCING ARRANGEMENTS
In June 1996, the Company entered into a loan agreement to secure additional
debt of $4,000,000, through a subordinated note payable, $3,350,000 of which was
funded as of June 30, 1996 and $650,000 of which was funded August 15, 1996. The
loan, which was due and payable on July 1, 2001, bore interest at 13.25% (with
an effective interest rate of 19.25%) and required the granting of a security
interest in the Company's tangible and intangible assets. In connection with
this loan, the Company issued warrants for 138,142 shares of common stock,
exercisable at $.01 per share, for which $879,000 of value was ascribed.
The Company used a portion of the net proceeds of its initial public offering to
repay the amounts outstanding under its various financing arrangements. The
repayment of the subordinated note payable resulted in an extraordinary loss on
early extinguishment of debt of $1,180,000 and a related tax benefit of
$209,000.
Subsequent to March 31, 1998, the Company secured a $5,000,000 line of credit
facility with a commercial bank. Outstanding borrowings, if any, will bear
interest at LIBOR plus 2.25% and will be secured by accounts receivable and
inventory.
(8) LEASES
The Company has noncancellable operating leases, primarily for office space and
office equipment, that expire through 2003 and provide for purchase or renewal
options. During 1991, a partnership, which included the president of the
Company, acquired the building where the Company's headquarters are housed. Rent
paid to the partnership amounted to $422,600 in 1996. The partnership sold the
building to an unrelated party in March 1996.
Total rent expense for operating leases, including contingent rentals, was
$708,000 in 1998, $578,000 in 1997, and $595,000 in 1996.
Future minimum lease payments under noncancellable operating leases as of March
31, 1998 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fiscal Year:
1999 ..................................................... $ 796
2000 ..................................................... 754
2001 ..................................................... 699
2002 ..................................................... 434
2003 ..................................................... 12
-------
Total minimum lease payments........................... $ 2,695
=======
</TABLE>
42
<PAGE> 44
(9) INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1998 1997 1996
------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current--federal...............................................$ -- $ -- $ --
Deferred:
Federal .................................................. (383) 428 52
State and local............................................ (33) 38 5
-------- ------- ------
Income tax expense (benefit) before discontinued
operations........................................ (416) 466 57
Discontinued operations....................................... (218) (624) (349)
Extraordinary loss............................................ -- (209) --
-------- ------- ------
Total income tax (benefit).......................... $ (634)$ (367) $ (292)
======== ======= ======
</TABLE>
Income tax expense (benefit) differed from the amounts computed by applying the
federal income tax rate of 34% to earnings (loss) from continuing operations
before income tax expense (benefit) as a result of the following:
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense (benefit).................... $ (383) $ 428 $ 61
Increase (decrease) in income taxes resulting from:
State and local income taxes, net of federal income
tax benefit............................................... (22) 25 3
Other, net.................................................. (11) 13 (7)
-------- -------- --------
$ (416) $ 466 $ 57
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at March 31, 1998 and
1997 are presented below:
<TABLE>
<CAPTION>
MARCH 31,
---------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts................................. $ 137 $ 31
Valuation allowance on inventory................................ 94 57
Accrual for compensated absences................................ 42 42
Accrual for loss on discontinued operations..................... 148 440
Differences in depreciation..................................... 92 108
Differences in expense recognition methods...................... -- 97
Net operating loss and tax credit carryforwards................. 2,501 1,472
------- -------
Total deferred tax assets............................. 3,014 2,247
------- -------
Deferred tax liabilities:
Differences in capitalized software development cost methods.... 1,419 1,202
Differences in revenue recognition methods...................... -- 78
Differences in expense recognition methods...................... 43 --
Differences in depreciation and amortization.................... 57 84
----- -------
Total deferred tax liabilities........................ 1,519 1,364
------ ------
Net deferred tax assets............................... $1,495 $ 883
====== ======
</TABLE>
43
<PAGE> 45
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. TALX and its subsidiaries
carry separate tax histories and, as a result, certain net operating loss
carryforwards are available to offset future taxable income of TALX. In order to
fully realize the deferred tax assets, TALX will need to generate future taxable
income of approximately $4,000,000 prior to the expiration of the net operating
loss carryforwards in 2013. Taxable loss of TALX for the years ended March 31,
1998, 1997, and 1996 was $3,138,000, $608,000, and $934,000, respectively. Based
upon the level of historical taxable income and projections for future taxable
income over the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences.
At March 31, 1998, the Company has net operating loss carryforwards for federal
income tax purposes of $6,900,000, which are available to offset future federal
taxable income, if any, through 2013. In addition, the Company has alternative
minimum tax credit carryforwards of approximately $22,000, which are available
to reduce future federal regular income taxes, if any, over an indefinite
period.
(10) STOCKHOLDERS' EQUITY
In July 1996, the Company's Board of Directors authorized and amended the
Company's articles of incorporation to effect a 1-for-3.5 reverse stock split
for each share of common stock and adjusted all outstanding common stock options
and warrants accordingly. The Board of Directors also authorized and amended the
Company's articles of incorporation to effect a reduction in all series of
preferred stock and common stock par value to $.01. All share data presented
within the consolidated financial statements have been revised to effect for the
reverse stock split and changes in par value.
In July 1996, the Company amended its articles of incorporation to provide that
the aggregate number of shares of common stock the Company shall have the
authority to issue shall be 30,000,000 shares of Common Stock, par value $.01
per share, and 13,700,000 shares of preferred stock, par value $.01 per share,
8,700,000 shares of which represent the previously designated Series A, B and C
convertible preferred stock.
All series of convertible preferred stock were converted into common stock upon
completion of the Company's initial public offering. Upon the closing, the
Company filed an amendment to its articles of incorporation to reduce the number
of authorized shares of preferred stock to 5,000,000.
TALX has adopted two incentive stock option plans for employees which provide
for the issuance of a maximum of 619,109 shares of common stock. Options are
granted by the Board of Directors at prices not less than fair market value as
of the date of the grant. Certain options are 100% vested upon grant. The
remaining options vest 20% per year and expire six years after the date of the
grant.
44
<PAGE> 46
Activity under the plan for the three years ended March 31, 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Outstanding at March 31, 1995 322,714 $ 3.85
Canceled--1996 (22,714) 3.72
Exercised--1996 (1,714) 4.38
----------
Outstanding at March 31, 1996 298,286 3.85
Granted--1997 88,117 7.00
Canceled--1997 (14,203) 3.85
Exercised--1997 (30,989) 3.89
----------
Outstanding at March 31, 1997 341,211 4.62
Granted--1998 53,700 4.98
Canceled--1998 (18,774) 5.11
Exercised--1998 (17,676) 2.24
----------
Outstanding at March 31, 1998 358,461 $ 4.72
==========
</TABLE>
TALX has adopted a stock option plan for outside directors which provides for
the issuance of a maximum of 80,000 shares of common stock. Options are granted
in the amount of 1,500 shares each to outside directors at prices not less than
fair market value as of the date of the grant, which is April 1 of each year.
The options vest one year from the date of grant. Options granted amount to
6,000 at March 31, 1998.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the stock option plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant date for awards in fiscal 1997 and fiscal 1998 consistent with the
provisions of SFAS No. 123, the Company's net loss and net loss per share would
have been impacted by an immaterial amount (less than $.01 per share) in each
year.
The Company made calculations under SFAS No. 123 reflecting only options granted
in fiscal 1997 and fiscal 1998. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 was not reflected in the
determination of the impact, because compensation cost is reflected over the
options' vesting period of six years and compensation cost for options granted
prior to April 1, 1995 is not considered. The fair value of option grants for
fiscal 1997 and fiscal 1998 is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: expected volatility of 65% in fiscal 1997 and 85% in fiscal 1998;
risk-free interest rate of 6.44% in fiscal 1997 and 6.19% in fiscal 1998;
expected life of 6 years for both periods; and an expected dividend yield of
0.0% in both periods.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ---------------------------------
WEIGHTED AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER OF CONTRACTUAL LIFE AVERAGE NUMBER OF AVERAGE
EXERCISE PRICE SHARES (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
-------------- ------ ------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$0.01 - 3.00 6,853 0.1 $0.88 6,853 $0.88
$3.01 - 4.50 255,822 2.5 $4.00 160,931 $4.06
$4.51 - 6.00 21,000 5.6 $5.75 0 $0.00
$6.01 - 8.00 80,786 4.3 $7.05 14,918 $7.00
---------- ----------
364,461 182,702
========== ==========
</TABLE>
45
<PAGE> 47
During fiscal 1997, the shareholders approved the TALX Corporation 1996 Employee
Stock Purchase Plan (ESPP). The ESPP allows eligible employees the right to
purchase common stock on a quarterly basis at the lower of 85% of the market
price at the beginning or end of each three-month offering period. As of March
31, 1998, there were 80,000 shares of common stock reserved for the ESPP with
3,285 shares issued in fiscal 1997 and 34,901 shares issued in fiscal 1998.
(11) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for the Company's cash and cash equivalents, short-term
investments, trade receivables, income tax refund receivable, accounts payable
and accrued expenses approximate fair value because of the short-term maturity
of these instruments. The carrying amounts of notes payable to bank, long-term
debt, and capital lease obligations approximate fair value because the interest
rates vary with or approximate market rates.
(12) EMPLOYEE BENEFIT PLANS
The Company sponsors a profit-sharing/401(k) plan. The plan covers substantially
all of the Company's employees. The Company makes contributions to the plans,
subject to ERISA limitations, up to 2% of employees' earnings. Total expense
under the plans for the years ended March 31, 1998, 1997, and 1996 was $146,000,
$100,000, and $91,000, respectively.
(13) COMMITMENTS AND CONTINGENCIES
The Company is involved in certain litigation matters arising in the normal
course of business. In the opinion of Company management, these matters will not
have a material adverse effect on the accompanying consolidated financial
statements.
(14) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest totaled $2,000, $438,000, and $503,109
for the years ended March 31, 1998, 1997, and 1996, respectively.
46
<PAGE> 48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of the Company is
contained under the caption "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" included in the Proxy Statement for
the 1998 Annual Meeting of Stockholders, which information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is contained under the caption
"Executive Compensation," "Compensation Committee Interlocks and Insider
Participation" and "Election of Directors -- Director Compensation" included in
the Proxy Statement for the 1998 Annual Meeting of Stockholders, which is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is contained under the captions "Common Stock Ownership of Directors,
Nominees, and Officers" and "Common Stock Ownership of Certain Benefical
Owners," included in the Proxy Statement for the 1998 Annual Meeting of
Stockholders, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
contained under the caption "Certain Relationships and Related Transactions,"
included in the Proxy Statement for the 1998 Annual Meeting of Stockholders,
which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
See Item 8 - Index to Consolidated Financial
Statements
(2) Financial Statement Schedules
None; such schedules have been omitted because of the
absence of conditions under which they are required
or because the information is included in the
financial statements or notes thereto.
(3) Exhibits
See Exhibit Index for the exhibits filed as part of
or incorporated by reference into this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant
during the fiscal quarter ended March 31, 1998.
47
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
TALX CORPORATION
By /s/ William W. Canfield
\ -------------------------------------
William W. Canfield
Chairman, President, Chief
Executive Officer and Director
Date: June 26, 1998
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ William W. Canfield Chairman, President, Chief June 26, 1998
- -------------------------------- Executive Officer and Director
William W. Canfield (Principal Executive Officer)
/s/ Richard F. Ford Director June 26, 1998
- -----------------------------------
Richard F. Ford
/s/ Craig E. LaBarge Director June 26, 1998
- ---------------------------------
Craig E. LaBarge
/s/ Eugene M. Toombs Director June 26, 1998
- -----------------------------
Eugene M. Toombs
/s/ M. Steve Yoakum Director June 26, 1998
- -------------------------------
M. Steve Yoakum
/s/ Craig N. Cohen Chief Financial Officer June 26, 1998
- ---------------------------------- (Principal Financial
Craig N. Cohen Officer and Principal
Accounting Officer)
</TABLE>
48
<PAGE> 50
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
2.1* Agreement and Plan of Merger, dated as of July 15, 1996, by and
between the Company and Intech Group Inc. +
3.1**** Restated Articles of Incorporation of the Company, as amended
3.2 Intentionally Omitted
3.3* Bylaws of the Company
4.1 See Exhibits 3.1 and 3.2
4.2**** Warrant Agreement dated as of October 22, 1996 among the Company,
First Albany Corporation and Principal Financial Securities, Inc.
10.1* TALX Corporation 1988 Incentive Stock Option Plan ++
10.2* Form of Incentive Stock Option Agreement ++
10.3* TALX Corporation Amended and Restated 1994 Stock Option Plan ++
10.4* Form of Non-Qualified Stock Option Agreement ++
10.5* TALX Corporation 1996 Employee Stock Purchase Plan ++
10.6* TALX Corporation Outside Directors' Stock Option Plan ++
10.7 Form of Director Stock Option Agreement
10.8 Intentionally Omitted
10.9** Stock Purchase Warrant issued to Petra Capital, LLC and other
participants
10.10* Lease dated March 28, 1996 by and between the Company and Stephen C.
Murphy, Thomas W. Holley, Arthur S. Margulis and Samuel B. Murphy,
Trustee of the Samuel B. Murphy Revocable Living Trust UTA 1/9/91,
dba "Adie Road Partnership"
10.11** Lease dated August 23, 1993 by and between the Prudential Insurance
Company of America, a New Jersey corporation and EKI Incorporated
49
<PAGE> 51
EXHIBIT
NUMBER DESCRIPTION
10.12* Registration Rights Agreement dated March 15, 1994 among the
Company, Intech Group Inc. and Intech Partners, L.P.
10.13** Amended and Restated Preferred Stock Purchase Agreement dated
December 23, 1988 among the Company, MiTek Industries, Inc., Intech
Group Inc., Gateway Venture, Zinsmeyer Trusts Partnership, and
Missouri Venture Partners, L.P.
10.14** Securities Purchase Agreement dated November 28, 1990 among the
Company, MiTek Industries, Inc., Intech Group Inc., Gateway Venture
Partners II, L.P., and Zinsmeyer Trusts Partnership
10.15* Amendment and Waiver Agreement dated as of July 28, 1996 between the
Company, IntechGroup, Inc., Intech Partners, L.P., MiTek Industries,
Inc., Gateway Venture Partners II, L.P., Zinsmeyer Trusts
Partnership and the Missouri State Employee's Retirement System.
10.16 Intentionally Omitted
10.17 Intentionally Omitted
10.18 Intentionally Omitted
10.19* Debenture Purchase Agreement dated May 11, 1990 among the Company,
Intech Group, Inc., MiTek Industries, Inc., Gateway Venture Partners
II, L.P., Zinsmeyer Trusts Partnership, H. Richard and Gloria
Grodsky, W. Gary and Debra Lowe, Michael and Della Smith and John E.
and Janet B. Tubbesing
10.20** First Amendment to the Stock Purchase Warrant issued to Petra
Capital, LLC and other participants
10.21*** Employment Agreement between TALX Corporation and Mr. Canfield ++
10.22*** Employment Agreement between TALX Corporation and Mr. Tubbesing ++
10.23*** Employment Agreement between TALX Corporation and Mr. Smith ++
10.24*** Employment Agreement between TALX Corporation and Mr. Cohen ++
10.25 Southwest Bank Line of Credit Note
11.1 Statement re Computation of Per Share Earnings
21.1* Subsidiaries of the Company
50
<PAGE> 52
EXHIBIT
NUMBER DESCRIPTION
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
* Incorporated by reference to exhibit with corresponding number to
the Company's Registration Statement on Form S-1 (File No.
333-10969)
** Incorporated by reference to exhibit with corresponding number to
Amendment No. 1 to the Company's Registration Statement on Form S-1
(File No. 333-10969)
*** Incorporated by reference to exhibit with corresponding number to
Amendment No. 2 to the Company's Registration Statement on Form S-1
(File No. 333-10969)
**** Incorporated by reference to exhibit with corresponding number to
the Company's Annual Report on Form 10-K for the year ended March
31, 1997 (File No. 000-21465)
+ The registrant undertakes to furnish supplementally a copy of any
omitted schedule to the Commission upon request.
++ Represents management contract or compensatory plan or arrangement.
51
<PAGE> 1
EXHIBIT 10.7
STOCK OPTION AGREEMENT
UNDER
TALX CORPORATION
OUTSIDE DIRECTORS' STOCK OPTION PLAN
THIS AGREEMENT, made this _______ day of _____________, 19__, by and
between TALX Corporation, a Missouri corporation (hereinafter called the
"Company"), and ___________ (hereinafter called "Optionee");
WITNESSETH THAT:
WHEREAS, the Board of Directors of the Company ("Board of Directors")
has adopted the TALX Corporation Outside Directors' Stock Option Plan (the
"Plan") pursuant to which options covering an aggregate an aggregate of 80,000
shares (as adjusted for the 1 for 3.5 reverse stock split effective July, 1996)
of the Common Stock of the Company may be granted to outside directors of the
Company; and
WHEREAS, Optionee is now an outside director of the Company; and
WHEREAS, pursuant to the Plan the Company shall grant to Optionee the
option to purchase 1500 shares of its stock under the terms of the Plan, which
option will not qualify as an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended;
NOW THEREFORE, in consideration of the premises, and of the mutual
agreements hereinafter set forth, it is covenanted and agreed as follows:
1. Grant Subject to Plan. This option is granted under and is
expressly subject to, all the terms and provisions of the Plan, which terms are
incorporated herein by reference.
2. Grant and Terms of Option. Pursuant to the terms of the Plan the
Company hereby grants to Optionee the option to purchase all or any part of one
thousand five hundred (1500) shares of the Common Stock of the Company, of the
par value of $.01 per share ("Common Stock"), for a period of six (6) years
from the date hereof, at the purchase price of $___ per share; provided,
however, that the right to exercise such option shall be, and is hereby,
restricted so that no shares may be purchased during the first year of the term
hereof; that at any time during the term of this option after the end of the
first year of the term hereof Optionee may purchase up to 100% of the total
number of shares to which this option relates. Provided, that if there is a
Change in Control as defined in the Plan, Optionee may immediately purchase
100% of the total number of shares to which immediately purchase 100% of the
total number of shares to which this option relates. In no event may this
option or any part thereof be exercised after the expiration of six (6) years
from
<PAGE> 2
the date hereof. The purchase price of the shares subject to the option may be
paid for (i) in cash, (ii) by tender of shares of Common Stock already owned by
Optionee, or (iii) by a combination of methods of payment specified in clauses
(i) and (ii), all in accordance with Section V.F of the Plan.
3. Anti-Dilution Provisions. In the event that, during the term of
this Agreement, there is any change in the number of shares of outstanding
Common Stock of the Company by reason of stock dividends, recapitalizations,
mergers, consolidations, split-offs, split-ups, combinations or exchanges of
shares and the like, the number of shares covered by this option agreement and
the price thereof shall be adjusted, to the same proportionate number of shares
and price as in this original agreement.
4. Investment Purpose. Optionee represents that, in the event of the
exercise of the exercise by Optionee of the option hereby granted, or any part
thereof, Optionee intends to purchase the shares acquired on such exercise for
investment and not with a view to resale or other distribution; except that the
Company, at its election, may waive or release this condition in the event the
shares acquired on exercise of the option are registered under the Securities
Act of 1933, or upon the happening of any other contingency which the Company
shall determine warrants the waiver or release of this condition. Optionee
agrees that the exercise of all or any part of this option, may bear a
restrictive legend, if appropriate, indicating that the share have not been
registered under said Act and are subject to restrictions on the transfer
thereof, which legend may be in the following form (or such other form as the
Company shall determine to be proper), to-wit:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, but have been issued
or transferred tot he registered owner pursuant to the exemption
afforded by Section 4(2) of said Act. No transfer or assignment
of these shares by the registered owner shall be valid or
effective, and the issuer of these shares shall not be required
to give any effect to any transfer or attempted transfer of these
shares, including without limitation, a transfer by operation of
law, unless (a) the issuer shall have received an opinion of
its counsel that the shares may be transferred without
requirement of registration under said Act, or (b) there shall
have been delivered to the issuer a 'no-action' letter from the
staff of the Securities and Exchange Commission, or (c) the
shares are registered under said Act."
2
<PAGE> 3
5. Non-transferability. Neither the option hereby granted nor any
rights thereunder or under this Agreement may be assigned, transferred or in
any manner encumbered except by will or the laws of descent and distribution,
and any attempted assignment, transfer, mortgage, pledge or encumbrance except
as herein authorized, shall be void and of no effect. The option may be
exercised during Optionee's lifetime only by Optionee.
6. Termination of Service as a Director. In the event of the
termination of Optionee's service as a Director, the option may be exercised as
provided in Section V.E. of the Plan.
7. Shares Issued on Exercise of Option. It is the intention of the
Company that on any exercise of this option it will transfer to Optionee shares
of its authorized but unissued stock or transfer Treasury shares, or utilize any
combination of Treasury shares and authorized but unissued shares, to satisfy
its obligations to deliver shares on any exercise hereof.
8. Option Not Intended As An Incentive Stock Option. The option
granted hereunder is not intended to constitute an incentive stock option
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by its President pursuant to due authorization, and
Optionee has signed this Agreement to evidence Optionee's acceptance of the
option herein granted and of the terms hereof, all as of the date hereof.
TALX CORPORATION
By_________________________
___________________________
Optionee
3
<PAGE> 1
EXHIBIT 10.25
Talx Corporation 600784- JDH/sn
LINE OF CREDIT NOTE
St. Louis, Missouri
$5,000,000.00 and interest April 17, 1998
On Demand, and if no demand be made, than on the 1st day of April, 1999,
the undersigned promise(s) to pay to the order of SOUTHWEST BANK OF ST. LOUIS,
St. Louis, Missouri, 63110-3498 (herein called "Bank") at its office in said
City or to such other place as the holder hereof shall from time to time
designate, the principal sum of FIVE MILLION AND NO/100 dollars, or the then
outstanding and unpaid principal balance of the sums advanced hereunder
together with accrued interest. Interest shall be due and payable on the
outstanding balance due or advanced hereunder at a per annum rate equal to the
LIBOR INDEX RATE plus the MARGIN. In the event and during such time as the
BANK shall determine that a CHANGE IN CIRCUMSTANCE has occurred, the interest
rate on the borrowings evidenced by this Note shall adjust automatically
without notice to a per annum rate equal the the BANK'S PRIME RATE.
Notwithstanding the foregoing, after the maturity hereof, whether by
acceleration, demand, default or otherwise interest shall accrue at a rate per
annum, payable on demand, equal to the BANK'S PRIME RATE plus three percentage
points until paid in full. CHANGE IN CIRCUMSTANCE shall mean any one or more
of the following: (a) The Wall Street Journal (Midwest Edition) shall cease
publishing a "London Interbank Offered Rate (LIBOR) for a three month deposit
period; (b) Any governmental authority, central bank or comparable agency shall
make it unlawful or impossible for the BANK to make or offer loans based upon
the LIBOR INDEX RATE; or (c) The BANK shall determine any applicable law, rule,
regulation, interpretation or directive applicable to the BANK has or would
have the effect of reducing the rate of return to the BANK on the loan
evidenced by this Note to a level below that which the BANK would have achieved
but for the loan utilizing the LIBOR INDEX RATE. LIBOR INDEX RATE shall mean
for any calendar quarter the rate of interest (rounded upwards, if necessary,
to the next higher 1/100 of 1%) published in the issue of the Wall Street
Journal (Midwest Edition) on the last business day of the previous calendar
quarter as the "London Interbank Offered Rate (LIBOR)" for dollar deposits of a
three month period. Such rate shall be adjusted quarterly on the first
business day of the quarter by reference to the "London Interbank Offered Rate
(LIBOR)" for dollar deposits of a three month period published on the last
business day of the previous calendar quarter in The Wall Street Journal
(Midwest Edition). MARGIN shall mean 225 basis points. Interest shall be due
and payable monthly, and shall be calculated on the actual number of days on
the basis of a year of 360 days. This note shall bear interest after maturity
at the rate of five percent (5%) over the stated price.
Until the occurrence of any event of default herein described or any
default or any event which with the passage of time or giving of notice, or
both, would constitute a default under any agreements listed below, or the
maturity of this note, whether by acceleration or
<PAGE> 2
otherwise, the undersigned may borrow and repay and re-borrow such amounts,
hereunder, except that each advance or repayment will be in a minimum amount of
ONE THOUSAND AND 00/100 Dollars or any multiples thereof, but not exceeding
the maximum amount set forth above. Unless otherwise instructed by the
undersigned, all advances under this note will be credited to checking account
No. 12696 carried on the books of Bank in the name of Talk Corporation and the
undersigned agrees that Bank may make advances at its discretion, upon oral
instructions of any of the undersigned or upon occurrence of an overdraft in
said checking account.
Upon the occurrence of any of the following events of default: failure
of the undersigned to make any payments required hereunder or comply with any
of the provisions contained in this note or any other obligations of the
undersigned to Bank or to any other party, and the continuation of such
default following applicable notice and cure rights, if any, or death,
dissolution, termination of existence, insolvency, failure to pay debts as they
mature, appointment of a receiver of any part of the property of, an assignment
for the benefit of creditors, or the commencement of any proceedings under
bankruptcy or insolvency laws, by or against any of the undersigned, then or at
any time thereafter this note and all other obligations of each of
the undersigned to the Bank shall, at the option of Bank, become due and
payable without notice or demand and no further advances will thereafter be
made by Bank under the terms of this note. Furthermore, Bank reserves the right
to offset without notice all funds or other property held by Bank against
matured debts owing to Bank by undersigned. The undersigned will pay on
demand all costs of collection, legal expenses attorney's fees incurred or
paid in collecting or enforcing this note including representation in any
bankruptcy or insolvency proceedings and whether or not any lawsuit is ever
filed with respect thereto. Each of the undersigned waives presentment,
protest, demand, notice of dishonor or default and consents to any and all
renewals, extensions, and/or the release of any collateral or party directly
or indirectly liable for the payment hereof, all without notice to and without
affecting the liability of any of the undersigned. As used herein
"undersigned" shall mean each maker and each endorser, and each jointly and
severally, agrees to all the provisions hereof. This note shall be governed by
the laws of the State of Missouri and shall bind the undersigned and shall
inure to the benefit of the Bank and any holder hereof.
In addition to all other rights and security of Bank, security for
this note and all other indebtedness owing to Bank:
Security Agreements dated 4/17/98 covering Accounts Receivable and Inventory.
ORAL AGREEMENTS OR COMMITMENTS TO LEND MONEY, EXTEND CREDIT OR TO
FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR
RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER(S)) AND US
(CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING,
2
<PAGE> 3
WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US,
EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT.
Signature(s) below constitutes execution of note and acknowledgement of
copy of note.
TALX CORPORATION
By: William W. Canfield
--------------------------------
William W. Canfield, President
Address: 1850 Borman Ct.
--------------------------------
St. Louis, MO 63146-4126
3
<PAGE> 1
EXHIBIT 11.1
TALX CORPORATION AND SUBSIDIARIES
Statement Regarding Computation of Earnings Per Share
Years Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Basic Earnings Per Share:
Actual shares outstanding - beginning of year ..... 5,263,455 3,391,621
Weighted average number of common shares issued ... 27,926 938,618
----------- -----------
Weighted average number of common - end of year ... 5,291,381 4,330,239
=========== ===========
Year ended March 31:
Earnings (loss) from continuing operations ........ $ (710,000) $ 793,000
Discontinued operations ........................... (374,000) (1,064,000)
Extraordinary loss ................................ - (971,000)
----------- -----------
Net loss .......................................... $(1,084,000) $(1,242,000)
=========== ===========
Basic earnings per common share:
Earnings (loss) from continuing operations ........ $ (.13) $ .18
Discontinued operations ........................... (.07) (.25)
Extraordinary loss ................................ .00 (.22)
----------- -----------
Net loss .......................................... $ (.20) $ (.29)
=========== ===========
Diluted Earnings Per Share:
Shares outstanding - beginning of period .......... 5,263,455 3,391,621
Weighted average number of common shares issued (1) 27,926 938,618
----------- -----------
Weighted average number of common
shares outstanding - end of period ........... 5,291,381 4,330,239
=========== ===========
Year ended March 31:
Earnings from continuing operations ............... $ (710,000) $ 793,000
Discontinued operations ........................... (374,000) (1,064,000)
Extraordinary loss ................................ - (971,000)
----------- -----------
Net loss .......................................... $(1,084,000) $(1,242,000)
=========== ===========
Basic earnings per common share:
Earnings (loss) from continuing operations ........ $ (.13) $ .18
Discontinued operations ........................... (.07) (.25)
Extraordinary loss ................................ .00 (.22)
----------- -----------
Net loss .......................................... $ (.20) $ (.29)
=========== ===========
</TABLE>
(1) Basic and diluted earnings (loss) per share has been computed using the
number of shares of common stock and common stock options and warrants
outstanding. The weighted average number of shares was based on common stock
outstanding for basic earnings (loss) per share and common stock outstanding and
common stock options and warrants for diluted earnings (loss) per share in
periods when such common stock options and warrants are not antidilutive.
52
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders
TALX Corporation:
We consent to incorporation by reference in registration statements No.
333-14619, No. 333-18389, No. 333-18393, and 333-47569 on Forms S-8 of TALX
Corporation of our report dated May 15, 1998, relating to the consolidated
balance sheets of TALX Corporation and subsidiaries as of March 31, 1997 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows, for each of the years in the three-year period ended
March 31, 1998, which report appears in the March 31, 1998 annual report on Form
10-K of TALX Corporation.
KPMG PEAT MARWICK LLP
St. Louis, Missouri
June 25, 1998
53
<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> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 2,879
<SECURITIES> 0
<RECEIVABLES> 8,500
<ALLOWANCES> 78
<INVENTORY> 1,452
<CURRENT-ASSETS> 13,692
<PP&E> 6,758
<DEPRECIATION> 2,802
<TOTAL-ASSETS> 24,121
<CURRENT-LIABILITIES> 4,613
<BONDS> 0
0
0
<COMMON> 53
<OTHER-SE> 19,455
<TOTAL-LIABILITY-AND-EQUITY> 24,121
<SALES> 21,273
<TOTAL-REVENUES> 21,273
<CGS> 11,109
<TOTAL-COSTS> 11,109
<OTHER-EXPENSES> 11,525
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> (1,126)
<INCOME-TAX> (416)
<INCOME-CONTINUING> (710)
<DISCONTINUED> (374)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,084)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
