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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the fiscal year ended
March 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period
from to
Commission File Number 000-21465
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TALX CORPORATION
(Exact name of registrant as specified in its charter)
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MISSOURI 43-0988805
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 BORMAN COURT, ST. LOUIS, MO 63146
(Address of principal executive offices) (Zip Code)
(314) 214-7000
(Registrant's telephone number,
including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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
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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, 1999, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $29,286,568. 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, 1999 there were 5,531,712 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 1999 Annual Meeting of Shareholders 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 future results,
performance, expectations, or intentions that may be considered forward looking
statements ("forward looking statements") within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. 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. Actual results could differ materially from those projected
in the forward looking statements as a result of risks facing the Company.
Factors that have affected, and in the future could affect, the Company's actual
results and could cause such results during fiscal 2000 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" herein below.
ITEM 1. BUSINESS
GENERAL
TALX Corporation ("TALX" or the "Company") provides employee self service
solutions utilizing interactive Web, interactive voice response ("IVR"), and
computer telephony ("CTI") software and services to human resource, benefits and
payroll functions of 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 employment and salary 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 service 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 service 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 employment and salary 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, or web session, 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, or the Internet, 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, have an electronic data interchange transaction sent or receive
the information via the Internet. 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 pre-authorized by such employee.
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The Work Number generates 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, 1999, employers had contracted for specified terms,
generally three years, to provide approximately 25.8 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.
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TOTAL NUMBER OF
EMPLOYMENT RECORDS(1)
(000'S)
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FISCAL QUARTER ON-LINE BACKLOG(2)
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1st Quarter 1996............................................ 273 181
2nd Quarter 1996............................................ 348 2,621
3rd Quarter 1996............................................ 2,378 1,486
4th Quarter 1996............................................ 3,237 2,130
1st Quarter 1997............................................ 4,034 1,705
2nd Quarter 1997............................................ 5,061 3,000
3rd Quarter 1997............................................ 5,682 4,250
4th Quarter 1997............................................ 7,017 3,621
1st Quarter 1998............................................ 7,764 3,622
2nd Quarter 1998............................................ 10,180 3,842
3rd Quarter 1998............................................ 11,755 4,754
4th Quarter 1998............................................ 13,115 4,019
1st Quarter 1999............................................ 14,332 4,981
2nd Quarter 1999............................................ 15,603 4,804
3rd Quarter 1999............................................ 16,540 6,906
4th Quarter 1999............................................ 18,285 7,546
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(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, benefits and payroll applications, which
include 401(k) plan administration, benefit plan enrollment and modification,
staffing, scheduling, time reporting and payroll. The Company is pursuing these
markets both through direct sales and through strategic marketing alliances with
providers of enterprise software applications. TALX entered into such alliances
with PeopleSoft, Inc. ("PeopleSoft") and SAP AG ("SAP"). Both PeopleSoft and SAP
are leading providers of enterprise-wide client/server business applications,
with PeopleSoft, similarly to the Company, being particularly well established
in human resource applications.
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Outsourced Services
The Company's outsourced services business provides tailored offsite
software and services to 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, or the Internet, 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 data
center in St. Louis. Customers are charged a set up fee as well as availability
and transaction-based fees.
Examples of the applications provided by the outsourced services business
include: employee benefit plan enrollment, 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 Microsoft's Windows NT and International Business Machine
Corporation's ("IBM's") OS/2 operating systems. 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, speech 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 runs on both Microsoft's Windows NT and IBM's
OS/2 operating systems. 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 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,
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reduce development time and simplify making changes or adding enhancements.
EasyScript is 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 self-service
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 server and
being networked to support over 240 lines. The NMS hardware is capable of
supporting up to 48 lines in a single server.
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 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, including natural speech recognition. The Company also anticipates
further enhancing its computer telephony integration ("CTI") capabilities for
human resources 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' human resources applications. 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 products are speech 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 $2.0 million in fiscal 1997, $2.6
million in fiscal 1998 and $2.0 million in fiscal 1999. The total product
development staff consisted of 23 full-time employees as of March 31, 1999. 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
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representatives also located in Atlanta, Bethesda, Chicago, Dallas, Connecticut,
Phoenix, San Francisco, and Virginia,. The sales force is comprised of regional
sales managers who are supported by product consultants, account managers 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.
BACKLOG
The Company's customer premises systems and outsourced services contracts
are generally delivered within one year of contract date. As of March 31, 1999
the Company had a backlog in these businesses of approximately $6 million.
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 alliance is with PeopleSoft.
The Company has a similar relationship with SAP.
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
self-service application suites that tie directly to PeopleSoft's human
resources, benefits and payroll applications.
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 has developed a benefits
enrollment application and a time reporting application that integrate with
SAP's software and intends to develop a suite of human resource, employee
benefits and payroll applications.
Future customer premises systems revenues will be dependent to a
significant extent on the installed base and 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 developed 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; R.E. Harrington, a Division of HealthPlan Services Inc.;
and The Frank Gates Companies. These organizations have over 600 large corporate
clients that are potential candidates for The Work Number. Of these,
approximately 15% are 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.
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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 or fiscal 1999. One client, Kaiser Permanente, represented
approximately 12% of revenues in fiscal 1997.
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 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 computer telephony (CT) system
hardware suppliers and systems integrators assembling systems from available
components. Companies offering competing CT systems include Edify Corporation,
InterVoice, Inc., Lucent Technologies, Inc. and Periphonics Corporation. The
Company's business is heavily dependent on sales to the human resources and
payroll departments of large organizations. 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, 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,
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."
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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 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 is a service mark 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."
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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. 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.
EMPLOYEES
As of March 31, 1999, the Company employed 215 full-time and 13 part-time
employees, in addition to the 48 full-time and 32 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."
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
Although the Company was profitable for the year ended March 31, 1999, the
Company had incurred net losses in each of the previous three fiscal years. The
Company's accumulated deficit as of March 31, 1999 was $3,432,000. 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
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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 continued profitability
of The Work Number, and general economic conditions. Operating results for
future periods are subject to numerous uncertainties, and there can be no
assurance that the Company will 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. 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.
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 can
recognize 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."
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, 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, 1999, employers had contracted to provide approximately 25.8 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.
Revenues from The Work Number are dependent, in part, on real estate mortgage
activity and the level of interest rates. In addition, revenues are dependent on
the cooperation of contracting employers in converting employment records to The
Work Number format and
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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, 1999. 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 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 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 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
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competes with employee benefit plan consulting firms and accounting firms,
including Hewitt Associates LLC, William M. Mercer Companies, Inc., Towers
Perrin, 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, these companies have decided to compete with the
Company in the interactive Web business. To date, the impact of such competition
has not been 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 and corporate
Intranets using 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
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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 Microsoft's
Windows NT and IBM's OS/2 operating systems. The Company is therefore dependent
upon the continued viability of Windows NT and upon Microsoft's support of the
Windows NT operating system and the continued viability of the OS/2 operating
system and upon IBM's continuing support for the OS/2 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 version of TALXWare utilizing 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 version of
TALXWare 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 version of TALXWare. Although the
Company is devoting significant resources to enhance this new product to be a
fully functional counterpart to the VP/2000-based version of TALXWare, 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 Microsoft Windows NT, IBM
OS/2 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
speech 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
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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
self-service 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 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
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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 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 center 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
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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
has not established an alternative disaster recover 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 42.2% of the
Company's outstanding Common Stock, based on available information regarding
their holdings as of June 1, 1999. 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
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 had been highly volatile and
could continue to 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
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Atlanta, Bethesda, Chicago, San Francisco and Phoenix 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 the Company's services. The Company
has not established an alternative 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 past two years.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ------ ------ ------
<S> <C> <C>
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
FISCAL 1999
First Quarter............................................. $ 5.94 $ 3.38
Second Quarter............................................ $ 7.25 $ 4.13
Third Quarter............................................. $ 5.88 $ 3.53
Fourth Quarter............................................ $ 7.25 $ 4.00
</TABLE>
The approximate number of holders of record of the Company's Common Stock
at June 1, 1999 was 109. 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.
18
<PAGE> 19
ITEM 6. SELECTED CONSOLIDATED 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,
---------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
The Work Number......................... $ 9,109 $ 4,270 $ 1,642 $ 453 $ 74
Outsourced services..................... 5,126 2,925 2,173 998 515
Customer premises systems............... 10,948 9,886 11,013 9,442 6,957
Maintenance and support................. 4,920 4,192 3,559 2,624 2,310
--------- --------- --------- --------- ---------
Total revenues....................... 30,103 21,273 18,387 13,517 9,856
--------- --------- --------- --------- ---------
Cost of revenues
The Work Number......................... 3,138 1,807 678 429 48
Outsourced services..................... 3,225 2,010 941 493 260
Customer premises systems............... 7,874 5,967 5,560 4,489 4,143
Maintenance and support................. 1,545 1,325 1,025 619 793
--------- --------- --------- --------- ---------
Total cost of revenues............... 15,782 11,109 8,204 6,030 5,244
--------- --------- --------- --------- ---------
Gross margin....................... 14,321 10,164 10,183 7,487 4,612
--------- --------- --------- --------- ---------
Operating expenses
Selling and marketing................... 8,339 7,952 5,902 4,084 2,854
General and administrative.............. 4,853 3,496 2,613 2,828 2,556
Restructuring charge.................... 496 -- -- -- --
--------- --------- --------- --------- ---------
Total operating expenses............. 13,688 11,448 8,515 6,912 5,410
--------- --------- --------- --------- ---------
Operating income (loss)............ 633 (1,284) 1,668 575 (798)
Other (income) expense, net............... (8) (158) 409 395 284
Income tax expense (benefit).............. 239 (416) 466 57 (328)
--------- --------- --------- --------- ---------
Earnings (loss) from continuing
operations.............................. 402 (710) 793 123 (754)
--------- --------- --------- --------- ---------
Discontinued operations:
Loss from discontinued operations,
net.................................. -- -- (164) (703) (410)
Loss on disposal of discontinued
operations, net...................... -- (374) (900) -- --
--------- --------- --------- --------- ---------
Loss from discontinued operations, net.... -- (374) (1,064) (703) (410)
--------- --------- --------- --------- ---------
Earnings (loss) before extraordinary
item.................................... 402 (1,084) (271) (580) (1,164)
Extraordinary item........................ -- -- (971) -- --
--------- --------- --------- --------- ---------
Net earnings (loss)....................... $ 402 $ (1,084) $ (1,242) $ (580) $ (1,164)
========= ========= ========= ========= =========
Basic and diluted earnings (loss) per
share(1):
Earnings (loss) from continuing
operations........................... $ .07 $ (.13) $ .18 $ .04
Loss from discontinued operations....... -- (.07) (.25) (.21)
Extraordinary item...................... -- -- (.22) --
--------- --------- --------- ---------
Net earnings (loss).................. $ .07 $ (.20) $ (.29) $ (.17)
========= ========= ========= =========
Weighted average number of shares
outstanding(1).......................... 5,519,435 5,291,381 4,330,239 3,391,621
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
AS OF MARCH 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments...... $ 267 $ 2,879 $ 5,801 $ 56 $ 27
Working capital...................... 8,316 9,079 13,351 (1,261) 183
Net assets of business held for
sale............................... 859 1,157 707 -- --
Total assets......................... 24,564 24,121 24,072 15,844 14,476
Notes payable to bank................ -- -- -- 4,243 2,654
Current installments of long-term
debt and obligations under capital
leases............................. -- -- 36 726 722
Long-term debt and obligations under
capital leases, less current
installments....................... -- -- -- 630 1,318
Stockholders' equity................. 20,095 19,508 20,403 5,038 5,610
</TABLE>
- ---------------
(1) Basic and diluted earnings (loss) per share have been computed using the
number of shares of common stock and common stock options and warrants
outstanding. The weighted average number of shares was based on common stock
outstanding for basic earnings (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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's revenues are derived from interactive Web, interactive voice
response (IVR), computer telephony integration (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.
The Company's customer premises systems business provides interactive Web,
IVR, 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. 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 Web and
interactive voice response 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
20
<PAGE> 21
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. The Company is actively marketing its database services business.
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)
--------------------------
YEARS ENDED MARCH 31, FISCAL 1999 FISCAL 1998
----------------------- OVER FISCAL OVER FISCAL
1999 1998 1997 1998 1997
----- ----- ----- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
The Work Number.......................... 30.3% 20.0% 8.9% 113.3% 160.0%
Outsourced services...................... 17.0 13.8 11.8 75.2 34.6
Customer premises systems................ 36.4 46.5 59.9 10.7 (10.2)
Maintenance and support.................. 16.3 19.7 19.4 17.4 17.8
----- ----- -----
Total revenues........................ 100.0 100.0 100.0 41.5 15.7
----- ----- -----
Cost of revenues:
The Work Number.......................... 10.4 8.5 3.7 73.7 166.5
Outsourced services...................... 10.7 9.5 5.1 60.4 113.6
Customer premises systems................ 26.2 28.0 30.2 32.0 7.3
Maintenance and support.................. 5.1 6.2 5.6 16.6 29.3
----- ----- -----
Total cost of revenues................ 52.4 52.2 44.6 42.1 35.4
----- ----- -----
Gross margin............................... 47.6 47.8 55.4 40.9 (0.2)
----- ----- -----
Operating expenses:
Selling and marketing.................... 27.8 37.4 32.1 4.9 34.7
General and administrative............... 16.1 16.4 14.2 38.8 33.8
Restructuring charge..................... 1.6 -- -- * --
----- ----- -----
Total operating expenses.............. 45.5 53.8 46.3 19.6 34.4
----- ----- -----
Operating income (loss).................... 2.1 (6.0) 9.1 * (177.0)
Other income (expense), net................ -- 0.7 (2.3) (94.9) *
----- ----- -----
Earnings (loss) from continuing operations
before income tax expense (benefit)...... 2.1 (5.3) 6.8 * (189.4)
Income tax expense (benefit)............... 0.8 (2.0) 2.5 * (189.4)
----- ----- -----
Earnings (loss) from continuing
operations............................... 1.3 (3.3) 4.3 * (189.5)
Discontinued operations, net............. -- (1.8) (5.8) * (64.8)
Extraordinary item......................... -- -- (5.3) * (100.0)
----- ----- -----
Net earnings (loss)........................ 1.3% (5.1)% (6.8)% * (12.7)
===== ===== =====
</TABLE>
- ---------------
* Not meaningful
21
<PAGE> 22
FISCAL YEARS ENDED MARCH 31, 1999 AND 1998
Revenues. Total revenues increased by 41.5%, from $21.3 million in fiscal
1998 to $30.1 million in fiscal 1999. Revenues from The Work Number increased by
113.3%, from $4.3 million in fiscal 1998 to $9.1 million in fiscal 1999, due to
the continued expansion of marketing to employers and verifiers on a nationwide
basis and an increase in the number of employment records, and related
transaction volume, on the system. Revenues from outsourced services increased
by 75.2%, from $2.9 million in fiscal 1998 to $5.1 million in fiscal 1999, due
to the Company capitalizing on the trend of some corporations to outsource their
non-core functions. Revenues from customer premises systems increased by 10.7%,
from $9.9 million in fiscal 1998 to $10.9 million in fiscal 1999. Management
believes that the revenue increase is due principally to the Company responding
better to Web opportunities in the marketplace. Revenues from maintenance and
support related to the customer premises systems increased by 17.4%, from $4.2
million in fiscal 1998 to $4.9 million in fiscal 1999, reflecting the support
provided to an increased installed base of customer premises systems.
Cost of Revenues. Total cost of revenues increased by 42.1%, from $11.1
million in fiscal 1998 to $15.8 million in fiscal 1999. Cost of revenues from
The Work Number increased 73.7%, from $1.8 million in fiscal 1998 to $3.1
million in fiscal 1999, due to the growth in revenues, offset by improved
leveraging of personnel and infrastructure costs. Cost of revenues from
outsourced services increased by 60.4%, from $2.0 million in fiscal 1998 to $3.2
million in fiscal 1999. The increase in cost is attributable to revenue growth,
offset by better leveraging of fixed labor and telephone and network
infrastructure costs. Cost of revenues from customer premises systems increased
by 32.0%, from $6.0 million in fiscal 1998 to $7.9 million in fiscal 1999. The
increase in costs is attributable to the increase in revenues and an increase in
labor costs. Cost of revenues from maintenance and support related to customer
premises systems increased by 16.6%, from $1.3 million in fiscal 1998 to $1.5
million in fiscal 1999, due to the growth in revenues.
Selling and Marketing Expenses. Selling and marketing expenses increased
4.9% from $8.0 million in fiscal 1998 to $8.3 million in fiscal 1999. As a
percentage of revenues, such expenses decreased from 37.4% in fiscal 1998 to
27.8% in fiscal 1999. The decrease in the expense as a percentage of revenues
reflects a better leveraging of selling and marketing costs as revenues
increased.
General and Administrative Expenses. General and administrative expenses
increased 38.8% from $3.5 million in fiscal 1998 to $4.9 million in fiscal 1999.
As a percentage of revenues, such expenses decreased from 16.4% in fiscal 1998
to 16.1% in fiscal 1999. The increase in such expenses reflects the increased
infrastructure costs of a growing workforce.
Restructuring Charge. During the quarter ended December 31, 1998, the
Company reorganized its sales and delivery operations and refocused its product
line, related to its customer premises systems line of business. In conjunction
with the reorganization, the Company reduced its workforce by approximately 8%
and closed certain regional sales offices. As a result of these actions, the
Company incurred restructuring charges of $318,000 related to employee severance
costs and $178,000 of other costs.
Other Income (Expense), net. Interest income decreased 76.8% from $237,000
in fiscal 1998 to $55,000 in fiscal 1999. The decrease is due to a lower average
level of invested funds during the year. Interest expense increased from $2,000
in fiscal 1998 to $57,000 in fiscal 1999, due to borrowings in the second half
of the fiscal year to expand and enhance the Company's data center and
infrastructure.
Income Tax Expense. The Company's effective income tax rate was 36.9% in
fiscal 1998 and 37.3% in fiscal 1999. See Note 9 of the Notes to Consolidated
Financial Statements.
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
22
<PAGE> 23
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.
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.
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.
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
2000. See Note 3 of the Notes to Consolidated Financial Statements.
23
<PAGE> 24
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statement of operations
data for each of the four quarters in fiscal 1998 and 1999, 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,
1997 1997 1997 1998 1998 1998 1998 1999
-------- --------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
The Work Number................... $ 777 $ 934 $ 1,151 $ 1,408 $ 1,719 $ 2,021 $ 2,518 $ 2,850
Outsourced services............... 575 895 1,043 412 952 1,441 1,791 941
Customer premises systems......... 3,074 3,178 2,376 1,258 2,806 2,425 2,843 2,875
Maintenance and support........... 994 1,012 1,022 1,164 1,274 1,326 1,133 1,187
------- ------- ------- ------- ------- ------- ------- -------
Total revenues.................. 5,420 6,019 5,592 4,242 6,751 7,213 8,285 7,853
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
The Work Number................... 308 416 496 587 664 700 871 902
Outsourced services............... 293 526 604 587 613 807 1,021 784
Customer premises systems......... 1,500 1,512 1,590 1,365 1,726 1,736 2,302 2,110
Maintenance and support........... 308 305 324 388 426 408 367 344
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues.......... 2,409 2,759 3,014 2,927 3,429 3,651 4,561 4,140
------- ------- ------- ------- ------- ------- ------- -------
Gross margin........................ 3,011 3,260 2,578 1,315 3,322 3,562 3,724 3,713
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Selling and marketing............. 1,875 1,869 1,848 2,360 2,224 2,353 2,091 1,670
General and administrative........ 766 756 916 1,058 1,052 1,245 1,209 1,348
Restructuring charge.............. -- -- -- -- -- -- 496 --
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses........ 2,641 2,625 2,764 3,418 3,276 3,598 3,796 3,018
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)............. 370 635 (186) (2,103) 46 (36) (72) 695
======= ======= ======= ======= ======= ======= ======= =======
Loss from discontinued operations,
net............................... -- -- -- (374) -- -- -- --
======= ======= ======= ======= ======= ======= ======= =======
Net earnings (loss)................. $ 283 $ 444 $ (132) $(1,679) $ 44 $ (3) $ (60) $ 422
======= ======= ======= ======= ======= ======= ======= =======
Basic and diluted earnings (loss)
per share:
Earnings (loss) from continuing
operations...................... $ .05 $ .08 $ (.02) $ (.25) $ .01 $ (.00) $ (.01) $ .08
Loss from discontinued operations... -- -- -- (.07) -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss)............... $ .05 $ .08 $ (.02) $ (.32) $ .01 $ (.00) $ (.01) $ .08
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1997 1997 1997 1998 1998 1998 1998 1999
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERCENT OF TOTAL REVENUES:
Revenues:
The Work Number................... 14.4% 15.5% 20.6% 33.2% 25.5% 28.0% 30.4% 36.3%
Outsourced services............... 10.6 14.9 18.6 9.7 14.1 20.0 21.6 12.0
Customer premises systems......... 56.7 52.8 42.5 29.7 41.5 33.6 34.3 36.6
Maintenance and support........... 18.3 16.8 18.3 27.4 18.9 18.4 13.7 15.1
------- ------- ------- ------- ------- ------- ------- -------
Total revenues.................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
The Work Number................... 5.7 6.9 8.9 13.8 9.8 9.7 10.5 11.5
Outsourced services............... 5.4 8.7 10.8 13.8 9.1 11.2 12.3 10.0
Customer premises systems......... 27.7 25.1 28.4 32.2 25.6 24.0 27.9 26.8
Maintenance and support........... 5.7 5.1 5.8 9.2 6.3 5.7 4.4 4.4
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues.......... 44.5 45.8 53.9 69.0 50.8 50.6 55.1 52.7
------- ------- ------- ------- ------- ------- ------- -------
Gross margin........................ 55.5 54.2 46.1 31.0 49.2 49.4 44.9 47.3
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses
Selling and marketing............. 34.6 31.1 33.0 55.6 32.9 32.6 25.2 21.2
General and administrative........ 14.1 12.6 16.4 25.0 15.6 17.3 14.6 17.2
Restructuring charge.............. -- -- -- -- -- -- 6.0 --
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses........ 48.7 43.7 49.4 80.6 48.5 49.9 45.8 38.4
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)............. 6.8 10.5 (3.3) (49.6) 0.7 (0.5) (0.9) 8.9
======= ======= ======= ======= ======= ======= ======= =======
Loss from discontinued operations,
net............................... -- -- -- (8.8) -- -- -- --
======= ======= ======= ======= ======= ======= ======= =======
Net earnings (loss)................. 5.2% 7.4% (2.3)% (39.6)% 0.7% (0.0)% (0.7)% 5.4%
======= ======= ======= ======= ======= ======= ======= =======
</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. 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 1999 over fiscal 1998, 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 were due principally to a lengthened sales cycle, as customers studied
the impact of incorporating web-based capabilities in their self-service
systems.
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
25
<PAGE> 26
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 2.97 to 1 and 2.86 to 1 at March 31,
1998 and 1999, respectively. The Company's working capital was $9.1 million and
$8.3 million at March 31, 1998 and 1999, respectively. Total working capital
decreased in fiscal 1999 due to investments in property and equipment and
capitalized software development costs, offset by the Company's net earnings.
The Company's accounts receivable increased from $8.4 million to $9.7
million from March 31, 1998 to 1999. The increase is due to increased revenues
in the fourth quarter of fiscal 1999 compared to 1998, offset by improved
account collections. As a percentage of the Company's total revenues for the
fourth quarter of each fiscal year, the accounts receivable at fiscal year-end
decreased from 199% at March 31, 1998, to 124% at March 31, 1999.
The Company's capital expenditures were $3.4 million in fiscal 1999. At
March 31, 1999, the Company had no significant capital spending or purchase
commitments other than normal purchase commitments and commitments under
facilities and operating leases.
During fiscal 1999, the Company expanded and enhanced its data center and
infrastructure. The Company utilized its line of credit to fund these
investments, with a maximum balance outstanding of $2.1 million during this
period. The line of credit was repaid by the end of the fiscal year, through
cash generated from operations.
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.
The Company has 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 decrease in capitalized software development costs was
$15,000 in fiscal 1999. See Notes 1 and 6 of Notes to Consolidated Financial
Statements. The Company intends to continue to make investments in its software
products at comparable levels in fiscal 2000.
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 utilizes 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
26
<PAGE> 27
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 review, replace and
upgrade its internal use information systems and non-information technology
systems to accommodate the Company's growth, improve productivity and remedy any
century compliance problems. The Company has substantially completed the
inventory phase for its hardware and purchased software. The assessment and
remediation stages were substantially complete by March 31, 1999. The costs of
remediation were included in the Company's normal capital budgets, and not
separately measured. Testing is targeted for completion by June 30, 1999. To a
large extent, the Company is dependent on its suppliers and their efforts. 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 a 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. The Company is also beginning the
development of a contingency plan, in the event some systems are not year 2000
compliant prior to the end of calendar 1999.
27
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ 30
Consolidated Balance Sheets as of March 31, 1999 and 1998... 31
Consolidated Statements of Operations for the years ended
March 31, 1999, 1998 and 1997............................. 32
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1999, 1998 and 1997................. 33
Consolidated Statements of Cash Flows for the years ended
March 31, 1999, 1998 and 1997............................. 34
Notes to Consolidated Financial Statements.................. 35
</TABLE>
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.
28
<PAGE> 29
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, 1998 and 1999, 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, 1999. 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, 1998 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
St. Louis, Missouri
May 14, 1999
29
<PAGE> 30
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 267 $ 2,879
Trade receivables, net.................................... 9,722 8,422
Inventories............................................... 1,262 1,452
Prepaid expenses and other current assets................. 1,299 754
Income tax refund receivable.............................. -- 14
Deferred tax assets, net.................................. 235 171
-------- --------
Total current assets................................... 12,785 13,692
Property and equipment, net................................. 5,856 3,956
Capitalized software development costs, net of amortization
of $3,089 in 1999 and $4,697 in 1998...................... 3,822 3,837
Net assets of business held for sale........................ 859 1,157
Deferred tax assets, net.................................... 1,021 1,324
Other assets................................................ 221 155
-------- --------
$ 24,564 $ 24,121
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,075 $ 1,778
Accrued expenses and other liabilities.................... 1,681 1,702
Progress billings in excess of work in progress........... 588 176
Deferred maintenance revenue.............................. 1,125 957
-------- --------
Total current liabilities.............................. 4,469 4,613
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000
shares and no shares issued or outstanding at March 31,
1999 and 1998.......................................... -- --
Common stock, $.01 par value; authorized 30,000,000
shares, issued and outstanding 5,505,017 shares at
March 31, 1999 and 5,316,032 shares at March 31,
1998................................................... 55 53
Additional paid-in capital................................ 23,478 23,225
Accumulated deficit....................................... (3,432) (3,770)
Treasury Stock, at cost, 948 shares at March 31, 1999..... (6) --
-------- --------
Total stockholders' equity............................. 20,095 19,508
-------- --------
$ 24,564 $ 24,121
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1999, 1998, AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
The Work Number....................................... $ 9,109 $ 4,270 $ 1,642
Outsourced services................................... 5,126 2,925 2,173
Customer premises systems............................. 10,948 9,886 11,013
Maintenance and support............................... 4,920 4,192 3,559
--------- --------- ---------
Total revenues..................................... 30,103 21,273 18,387
--------- --------- ---------
Cost of revenues:
The Work Number....................................... 3,138 1,807 678
Outsourced services................................... 3,225 2,010 941
Customer premises systems............................. 7,874 5,967 5,560
Maintenance and support............................... 1,545 1,325 1,025
--------- --------- ---------
Total cost of revenues............................. 15,782 11,109 8,204
--------- --------- ---------
Gross margin....................................... 14,321 10,164 10,183
--------- --------- ---------
Operating expenses:
Selling and marketing................................. 8,339 7,952 5,902
General and administrative............................ 4,853 3,496 2,613
Restructuring charge.................................. 496 -- --
--------- --------- ---------
Total operating expenses........................... 13,688 11,448 8,515
--------- --------- ---------
Operating income (loss)............................ 633 (1,284) 1,668
--------- --------- ---------
Other income (expense):
Interest income....................................... 55 237 151
Interest expense...................................... (57) (2) (438)
Other, net............................................ 10 (77) (122)
--------- --------- ---------
Total other income (expense), net.................. 8 158 (409)
--------- --------- ---------
Earnings (loss) from continuing operations before
income tax expense (benefit)..................... 641 (1,126) 1,259
Income tax expense (benefit)............................ 239 (416) 466
--------- --------- ---------
Earnings (loss) from continuing operations............ 402 (710) 793
--------- --------- ---------
Discontinued operations:
Loss from operations of discontinued operations, net
of income taxes.................................... -- -- (164)
Loss on disposal of discontinued operations, net of
income taxes....................................... -- (374) (900)
--------- --------- ---------
Loss from discontinued operations, net of income
taxes............................................ -- (374) (1,064)
--------- --------- ---------
Earnings (loss) before extraordinary item.......... 402 (1,084) (271)
Extraordinary item -- loss on extinguishment of debt,
net of income taxes................................... -- -- (971)
--------- --------- ---------
Net earnings (loss)................................ $ 402 $ (1,084) $ (1,242)
========= ========= =========
Basic and diluted earnings (loss) per share:
Earnings (loss) from continuing operations............ $ .07 $ (.13) $ .18
Loss from discontinued operations..................... -- (.07) (.25)
Extraordinary loss.................................... -- -- (.22)
--------- --------- ---------
Net earnings (loss)................................ $ .07 $ (.20) $ (.29)
========= ========= =========
Weighted average number of shares outstanding........... 5,519,435 5,291,381 4,330,239
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 32
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1999, 1998, AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
RETAINED
CONVERTIBLE PREFERRED STOCK ADDITIONAL EARNINGS TOTAL
------------------------------ COMMON PAID-IN (ACCUMULATED TREASURY STOCKHOLDERS'
SERIES A SERIES B SERIES C STOCK CAPITAL DEFICIT) STOCK EQUITY
-------- -------- -------- ------ ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Repurchase of 41,587 shares of
common stock................... -- -- -- -- -- -- (234) (234)
Issuance of 40,033 shares of
common stock and 10,855 shares
of treasury stock upon exercise
of stock options............... -- -- -- 1 134 (44) 56 147
Issuance of 31,470 shares of
common stock and 29,784 shares
of treasury stock under
employee stock purchase plan... -- -- -- -- 120 (20) 172 272
Issuance of 117,482 shares of
common stock upon exercise of
warrants....................... -- -- -- 1 (1) -- -- --
Net earnings..................... -- -- -- -- -- 402 -- 402
-------- -------- -------- ------ ------- ------- ----- -------
Balance at March 31, 1999........ $ -- $ -- $ -- $ 55 $23,478 $(3,432) $ (6) $20,095
======== ======== ======== ====== ======= ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 33
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1999, 1998, AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss).................................... $ 402 $ (1,084) $ (1,242)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization.......................... 3,071 2,556 2,519
Extraordinary item -- loss on extinguishment of debt... -- -- 971
Discontinued operations, net........................... 298 (450) 515
Deferred taxes......................................... 239 (651) (192)
Change in assets and liabilities:
Trade receivables................................... (1,300) 19 (4,550)
Inventories......................................... 190 (74) (171)
Work in progress, less progress billings, net....... 412 141 137
Prepaid expenses and other current assets........... (545) (20) (661)
Income tax refund receivable........................ 14 181 65
Other assets........................................ (66) 64 70
Accounts payable.................................... (703) 633 (353)
Accrued expenses and other liabilities.............. (21) 230 334
Deferred maintenance revenue........................ 168 (24) (8)
-------- -------- --------
Net cash provided by (used in) operating
activities..................................... 2,159 1,521 (2,566)
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of property and equipment........... -- -- 1,041
Additions to property and equipment.................... (3,399) (2,302) (1,550)
Capitalized software development costs................. (1,557) (2,294) (1,789)
Proceeds from maturity of short-term investments....... -- 4,117 --
Purchases of short-term investments.................... -- -- (4,117)
-------- -------- --------
Net cash used in investing activities............. (4,956) (479) (6,415)
-------- -------- --------
Cash flows from financing activities:
Change in notes payable to bank........................ -- -- (4,243)
Borrowings of subordinated notes payable and issuance
of warrants......................................... -- -- 4,000
Repayments on long-term debt........................... -- -- (667)
Repayment of subordinated notes payable................ -- -- (4,000)
Payments on capitalized lease obligations.............. -- (36) (209)
Issuance of common stock............................... 419 189 15,729
Repurchase of common and preferred stock............... (234) -- (1)
-------- -------- --------
Net cash provided by financing activities......... 185 153 10,609
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................... (2,612) 1,195 1,628
Cash and cash equivalents at beginning of year........... 2,879 1,684 56
-------- -------- --------
Cash and cash equivalents at end of year................. $ 267 $ 2,879 $ 1,684
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 34
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(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 integration ("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 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
and services 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 3 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) Inventories
Inventories are stated at the lower of cost (average) or market.
Inventories consist primarily of hardware and spare parts.
(e) Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation
and amortization. Depreciation is computed using straight-line and accelerated
methods over the estimated useful lives of the assets.
34
<PAGE> 35
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999 AND 1998
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.
(f) Product Development and Capitalized Software Development Costs
Product development costs are charged to operations as incurred. Software
development costs are expensed as incurred until technological feasibility is
achieved, after which they are capitalized on a product-by-product basis.
Amortization of capitalized software development costs is 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.
(g) 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. Prior to April 1, 1998, customer premises systems revenue was
generally recognized upon shipment of the system. For all transactions entered
into subsequent to April 1, 1998, the Company has adopted the American Institute
of CPA's Statement of Position 97-2 ("SOP 97-2"). Under SOP 97-2, the Company
recognizes hardware and software license revenue upon shipment. Revenues for
customization services are recognized by the contract method of accounting using
percentage of completion for larger, more complex systems and the completed
contract method for smaller systems. 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.
(h) Concentration of Credit Risk
The Company sells its software and services in a variety of industries. One
customer represented approximately 12% of revenues in fiscal 1997. No customer
represented over 10% of revenues in fiscal 1998 or 1999. 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.
(i) 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 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.
(j) 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
35
<PAGE> 36
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999 AND 1998
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.
(k) Stock Option Plans
The Company records stock-based compensation over the vesting period for
the difference between the quoted market price of an award at the date of grant
and the exercise price of the option, if any. The Company provides 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 had been
applied.
(l) 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 materially from those estimates.
(m) Net Earnings (Loss) Per Share
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share reflects
the incremental increase in common shares outstanding assuming the exercise of
all employee stock options and warrants that would have had a dilutive effect on
earnings per share. For all years presented, basic and diluted earnings per
share are the same. 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 is 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) RESTRUCTURING CHARGE
During the quarter ended December 31, 1998, the Company reorganized its
sales and delivery operations and refocused its product line, related to its
customer premises systems line of business. In conjunction with the
reorganization, the Company reduced its workforce by approximately 8% and closed
certain regional sales offices. As a result of these actions, the Company
incurred restructuring charges of $318,000 related to employee severance costs
and $178,000 of other costs. These items are reflected in the line item
"restructuring charge" on the statement of operations and $159,000 is reflected
in accrued expenses on the balance sheet at March 31, 1999.
(3) 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 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
36
<PAGE> 37
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999 AND 1998
for loss, net of tax, in the amount of $550,000 and $374,000, respectively. No
additional provision for loss was necessary as of March 31, 1999. The Company
anticipates disposition of the remaining operations through sale during fiscal
2000.
The Company has classified the database business 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, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
MARCH 31,
----------------
1999 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Current assets.............................................. $ 901 $1,392
Property and equipment, net................................. 407 650
Other assets................................................ 63 100
------ ------
Total assets.............................................. 1,371 2,142
Current liabilities, including provision for loss of $39 in
1999 and $400 in 1998..................................... 512 985
------ ------
Net assets of business held for sale........................ $ 859 $1,157
====== ======
</TABLE>
The results of operations for the discontinued businesses for the years
ended March 31, 1999, 1998, and 1997 were as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1999 1998 1997
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues.................................................... $4,075 $4,284 $ 8,633
====== ====== =======
Loss from discontinued operations........................... -- -- (260)
Income tax benefit.......................................... -- -- (96)
------ ------ -------
Loss from operations of discontinued operations........... -- -- (164)
------ ------ -------
Loss on disposal............................................ -- (592) (1,428)
Income tax benefit.......................................... -- (218) (528)
------ ------ -------
Loss on disposal, net....................................... -- (374) (900)
------ ------ -------
Net loss.................................................... $ -- $ (374) $(1,064)
====== ====== =======
</TABLE>
37
<PAGE> 38
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999 AND 1998
(4) TRADE RECEIVABLES
Trade receivables consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
----------------
1999 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Billed receivables.......................................... $6,708 $6,581
Unbilled receivables........................................ 3,169 1,919
------ ------
9,877 8,500
Less allowance for doubtful accounts........................ 155 78
------ ------
$9,722 $8,422
====== ======
</TABLE>
Billings to customers are made in accordance with the terms of the
individual contracts.
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
RANGE OF
ESTIMATED MARCH 31,
USEFUL LIVES ------------------
(IN YEARS) 1999 1998
------------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computer equipment........................................ 3-5 $ 5,724 $ 4,401
Office furniture and equipment............................ 5-10 1,310 931
Leasehold improvements.................................... 3-10 3,138 1,426
------- -------
10,172 6,758
Less accumulated depreciation and amortization............ 4,316 2,802
------- -------
$ 5,856 $ 3,956
======= =======
</TABLE>
(6) PRODUCT DEVELOPMENT AND CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Product development and capitalized software development costs for the
years ended March 31, 1999, 1998, and 1997 were as follows:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Product development costs incurred.......................... $ 2,145 $ 2,615 $ 2,015
Additions to capitalized software development costs......... (1,557) (2,293) (1,789)
------- ------- -------
Product development costs charged to general and
administrative expenses................................... $ 588 $ 322 $ 226
======= ======= =======
Amortization of capitalized software development costs...... $ 1,524 $ 1,558 $ 1,161
======= ======= =======
</TABLE>
38
<PAGE> 39
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999 AND 1998
(7) ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities for the years ended March 31, 1999
and 1998 consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued compensation and benefits........................... $ 736 $ 637
Other....................................................... 945 1,065
------- -------
$ 1,681 $ 1,702
======= =======
</TABLE>
(8) 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.
The Company has 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
are secured by accounts receivable and inventory. During the fiscal year ended
March 31, 1999, the average outstanding borrowings under this facility were
$604,000, with a maximum balance outstanding of $2.1 million.
(9) LEASES
The Company has noncancellable operating leases, primarily for office space
and office equipment, that expire through 2004 and provide for purchase or
renewal options.
Total rent expense for operating leases, including contingent rentals, was
$932,000, $708,000, and $578,000 in 1999, 1998 and 1997, respectively.
Future minimum lease payments under noncancellable operating leases as of
March 31, 1999 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fiscal Year:
2000...................................................... $1,070
2001...................................................... 991
2002...................................................... 935
2003...................................................... 576
2004...................................................... 30
------
Total minimum lease payments........................... $3,602
======
</TABLE>
39
<PAGE> 40
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999 AND 1998
(10) INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current -- federal.......................................... $ -- $ -- $ --
Deferred:
Federal................................................... 209 (383) 428
State and local........................................... 30 (33) 38
------- ------- -------
Income tax expense (benefit) before discontinued
operations........................................... 239 (416) 466
Discontinued operations..................................... -- (218) (624)
Extraordinary loss.......................................... -- -- (209)
------- ------- -------
Total income tax expense (benefit)..................... $ 239 $ (634) $ (367)
======= ======= =======
</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,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)................... $ 218 $ (383) $ 428
Increase (decrease) in income taxes resulting from:
State and local income taxes, net of federal income tax
benefit................................................ 20 (22) 25
Other, net................................................ 1 (11) 13
------- ------- -------
$ 239 $ (416) $ 466
======= ======= =======
</TABLE>
40
<PAGE> 41
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999 AND 1998
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 31,
1999 and 1998 are presented below:
<TABLE>
<CAPTION>
MARCH 31,
------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 115 $ 137
Valuation allowance on inventory.......................... 27 94
Accrual for compensated absences.......................... 40 42
Accrual for loss on discontinued operations............... 14 148
Differences in depreciation............................... 41 92
Restructuring charge and other reserves................... 160 --
Net operating loss and tax credit carryforwards........... 2,308 2,501
------- -------
Total deferred tax assets.............................. 2,705 3,014
------- -------
Deferred tax liabilities:
Differences in capitalized software development cost
methods................................................ 1,414 1,419
Differences in expense recognition methods................ 20 43
Differences in depreciation and amortization.............. 15 57
------- -------
Total deferred tax liabilities......................... 1,449 1,519
------- -------
Net deferred tax assets................................ $ 1,256 $ 1,495
======= =======
</TABLE>
In assessing the realization of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. 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 $3,400,000 prior to the expiration of the
net operating loss carryforwards in 2013. Taxable income (loss) of TALX for the
years ended March 31, 1999, 1998, and 1997 was $425,000, $(3,294,000) and
$(608,000), 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, 1999, the Company has net operating loss carryforwards for
federal income tax purposes of $6,062,000, 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 and
general business credit carryforwards of approximately $53,000, which are
available to reduce future federal regular income taxes, if any, over an
indefinite period.
(11) STOCKHOLDERS' EQUITY
TALX has adopted two incentive stock option plans for employees which
provide for the issuance of a maximum of 990,000 shares of common stock. Options
are granted by the Board of Directors at prices not less
41
<PAGE> 42
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999 AND 1998
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 to 10
years after the date of the grant.
Activity under the plans for the three years ended March 31, 1999 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------- --------------
<S> <C> <C>
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
Granted -- 1999............................................. 319,000 5.56
Canceled -- 1999............................................ (73,514) 5.49
Exercised -- 1999........................................... (53,743) 3.52
-------
Outstanding at March 31, 1999............................... 550,204 $5.22
=======
</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 outstanding
amount to 6,000 and 12,000 at March 31, 1998 and 1999, respectively.
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 1998 consistent with the provisions of
SFAS No. 123, the Company's net earnings (loss) and net earnings (loss) per
share would have been impacted by an immaterial amount (less than $.01 per
share) in each year. The effect for fiscal 1999 would be to reduce net earnings
by $235,000 or $.04 per share, based on the weighted average fair value of
options granted of $3.10 per option.
42
<PAGE> 43
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1999 AND 1998
The Company made calculations under SFAS No. 123 reflecting only options
granted in fiscal 1997, 1998 and 1999. 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 to 10 years and compensation cost for options
granted prior to April 1, 1995 is not considered. The fair value of option
grants for fiscal 1999, 1998 and 1997 is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: expected volatility of 65%, 85% and 65% in fiscal 1999, 1998 and
1997, respectively; risk-free interest rate of 5.00%, 6.19% and 6.44% in fiscal
1999, 1998 and 1997, respectively; expected life of 4.5 years for 1999, and six
years for 1998 and 1997; and an expected dividend yield of 0.0% in all periods.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ---------------------------
WEIGHTED AVERAGE
REMAINING WEIGHTED WEIGHTED
NUMBER OF CONTRACTUAL LIFE AVERAGE NUMBER OF AVERAGE
RANGE OF EXERCISE PRICE SHARES (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
- ----------------------- --------- ---------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$3.85 -- 4.50................ 195,575 1.5 $4.03 148,555 $4.07
$4.51 -- 5.38................ 94,000 8.8 $4.99 600 $5.13
$5.39 -- 6.00................ 103,500 8.9 $5.51 3,000 $6.00
$6.01 -- 6.99................ 107,500 9.8 $6.25 0 $0.00
$7.00 -- 7.99................ 61,629 3.3 $7.06 28,275 $7.13
------- -------
562,204 180,430
======= =======
</TABLE>
During fiscal 1997, 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, 1999, there were 200,000 shares of common stock reserved for the ESPP
with 61,254, 34,901 and 3,285 shares issued in fiscal 1999, 1998 and 1997,
respectively.
(12) 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.
(13) EMPLOYEE BENEFIT PLAN
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 plan, subject to ERISA limitations, up to 2% of employees' earnings. Total
expense under the plan for the years ended March 31, 1999, 1998, and 1997 was
$197,000, $146,000, and $100,000, respectively.
(14) 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.
(15) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest totaled $57,000, $2,000, and
$438,000 for the years ended March 31, 1999, 1998, and 1997, respectively.
43
<PAGE> 44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
44
<PAGE> 45
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 1999 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 1999 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 Beneficial
Owners," included in the Proxy Statement for the 1999 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 1999 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.
45
<PAGE> 46
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
/s/ WILLIAM W. CANFIELD
By:
--------------------------------------
Chairman, President, Chief
Executive Officer and Director
Date: June 28, 1999
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>
<C> <S> <C>
/s/ WILLIAM W. CANFIELD Chairman, President, Chief June 28, 1999
- --------------------------------------------- Executive Officer and Director
William W. Canfield (Principal Executive Officer)
/s/ RICHARD F. FORD Director June 28, 1999
- ---------------------------------------------
Richard F. Ford
/s/ CRAIG E. LABARGE Director June 28, 1999
- ---------------------------------------------
Craig E. LaBarge
/s/ EUGENE M. TOOMBS Director June 28, 1999
- ---------------------------------------------
Eugene M. Toombs
/s/ M. STEVE YOAKUM Director June 28, 1999
- ---------------------------------------------
M. Steve Yoakum
/s/ CRAIG N. COHEN Chief Financial Officer (Principal June 28, 1999
- --------------------------------------------- Financial Officer and Principal
Craig N. Cohen Accounting Officer)
</TABLE>
46
<PAGE> 47
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
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 Intentionally Omitted
10.6* TALX Corporation Outside Directors' Stock Option Plan ++
10.7***** Form of Director Stock Option Agreement
10.8 Intentionally Omitted
10.9 Intentionally Omitted
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
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 Intentionally Omitted
10.21*** Employment Agreement between TALX Corporation and Mr.
Canfield ++
</TABLE>
47
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
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
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
</TABLE>
- ---------------
* 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)
***** Incorporated by reference to exhibit with corresponding number to the
Company's Annual Report on Form 10-K for the year ended March 31, 1998
(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.
48
<PAGE> 1
EXHIBIT 10.25
TALX CORPORATION 600784-1100689
LINE OF CREDIT NOTE
St. Louis, Missouri
$5,000,000.00 and interest April 1, 1999
On Demand, and if no demand be made, then on the 1st day of April, 2000,
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 00/100 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 to 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 five percentage points (5%) 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 rate.
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 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 TALX 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. If
any payment of principal or interest under this Note is not paid within thirty
(30) days after the payment is due, then the Undersigned shall pay to Bank a
late charge of ten percent (10%) of such payment, but in any event not less
than Ten Dollars ($10.00).
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 under-
signed to Bank or to any other party, and the continuation of such default
following applicable notice and cure rights, if any, or if any instrument,
document, agreement or guaranty delivered in connection with any of the
indebtedness evidenced by this note or otherwise owed to Bank, shall not be, or
shall cease to be, enforceable in accordance with its terms or be contested by
any obligor thereunder, 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. Further-
more, 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 and
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 hereby
waives presentment, protest, demand, notice of dishonor or default and consents
to any and all renewals, extensions, and/or other release of
<PAGE> 2
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 without regard
to conflict of law principles 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.
All payments hereunder shall be made in immediately available funds by 1:00 p.m.
St. Louis, Missouri time on the day when due. If any payment of principle or
interest on this note, shall become due on a Saturday, Sunday or any day on
which the Bank is legally closed to business, such payment shall be made on the
next succeeding business day and such extension of time shall be included in
computing interest in connection with such payment.
The rights and remedies of the Bank under this note are cumulative and are
not in lieu of, but are in addition to any other rights or remedies which the
Bank shall have under any other instrument, or at law or in equity.
THE UNDERSIGNED HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE COURT
LOCATED WITHIN THE CITY OF ST. LOUIS OR ST. LOUIS COUNTY, MISSOURI OR FEDERAL
COURT IN THE EASTERN DISTRICT OF MISSOURI, EASTERN DIVISION. THE UNDERSIGNED
WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST
IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE. THE UNDERSIGNED FURTHER AGREES NOT TO ASSERT AGAINST THE
BANK (EXCEPT BY WAY OF A DEFENSE OR COUNTERCLAIM IN A PROCEEDING INITIATED BY
THE BANK) ANY CLAIM OR OTHER ASSERTION OF LIABILITY WITH RESPECT TO THIS NOTE,
THE BANK'S CONDUCT OR OTHERWISE IN ANY JURISDICTION OTHER THAN THE FOREGOING
JURISDICTIONS.
THE UNDERSIGNED HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY (WHICH THE BANK
ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING
OUT OF OR RELATING TO THIS NOTE, THE OBLIGATIONS OF THE UNDERSIGNED HEREUNDER OR
THE BANK'S CONDUCT IN RESPECT OF ANY OF THE FOREGOING.
The following notice is given pursuant to Section 432.045 of the Missouri
Revised Statutes; nothing contained in such notice shall be deemed to limit or
modify the terms of this note. 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, 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 this note and acknowledgment
receipt of a copy of note.
TALX CORPORATION
By: /s/ William W. Canfield
--------------------------------
WILLIAM W. Canfield, President
Address: 1850 Borman Ct.
St. Louis , MO 63146-4126
<PAGE> 1
EXHIBIT 11.1
TALX CORPORATION AND SUBSIDIARIES
Statement Regarding Computation of Earnings Per Share
Years Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Basic Earnings Per Share:
Actual shares outstanding - beginning of year ...................... 5,316,032 5,263,455
Weighted average number of common shares issued .................... 85,313 27,926
---------- -----------
Weighted average number of common - end of year .................... 5,401,345 5,291,381
========== ===========
Year ended March 31:
Earnings (loss) from continuing operations ......................... $ 402,000 $ (710,000)
Discontinued operations ............................................ -- (374,000)
---------- -----------
Net loss ...................................................... $ 402,000 $(1,084,000)
========== ===========
Basic earnings per common share:
Earnings (loss) from continuing operations ......................... $ .07 $ (.13)
Discontinued operations ............................................ -- (.07)
---------- -----------
Net loss ...................................................... $ .07 $ (.20)
========== ===========
Diluted Earnings Per Share:
Shares outstanding - beginning of period ........................... 5,316,032 5,263,455
Weighted average number of common shares issued (1) ................ 203,403 27,926
---------- -----------
Weighted average number of common shares outstanding - end of period 5,519,435 5,291,381
========== ===========
Year ended March 31:
Earnings from continuing operations ................................ $ 402,000 $ (710,000)
Discontinued operations ............................................ -- (374,000)
---------- -----------
Net loss ...................................................... $ 402,000 $(1,084,000)
========== ===========
Basic earnings per common share:
Earnings (loss) from continuing operations ......................... $ .07 $ (.13)
Discontinued operations ............................................ -- (.07)
---------- -----------
Net loss ...................................................... $ .07 $ (.20)
========== ===========
</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.
<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 14, 1999, relating to the consolidated
balance sheets of TALX Corporation and subsidiaries as of March 31, 1998 and
1999, 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, 1999, which report appears in the March 31, 1999 annual report on Form
10-K of TALX Corporation.
KPMG LLP
St. Louis, Missouri
June 28, 1999
<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-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 267
<SECURITIES> 0
<RECEIVABLES> 9,877
<ALLOWANCES> 155
<INVENTORY> 1,262
<CURRENT-ASSETS> 12,785
<PP&E> 10,172
<DEPRECIATION> 4,316
<TOTAL-ASSETS> 24,564
<CURRENT-LIABILITIES> 4,469
<BONDS> 0
0
0
<COMMON> 55
<OTHER-SE> 20,040
<TOTAL-LIABILITY-AND-EQUITY> 24,564
<SALES> 30,103
<TOTAL-REVENUES> 30,103
<CGS> 15,782
<TOTAL-COSTS> 15,782
<OTHER-EXPENSES> 13,678
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> 641
<INCOME-TAX> 239
<INCOME-CONTINUING> 402
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 402
<EPS-BASIC> .07
<EPS-DILUTED> .07
</TABLE>
