ITEM 1. BUSINESS
GENERAL
TALX Corporation ("TALX" or the "Company") designs and implements interactive communications solutions using technology such as interactive web and interactive voice response, primarily for many Fortune 500 and other large organizations other than telephone service providers. The Company's interactive communications solutions enable an organization's employees, customers, vendors and business partners ("Users") to access, input and update information without human assistance. The Company's solutions enhance service levels, improve productivity and reduce costs by enabling Users to perform self-service transactions using interactive communications technologies that employ computer telephony to integrate technologies such as interactive voice response ("IVR"), facsimile, e-mail, Internet and corporate Intranet. 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"), which is a national service providing automated access to information from multiple organizations. The Work Number provides automated employment verification to mortgage lenders and other verifiers. Using The Work Number, verifiers are able to confirm employment information regarding participating employers' current and former employees, including their past three years of salary history. The Work Number reduces an employer's cost of providing this information and at the same time increases the timeliness and accuracy of the delivery of such information to mortgage lenders and other verifiers.
Tailored interactive communications solutions are offered by TALX to its customers either as systems for installation on customers' premises or on an outsourced services basis. The Company has provided tailored interactive communications systems for installation at customers' premises since the early 1980s and has shipped over 650 systems to over 375 customers during the last six years. In 1993, the Company introduced its outsourced services business which allows a customer to realize the benefits of an interactive communications system without incurring the administrative or maintenance responsibilities of operating such a system. For outsourced services customers, the Company maintains the customer's database on a system at the Company's facilities, where incoming requests for access to the information are received.
In addition to providing interactive communications systems, 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.
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.
SERVICES AND PRODUCTS
The Work Number
In early 1995, the Company introduced a "branded" service, The Work Number for Everyone(R) ("The Work Number"), which is a national service providing automated access to information from multiple organizations. The Work Number provides automated employment verification to mortgage lenders and other verifiers. Using The Work Number, verifiers are able to confirm employment information regarding participating employers' current and former employees, including their past three years of salary history. The Work Number reduces an employer's cost of providing this information and at the same time increases the timeliness and accuracy of the delivery of such information to mortgage lenders and other verifiers. For most organizations, the process of handling these requests is cumbersome and requires implementation of procedures unrelated to an employer's line of business. In addition, requests can be disruptive and divert employer resources in order to respond to telephone calls and written requests for employment information. The Work Number reduces an employer's cost of providing this information.
For mortgage lenders and other verifiers, The Work Number represents a fast and accurate way to verify both employment and salary information in one telephone call, thereby accelerating their underwriting process and reducing their verification cost. Additionally, The Work Number reduces the opportunity for fraud in the loan application process, as the applicant's employment and salary information is provided to verifiers by a source less susceptible to fraud. The traditional employment verification process requires the employee to provide a verifier with paper documents such as W-2 forms, tax returns or paycheck stubs, which in the era of desktop publishing and high quality laser printers may be susceptible to forgery, thus increasing the risk of fraud. However, the Company believes The Work Number reduces this risk by removing the need to rely on documents that may be supplied directly or indirectly by the employee. Verifiers using The Work Number receive employment verification directly from an electronic database which contains records provided by the employer. Due to the national scope of The Work Number, mortgage lenders can obtain employment information from a standard source as opposed to a number of different sources, with respect to employees of participating employers.
Utilizing a 1-800 telephone number, subscribing verifiers can choose to hear the verification information voiced back immediately, have the complete set of information faxed directly to them at their office or have an electronic data interchange ("EDI") transaction sent. For non-subscribing verifiers, verification information is available through an AT&T business 1-900 telephone number. An employee's salary information is designed to be available for access only to those who have been preauthorized by such employee.
The Work Number provides revenues primarily from fees charged to mortgage lenders and other verifiers for verification of employment history and salary information and, to a lesser extent, from employer conversion and ongoing maintenance fees.
As of March 31, 1997, 139 employers had contracted for specified terms, generally three years, to provide approximately 10.6 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.
Total Number of Employment Records(1) (000's) -------------------------------- Total Number of Fiscal Quarter Employers On-line Backlog(2) ---------------- --------------- --------------- ---------------
1st Quarter 1996 5 273 181 2nd Quarter 1996 15 348 2,621 3rd Quarter 1996 40 2,378 1,486 4th Quarter 1996 61 3,237 2,130 1st Quarter 1997 69 4,034 1,705 2nd Quarter 1997 93 5,061 3,000 3rd Quarter 1997 117 5,682 4,250 4th Quarter 1997 139 7,017 3,621
---------------
(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.
In late calendar 1996, the Company established a pilot program in the State of Texas, to provide automated public assistance verifications, as an extension of The Work Number. The Company has begun to market this extension of The Work Number to states and employers on a national basis.
Tailored Solutions
Tailored solutions are offered by TALX to its customers, primarily Fortune 500 and other large organizations, either as systems for installation on customers' premises or on an outsourced services basis. The Company has established the broad utility of its interactive communications solutions for complex business problems in a wide variety of industries. The Company believes it is a leader in providing such solutions for human resource applications, which include 401(k) plan administration, benefit plan enrollment and modification, staffing, scheduling and payroll. The Company has targeted two additional applications categories usable by a broad range of businesses regardless of the industry in which they operate (i.e., horizontal application segments): financial applications (e.g., status inquiry for accounts payable or accounts receivable) and distribution/logistics applications (e.g., order entry and inventory status). The Company is pursuing each of these horizontal marketing initiatives both through direct sales and through strategic marketing alliances with providers of enterprise software applications. TALX entered into such an alliance with PeopleSoft, Inc. ("PeopleSoft") in 1993. More recently, it has entered into similar alliances with Oracle Corporation ("Oracle") and SAP AG ("SAP"). All three are leading providers of enterprise-wide client/server business applications, with PeopleSoft, similarly to the Company, being particularly well established in human resource applications. The Company has also developed and markets specialized implementations of its products targeted at specific industries (i.e., vertical market segments) such as health care (e.g., prescription refill and appointment scheduling and cancellation) and financial services (e.g., account balance inquiry, funds transfer and credit card balance inquiry).
Outsourced Services
The Company's outsourced services business provides tailored offsite interactive communications services to Fortune 500 and other large organizations. In 1993, the Company introduced its outsourced services business, which allows a customer to realize the benefits of an interactive communications system without incurring the administrative or maintenance
burdens of operating such a system. Using a 1-800 telephone number, Users are able to perform self-service transactions, access information and manipulate data stored in the Company's interactive communications systems located at the Company's headquarters in St. Louis. Customers are charged a one-time set up fee as well as availability and transaction-based fees.
Examples of the applications provided by the outsourced services business include: benefit plan enrollment, receipt and validation of voting with respect to employee benefit plan amendments, job posting and self-nomination process and collection of time, attendance and labor data.
Customer Premises Systems
The Company has provided tailored interactive communications solutions for installation at customers' premises since the early 1980s, and has shipped over 650 systems to over 375 customers during the last six years. 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 interactive communications solutions. TALXWare runs on Intel-based hardware platforms using International Business Machine Corporation's ("IBM's") OS/2 operating system. The Windows NT operating system will be supported beginning in fiscal 1998. 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 solutions 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 voice recognition, text-to-speech, facsimile, e-mail and client/server database interfaces to be used in creating interactive communications solutions. The Company's interactive communications 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 interactive communications solutions. TALXWare currently runs on IBM's OS/2 operating system. The Windows NT operating system is expected to be supported beginning in fiscal 1998. 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 customers to create, modify and maintain interactive communications 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 interactive communications 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 interactive communications technologies. Allowing all devices to share a common set of centralized business rules can leverage software development across the enterprise, reduce development time and simplify making changes or adding enhancements. EasyScript is optional and licensed on a per server basis.
TALXWare Runtime. The TALXWare Runtime software is licensed on a concurrent user basis and is a required component of each TALX interactive communications solution. The functions incorporated into the TALXWare Runtime software include the management of interactive communications applications, physical resources and network connections,
as well as tracking and compiling operating statistics, facilitating operations and storing configuration settings. These features simplify the development of interactive communications solutions 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 interactive communications solution. TALXWare runs on open, standard Intel-based PCS and uses both NMS and TALX proprietary CT processing hardware (the "VP/2000"). The VP/2000 uses industry standard components such as Intel processors and Texas Instrument digital signal processors ("DSPs") and is capable of supporting 48 simultaneous users ("lines") in a single system and being networked to support over 240 lines. The NMS hardware is capable of supporting 24 lines in a single system.
The Company does not manufacture or perform significant modifications on any hardware components. Rather, the Company's hardware production consists primarily of final assembly and quality-control testing of materials, components, subassemblies and systems.
Product Development
The Company's current development efforts are directed with a view to enhancing its current products, providing a Microsoft Windows NT version of its TALXWare software and developing new products. The new products are directed at the markets served by the Company's strategic marketing allies as well as offering enhanced functionality to its existing human resources, benefits and payroll markets. Anticipated future enhancements include extending the features and capabilities of the Company's interactive web software solutions and introducing a kiosk-based product. The Company also anticipates further enhancing its computer telephony integration ("CTI") capabilities for call centers. For the markets served by the Company's strategic marketing allies who offer enterprise-wide client/server applications, the Company plans to continue to introduce complementary product suites to more tightly integrate and facilitate interaction between the TALX solution and the allies' business applications. More specifically, for distribution to PeopleSoft customers, the Company has recently developed financial applications (e.g., accounts payable and accounts receivable) and for SAP customers, intends to develop distribution/logistic applications (e.g., order entry, order status and product information). In particular, the Company intends to develop a suite of applications to integrate with SAP's oil and gas industry solution called "IS/Oil." The Company intends to develop similar offerings for distribution to PeopleSoft, SAP and Oracle customers. 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 enhancement technologies into the products it develops and seeks to provide "best-of-class" technologies to its customers. Some of the interactive 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 voice recognition, text-to-speech, facsimile, e-mail and client/server database interfaces to be used in creating interactive communications solutions. In fiscal 1997, the Company became a reseller for IBM's CallPath and TADS CTI server software. See "Risk Factors -- Risks Associated with Technological Change" for additional risks associated with the Supplier Agreements.
Product development costs incurred were $1.5 million in fiscal 1995, $1.9 million in fiscal 1996 and $2.0 million in fiscal 1997. The total product development staff consisted of 25 full-time employees as of March 31, 1997. The Company believes that significant investments in product development are required to remain competitive.
See "Risk Factors -- Risks Associated with Rapid Technological Change."
MARKETING
The Company's marketing strategy is to focus on targeted markets through a direct sales force in conjunction with strategic marketing alliances. The Company's direct sales force is based in St. Louis with representatives also located in Atlanta, Bethesda, Chicago, Massachusetts, New Jersey, Phoenix, San Francisco, and London, England and is organized into two sales regions. The sales force for each region is comprised of sales managers who are supported by product consultants, client service representatives and business development representatives. Historically, the direct sales force was responsible for selling all of the Company's interactive communications 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.
To complement its direct sales efforts, the Company has established a distributor relationship with Kronos Incorporated ("Kronos"). Kronos engineers, manufactures and distributes integrated hardware and software systems that process information designed to increase productivity in the workplace. Kronos products that are applicable to the Company are centered on the capturing and processing of time and attendance information. The Company provides a packaged interactive communications solution to Kronos for resale.
The Company believes an opportunity exists to expand sales and marketing efforts in certain international markets. See "Risk Factors -- Risks Associated with Increased International Sales." The Company has established strategic marketing alliances with worldwide providers of client/server business application software, which include PeopleSoft, Oracle and SAP. See "-- Strategic Marketing Alliances." Further, the Company recently introduced its new TALXWare platform (NMS-based) to include support for an internationally available CT board.
STRATEGIC MARKETING ALLIANCES
An integral part of the Company's interactive communications strategy is to develop and maintain alliances with companies producing complementary software products in order to obtain customer referrals and introductions, increase market exposure and reduce delivery time and costs. These companies generally represent major software suppliers that offer enterprise-wide business application software to the Company's markets. The Company's most established enterprise-wide alliance is with PeopleSoft. In the last year, the Company has entered into similar relationships with SAP and Oracle.
PeopleSoft, Inc.: As one of the leading companies that has designed enterprise-wide client/server business applications, PeopleSoft markets worldwide client/server applications for human resources, payroll, financials, manufacturing and distribution through industry business units such as federal government, health care, financial services and retail. Focusing on the human resources, benefits and payroll markets, TALX entered into a cooperative marketing relationship with PeopleSoft. TALX creates interactive application suites that tie directly to PeopleSoft's core business applications. The first suite focused on the PeopleSoft human resources, benefits and payroll applications. PeopleSoft has followed with client/server applications for other areas of the enterprise. Similar to the human resources suite, TALX has introduced a financial suite and plans to introduce a distribution suite, for implementation at PeopleSoft clients.
SAP AG: As a leading global provider of client/server business application solutions, SAP is one of the largest and fastest growing enterprise-wide software application suppliers of products for financial accounting, human resources and manufacturing. The Company intends to develop a suite of applications to integrate with SAP's oil and gas industry solution called "IS/Oil."
Oracle Corporation: One of the world's largest suppliers of database software, Oracle offers a multimedia relational database and client/server application products for financial accounting, human resources and manufacturing.
Future customer premises systems revenues will be dependent to a significant extent on the market success of companies
with which the Company maintains strategic market alliances and the effectiveness of the alliances. These strategic marketing alliances are generally reflected by non-exclusive contractual arrangements that are terminable at will. The success of the Company is dependent on the interest and commitment of these companies to promote and coordinate product development and marketing efforts with the Company, which is entirely at the discretion of these companies. These companies maintain similar relationships with certain of the Company's competitors. See "Risk Factors -- Dependence on Strategic Marketing Alliances."
CUSTOMERS
Application solutions are tailored to meet specific customer needs for interactive communications services. The Company's strategy focuses on specific interactive applications within large corporations and institutions. Since 1992, the Company has installed over 650 systems for over 375 customers, many of which are Fortune 500 firms. No single customer of the Company represented 10% or more of the Company's interactive communications business revenues in fiscal 1995. One customer, Kaiser Permanente, represented approximately 14% and 12% of revenues in fiscal 1996 and 1997, respectively.
PROFESSIONAL SERVICES AND SUPPORT
The Company believes that achieving a high level of customer satisfaction is critical to its long-term success. The Company delivers its interactive communications solutions, both outsourced services and customer premises systems, through an organization comprised of 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, representatives of its strategic marketing allies and distributors. 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 interactive communications solutions are rapidly evolving, extremely competitive and subject to rapid technological change. The Company expects competition to increase in the future from existing competitors and from companies that may enter the Company's existing or future markets with similar or substitute solutions that may be less costly or provide better performance or functionality than the Company's products. Many of the Company's current and potential competitors have greater name recognition, larger installed customer bases and significantly greater financial, technical, marketing and other resources than the Company. To be successful in the future, the Company must continue to respond promptly and effectively to the challenges of changing customer requirements, technological change and competitors' innovations. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could materially adversely affect the Company's business, financial condition, results of operations and business prospects. Additionally, the Company may be required to reduce prices or increase spending in response to competition in order to pursue new market opportunities or to invest in research and development efforts and, as a result, the Company's operating results in the future may be adversely affected. There can be no assurance that the Company will be able to compete successfully against current and future competitors or that competitive pressures faced by the Company will not materially adversely affect the Company's business, financial condition, results of operations and business prospects.
The Company competes in its markets with CT system hardware suppliers and systems integrators assembling systems from available components. Companies offering competing CT systems include Computer Communications Specialists, Inc., Edify Corporation, InterVoice, Inc., Lucent Technologies, Inc. and Periphonics Corporation. The Company's interactive communications business is heavily dependent on sales to the human resources departments of large organizations. In fiscal 1997, sales to human resources departments represented approximately 45% of customer premises systems revenues. In response to customers' desires to outsource certain aspects of database access functionality, the Company provides interactive communications services to organizations which choose not to purchase customer premises systems. This outsourced service business competes with employee benefit plan consulting firms and accounting firms, including Hewitt Associates LLC, Towers, Perrin, Forster & Crosby, Inc., William M. Mercer Companies, Inc., and Watson Wyatt & Company, which provide comprehensive packages of plan design, administration and consulting
services, including automated access services. See "Risk Factors -- Intense Competition."
At present there are no significant competitors of the service provided by The Work Number. However, 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 employee database verification systems. The Company is aware of one other company which is marketing a similar service. Additionally, the Company is aware of a number of employers who have established similar systems for their internal use. The Company anticipates that additional competitors will emerge, but is unable to predict what its relative competitive position will be in a more mature market. See "Risk Factors -- Certain Risks Associated with The Work Number."
PROPRIETARY RIGHTS
The Company's success is heavily dependent upon its proprietary technology. Although the Company copyrights certain elements of its products, the primary means of protecting its interactive communications 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 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 to the Company's financial condition or results of operations. On August 16, 1996, Elk Industries, Inc. filed an action in the United States District Court for the Southern District of Florida against the Company. The action alleged patent infringement by the Company in connection with the Company's making, selling and using an audio storage and distribution system allegedly covered under a patent held by Elk. The Company resolved the matter with Elk during the fourth quarter of fiscal 1997. 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 a service mark registration for The Work Number For Everyone(R) with the United States Patent and Trademark Office. TALXWare is a trademark of the Company. The Work Number and TALX OnLine are service marks of the Company. The Company regards its trademarks, as well as its other intellectual property, as having significant value and being an important factor in the
development and marketing of its products. See "Risk Factors -- Limited Intellectual Property Protection."
DATABASE AND DOCUMENT SERVICES BUSINESSES
In addition to providing interactive communications solutions, the Company, in 1994, acquired its database and document services businesses. These businesses have been operated on a stand-alone basis. Further, the majority of the operations of such businesses are located in a building which is separate from the interactive communications operations of the Company. See Item 2
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 annual base rental of $412,848, subject to increases for taxes, insurance and operating expenses. The Company also leases office space in Atlanta, Bethesda, Chicago, Massachusetts, New Jersey, Phoenix, and London, England for sales representatives. The Company believes its facilities have been generally well maintained, are in good operating condition and are adequate for its current requirements.
The Company's database services business currently occupies a portion of approximately 38,000 square feet of an office facility located at 1633 Des Peres Road, St. Louis, Missouri 63131 pursuant to a lease (the "Des Peres Lease") expiring in 2002 with annual base rental of $453,870, with periodic increases up to $573,610, subject to certain increases for operating expenses. The Company has subleased approximately 21,500 square feet of the facility, through the end of the lease term. In connection with the divestiture of the database business, the Company may desire to sublease its rights and obligations under the remaining space of the Des Peres Lease. Although the Company believes it will not be difficult to enter into a sublease with respect to the remaining Des Peres Lease space, there can be no assurance that the Company will be able to enter into such sublease.
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 is currently in the process of creating an alternate disaster recovery facility. Any damage or failure that interrupts the Company's operations could have a material adverse effect on the Company's business, financial condition, results of operations and business prospects.
ITEM 3.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the Nasdaq National Market under the symbol "TALX." The table below sets forth the high and low prices of the Common Stock during the period subsequent to the Company's initial public offering.
Fiscal -------------- Period High Low - ---------------------------------------------------------------- ------ ------
Third Quarter (since October 17, 1996) $ 9.50 $ 5.75 Fourth Quarter $ 9.88 $ 7.38
The approximate number of holders of record of the Company's Common Stock at June 18, 1997 was 95. 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.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Consolidated Financial Statements, and the notes thereto.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues are derived from interactive communications, which consist of The Work Number, outsourced services, the sale of customer premises systems, and maintenance and support services related to those systems.
The Work Number service is still in the early stage of its life cycle. Accordingly, no meaningful relationship can be drawn between revenues recognized to date, or in a given quarter, and the corresponding number of employers that have contracted for the service or the number of employment records covered by the service. Revenues derived from The Work Number include fees charged to mortgage lenders and other verifiers for verification of employment history, including the past three years of salary history of participating employers' current and former employees, ongoing maintenance fees charged to employers and one-time conversion fees from new employers. The lag between the time an employer enters into an agreement with the Company for The Work Number and the time the employer converts its records to the service and begins to routinely refer inquiries to The Work Number can distort normal quarter to quarter revenue comparisons early in the service's life cycle. Further, revenues to date reflect the relatively large percentage of conversion fees recognized early in the service's life cycle as compared to fees from verifications, which can also distort normal quarter to quarter revenue comparisons at this stage of the service's life cycle. The Company expects that over time fees from verifications will be a greater percentage of The Work Number revenues than they have been historically. Additionally, due to the early stage of the service and the attendant start-up costs, no meaningful relationship can be drawn between historical gross margins and gross margins that may be realized in the future. The future success of this branded service is contingent upon a number of factors, including, without limitation, increased acceptance and usage of the service.
The Company's customer premises systems business designs and implements customer premises systems with interactive communications capabilities using computer telephony to integrate technologies such as interactive voice response, facsimile, e-mail, Internet and corporate Intranet. The Company's interactive communications solutions enable an organization's users to access, input and update information without human assistance. Revenues from customer premises systems are derived from the license or sale of software, related hardware and custom applications and are generally recognized upon shipment of the system. Sales are effected through a direct sales force and in conjunction with strategic marketing alliances (including third party resellers). The typical size of a system ranges from $35,000 to $200,000 or more and averages approximately $90,000. In the case of a third party reseller, revenues are recognized at the time of shipment to the reseller; however, the Company does not have any future obligations related to these types of sales. The Company provides maintenance and support services with respect to installed customer premises systems. These services include a 24-hour per day, 7-day a week toll-free customer service line. Revenues from maintenance and support are recognized ratably over the term of the maintenance agreement.
The Company's outsourced services business provides interactive communication services to organizations that choose not to purchase a customer premises system. The Company maintains a system on its premises that contains a customer database and receives incoming requests for access to the information. Revenues from outsourced services include fees derived from establishment of the service and transaction-based fees.
In addition to providing interactive communication systems, the Company has historically provided database and document services. Database services include sales leads and pre-press services for directory publishers, and document services include the preparation and mailing of invoices, statements and confirmation letters for organizations with high volume requirements. Revenues from database and document services are recognized as the services are performed through progress billings. These customers' contracts cover periods generally from one to six months and progress billings are made in accordance with individual customer contract terms. In August 1996, the Company determined to pursue the divestiture of the database and document services businesses and, accordingly, has reflected the results of operations of such businesses as discontinued operations. In January 1997, the document services business was sold.
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.
Fiscal Years Ended March 31, 1997 and 1996
Revenues. Total revenues increased by 36.0%, from $13.5 million in fiscal 1996 to $18.4 million in fiscal 1997. Revenues from The Work Number increased by 262.5%, from $453,000 in fiscal 1996 to $1.6 million in fiscal 1997, due to the expansion of marketing on a nationwide basis and an increase in the number of employment records on the system. Revenues from outsourced services increased by 117.7%, from $1.0 million in fiscal 1996 to $2.2 million in fiscal 1997, due to the Company capitalizing on the trend of some corporations to outsource their non-core functions. Revenues from customer premises systems increased by 16.6%, from $9.4 million in fiscal 1996 to $11.0 million in fiscal 1997. This revenue growth is due to increases in sales and marketing resources, reflecting the Company's efforts to increase historic revenue generation. The continuing development of strategic marketing alliances also contributed to increased revenues. Revenues from maintenance and support related to the customer premises systems increased by 35.6%, from $2.6 million in fiscal 1996 to $3.6 million in fiscal 1997, reflecting the support provided to an increased installed base of customer premises systems.
Cost of Revenues. Total cost of revenues increased by 36.1%, from $6.0 million in fiscal 1996 to $8.2 million in fiscal 1997. Cost of revenues from The Work Number increased 58.0%, from $429,000 in fiscal 1996 to $678,000 in fiscal 1997, due to the revenue growth, offset by a reduction in start-up costs. Due to the relatively early stage of the service in its life cycle, no meaningful relationship can be drawn between historical gross margins and gross margins that may be realized in the future. Cost of revenues from outsourced services increased by 90.9%, from $493,000 in fiscal 1996 to $941,000 in fiscal 1997, due to the revenue growth described above. Cost of revenues from customer premises systems increased by 23.9%, from $4.5 million in fiscal 1996 to $5.6 million in fiscal 1997. This increase is due to the increase in customer premises systems revenue. Cost of revenues for customer premises systems as a percentage of customer premises systems revenue increased from 47.5% in fiscal 1996 to 50.5% in fiscal 1997. This increase is due to an increase in fixed labor costs as the Company continued to increase staffing to support possible future increases in revenue. Cost of revenues from maintenance and support related to customer premises systems increased by 65.6%, from $619,000 in fiscal 1996 to $1.0 million in fiscal 1997, due to the revenue growth and an increase in personnel costs to provide a higher level of customer service.
Selling and Marketing Expenses. Selling and marketing expenses increased 44.5% from $4.1 million in fiscal 1996 to $5.9 million in fiscal 1997. As a percentage of revenues, such expenses increased from 30.2% in fiscal 1996 to 32.1% in fiscal 1997. These increases reflect continuing expansion of the Company's sales and marketing efforts, including development of distribution channels both in domestic and international markets.
General and Administrative Expenses. General and administrative expenses decreased 7.6% from $2.8 million in fiscal 1996 to $2.6 million in fiscal 1997. As a percentage of revenues, such expenses decreased from 20.9% in fiscal 1996 to 14.2% in fiscal 1997. The decrease reflects the expansion of the Company's infrastructure to respond to increased levels of revenues, offset by cost control efforts implemented by the Company throughout fiscal 1996. The Company anticipates that general and administrative expenses will increase in dollar amount and decrease as a percentage of revenues in future periods.
Other Income (Expense),net. Interest expense, which is the primary component of other income (expense), net, increased from $343,000 in fiscal 1996 to $438,000 in fiscal 1997. This increase is due principally to a higher average level of borrowings caused by financing the net losses in fiscal 1995 and 1996 with additional borrowings. The Company repaid most of its outstanding borrowings on October 22, 1996, with the proceeds of its initial public offering. Interest income on the invested net proceeds amounted to $151,000 during fiscal 1997.
Income Tax Expense. The Company's effective income tax rate was 31.7% in fiscal 1996 and 37.0% in fiscal 1997. See Note 9 of the Notes to Consolidated Financial Statements.
Fiscal Years Ended March 31, 1996 and 1995
Revenues. Total revenues increased by 37.2%, from $9.9 million in fiscal 1995 to $13.5 million in fiscal 1996. Revenues from The Work Number increased from $74,000 in fiscal 1995 to $453,000 in fiscal 1996, due to the completion
of the pilot phase and commencement of marketing on a nationwide basis. Revenues from outsourced services increased by 93.9%, from $515,000 in fiscal 1995 to $1.0 million in fiscal 1996, due to the Company capitalizing on the trend of some corporations to outsource their non-core functions. Revenues from customer premises systems increased by 35.7%, from $7.0 million in fiscal 1995 to $9.4 million in fiscal 1996. This revenue growth is due to increases in sales and marketing resources effected in fiscal 1996, reflecting the Company's efforts to increase historic revenue generation. Additionally, revenue growth also benefited from the replacement of a regional sales manager who left the Company in September 1994 and the addition of another sales manager in the same territory. The continuing development of strategic marketing alliances also contributed to increased revenues. Revenues from maintenance and support related to the customer premises systems increased by 13.6%, from $2.3 million in fiscal 1995 to $2.6 million in fiscal 1996, reflecting the support provided to an increased installed base of customer premises systems.
Cost of Revenues. Total cost of revenues increased by 15.0%, from $5.2 million in fiscal 1995 to $6.0 million in fiscal 1996. Cost of revenues from The Work Number increased from $48,000 in fiscal 1995 to $429,000 in fiscal 1996, due to increased costs incurred with respect to this service as it moved from the pilot phase to a national service. Due to the early stage of the service in its life cycle and the attendant start up costs, no meaningful relationship can be drawn between historical gross margins and gross margins that may be realized in the future. Cost of revenues from outsourced services increased by 89.5%, from $260,000 in fiscal 1995 to $493,000 in fiscal 1996, due to the revenue growth described above. Cost of revenues from customer premises systems increased by 8.4%, from $4.1 million in fiscal 1995 to $4.5 million in fiscal 1996. This increase is due to the increase in customer premises systems revenue. However, cost of revenues for customer premises systems as a percentage of customer premises systems revenue decreased from 59.6% in fiscal 1995 to 47.5% in fiscal 1996. This decrease is due to the lower levels of revenues in the second half of fiscal 1995 and the relatively fixed nature of the Company's labor costs, which resulted in higher than normal cost of revenue percentage in fiscal 1995. Cost of revenues from maintenance and support related to customer premises systems decreased by 22.0%, from $793,000 in fiscal 1995 to $619,000 in fiscal 1996, principally due to better leveraging of personnel costs in fiscal 1996 and reductions in the costs of contracted third-party maintenance services.
Selling and Marketing Expenses. Selling and marketing expenses increased 43.1% from $2.9 million in fiscal 1995 to $4.1 million in fiscal 1996. As a percentage of revenues, such expenses increased from 29.0% in fiscal 1995 to 30.2% in fiscal 1996. These increases reflect continuing expansion of the Company's sales and marketing efforts, including development of distribution channels both in domestic and international markets.
General and Administrative Expenses. General and administrative expenses increased 10.6% from $2.6 million in fiscal 1995 to $2.8 million in fiscal 1996. As a percentage of revenues, such expenses decreased from 25.9% in fiscal 1995 to 20.9% in fiscal 1996. The increase in dollar amount reflects the expansion of the Company's infrastructure to respond to increased levels of revenues, offset by cost control efforts implemented by the Company throughout fiscal 1996.
Other Income (Expense), net. Interest expense, which is the primary component of other income (expense), net, increased from $212,000 in fiscal 1995 to $343,000 in fiscal 1996. This increase is due principally to a higher average level of borrowings caused by financing the net losses in fiscal 1995 and 1996 with additional bank borrowings.
Income Tax Expense. The Company's effective income tax rate was 30.3% in fiscal 1995 and 31.7% in fiscal 1996. 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, the Company determined that an additional provision for loss in the amount of $550,000 was required to reflect the anticipated results from operations and
the estimated proceeds from the sale of the database business. The Comapny anticipates disposition of the remaining operations through sale during fiscal 1998. See Note 2 of the Notes to Consolidated Financial Statements.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statement of operations data for each of the four quarters in fiscal 1996 and 1997, 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 be relied upon as an indication of future performance.
The Company's revenues, margins, and operating results have fluctuated in the past, and are expected to continue to fluctuate in the future, on an annual and quarterly basis, as a result of a number of factors. These factors include the length of the sales cycle, the timing of orders from and shipments to customers, delays in development and customer acceptance of custom software applications, new product introductions or announcements by the Company or its competitors, levels of market acceptance for new products and the hiring and training of additional staff, as well as general economic conditions. The size and timing of the Company's customer premises systems transactions have historically varied substantially from quarter to quarter, and the Company expects such variations to continue in future periods. The Company is typically able to deliver a customer premises system within several months of when the order is received and, therefore, does not customarily have a significant long-term backlog. Because a significant portion of the Company's overhead is fixed in the short-term, the Company's results of operations may be adversely affected if revenues fall below the Company's expectations.
Revenues from outsourced services are seasonally higher during the second and third quarters of the Company's fiscal year due to the nature of the services being provided. The revenues have increased on a quarter by quarter comparison in fiscal 1997 over fiscal 1996, 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 quarter of fiscal 1996 due to the Company's sales force committing a large part of its effort to establishing initial sales of The Work Number, a number of which sales resulted in a large number of one-time conversion fees in the fourth quarter of fiscal year 1996.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering, the Company had limited liquidity, due in part to net losses in fiscal 1995 and 1996. The Company had financed its operations primarily through cash flow from operations, private placements of equity and debt securities and bank lines of credit. On October 16, 1996, the Company completed its initial public offering of 2,000,000 shares of common stock at a price of $9 per share, for gross proceeds of $18,000,000, and proceeds net of underwriting discounts and expenses of approximately $15,587,000.
The Company used a portion of the net proceeds of its initial public offering to repay its outstanding indebtedness represented by (i) a Subordinated Note in the aggregate principal amount of $4.0 million, which was due and payable in July 2001 and accrued interest at an annual rate of 13.25%, with an effective interest rate of 19.25%, (ii) a promissory note in the principal amount of approximately $417,000, which was due and payable through August 1997 and accrued interest at the bank's prime rate plus 0.75%, and (iii) a demand note in the amount of $3,080,000 representing borrowings under a revolving line of credit which accrued interest at the bank's prime rate plus 0.875%.
The Company had a current ratio of 0.87 to 1, and 4.64 to 1 at March 31, 1996 and March 31, 1997, respectively. The Company's working capital was $(1,261,000) and $13,351,000 at March 31, 1996 and 1997, respectively. Working capital at March 31, 1997 reflects the reclassification of the working capital of the discontinued operations to net assets of businesses held for sale. Total working capital increased in fiscal 1997 principally due to the net proceeds from the initial public offering.
The Company's accounts receivable increased from $5,918,000 at March 31, 1996 to $8,441,000 at March 31, 1997. The increase is due to increased revenues in the fourth quarter of fiscal 1997 compared to March 31, 1996, a greater percentage of revenues occurring later in the quarter ended March 31, 1997, and extended payment terms to certain customers, offset by the reclassification of the working capital of the discontinued operations to net assets of businesses held for sale. As a percentage of the Company's total revenues for the fourth quarter of each fiscal year, including revenues from discontinued operations in 1996, the accounts receivable at fiscal year-end increased from 94% at March 31, 1996 to 189% at March 31, 1996.
The Company's capital expenditures were $1,550,000 in fiscal 1997. At March 31, 1997, the Company has no significant capital spending or purchase commitments other than normal purchase commitments and commitments under facilities and operating leases. The Company believes that its working capital, together with its anticipated cash flows from operations will be sufficient to meet its working capital and capital expenditure requirements for at least the next 12 months.
The Company's net increase to capitalized software development costs was $481,000 in fiscal 1997. See Notes 1 and 5 of Notes to Consolidated Financial Statements. The Company intends to continue to make investments in software solutions at comparable or increasing levels in fiscal 1998.
RECENT FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earning per Share." SFAS No. 128 established standards for the computation and presentation of earnings per share for entities with publicly held common stock or potential common stock. This Statement is effective for financial statements issued for periods ending after December 15, 1997, and requires retroactive restatement of all prior period earnings per share data presented. The effect of SFAS No. 128 on the financial periods presented is not material to the Company.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page
Independent Auditors' Report............................................. 30
Consolidated Balance Sheets as of March 31, 1996 and 1997................ 31
Consolidated Statements of Operations for the years ended March 31, 1995, 1996 and 1997.......................................... 32
Consolidated Statements of Stockholders' Equity for the years ended March 31, 1995, 1996 and 1997.......................................... 33
Consolidated Statements of Cash Flows for the years ended March 31, 1995, 1996 and 1997.......................................... 34
Notes to Consolidated Financial Statements............................... 35
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.
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, 1996 and 1997, 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, 1997. 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, 1996 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 1997, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
St. Louis, Missouri May 19, 1997
TALX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
TALX Corporation and its subsidiaries ("the Company") design and implement interactive communications solutions using technology such as interactive web and interactive voice response, primarily for Fortune 500 and other large organizations. The Company's interactive communications solutions enable an organization's employees, customers, vendors, and business partners ("Users") to access, input, and update information without human assistance. The Company's solutions enhance service levels, improve productivity, and reduce costs by enabling Users to perform self-service transactions that employ computer telephony technology, as well as facsimile, e-mail, Internet/Intranet, and other interactive communications technologies.
In early 1995, the Company introduced The Work Number for Everyone(R) ("The Work Number"). The Work Number, which is a national service providing automated access to information from multiple organizations, 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.
The Company also designs and implements tailored interactive communications solutions and either sells a system for installation on a customer's premises or provides access to a system on an outsourced services basis. The Company has provided tailored interactive communications systems for installation at customers' premises since the early 1980s. In 1993, the Company introduced its outsourced services business, which allows a customer to realize the benefits of an interactive communications system without incurring the administrative or maintenance burden of operating a system. For outsourced services customers, the Company maintains the customer's database on a system at the Company's facilities, where incoming requests are received for access to the information.
In addition to providing interactive communications systems, the Company has historically provided database and document services. Database services include providing sales leads and prepress services for directory publishers. Document services include the preparation and mailing of invoices, statements, and confirmation letters for organizations with high-volume requirements. See note 2 of the notes to consolidated financial statements.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of TALX Corporation and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash and cash equivalents.
(d) Short-term Investments
Short-term investments at March 31, 1997 consist of U.S. government agency debt instruments. The Company classifies its debt and marketable equity securities in one of two categories: available-for-sale or held-to maturity. Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. All other securities are classified as available-for-sale. All of the Companies securities are classified as held-to-maturity. Interest income is recognized when earned. Debt securities classified as held-to-maturity are stated at amortized cost. The estimated fair
value of the short-term investments is approximately the cost basis at March 31, 1997.
(e) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories consist primarily of hardware and spare parts.
(f) Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation and amortization. Depreciation is computed using straight-line and accelerated methods over the estimated useful lives of the assets. Amortization of leasehold improvements and assets recorded under capital leases is computed using the straight-line method over the lesser of the useful life of the asset or lease term.
(g) Product Development and Capitalized Software Development Costs
Product development costs are charged to operations as incurred. Software development costs are expensed as incurred until technological feasibility is achieved, after which they are capitalized on a product-by-product basis. Amortization of capitalized software development costs is the greater of the amount computed using (I) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product or (ii) straight-line method over the remaining estimated economic life of the product. Amortization of capitalized software development costs starts when the product is available for general release to customers.
(h) Revenue Recognition, Work in Progress, and Progress Billings
Revenues from The Work Number are recognized from fees charged to Users for verifications of employment history and salary and from employer conversion and maintenance fees. Customer premises systems revenue is generally recognized upon shipment of the system. The Company sells customer premises systems through certain strategic alliance relationships. In these instances, revenues are recognized at the time of shipment to the strategic alliance's customer, however, the Company does not have any future obligations related to these types of sales. Outsourced services revenue is recognized as the services are provided. Revenue from maintenance contracts is deferred and recognized ratably over the maintenance period. Deferred maintenance revenue represents the unearned portion of maintenance fees.
Work in progress represents accumulated project costs and related earnings, less progress billings for certain database and document services customers. Progress billings in excess of accumulated project costs are shown as a current liability. These customers' contracts generally cover periods from one to six months. Progress billings are made in accordance with individual customer contract terms.
(I) Concentration of Credit Risk
The Company sells its interactive communications services in a variety of industries. One customer represented approximately 12% and 14%, of revenues in fiscal 1997 and 1996, respectively. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral; however, it maintains a security interest in hardware until payment is received. Credit losses from customers have been within management's expectations, and management believes the allowance for doubtful accounts adequately provides for any expected losses.
(j) Income Taxes
The Company records income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date.
(k) Fair Value of Financial Instruments
The Company discloses estimated fair values for its financial instruments. A financial instrument is defined as cash or a contract that both imposes on one entity a contractual obligation to deliver cash or another financial instrument to a second entity and conveys to that second entity a contractual right to receive cash or another financial instrument from the first entity.
(l) Stock Option Plans
On April 1, 1996, the Company adopted the Financial Accounting Standards Board Statement of Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and later years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(m) Management's Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
(n) Effect of New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earning per Share." SFAS No. 128 establishes standards for the computation and presentation of earnings per share for entities with publicly held common stock or potential common stock. This Statement is effective for financial statements issued for periods ending after December 15, 1997, and requires retroactive restatement of all prior period earnings per share data presented. The effect of SFAS No. 128 on the financial periods presented is not material to the Company.
(o) Reclassifications
Certain reclassifications have been made to the prior year consolidated financial statements to conform with the current year presentation.
(p) Net Earnings (Loss) Per Share
Net earnings (loss) per share has been computed using the number of shares of common stock and common stock equivalents outstanding, assuming conversion of all outstanding preferred stock to 751,111 shares of common stock. The weighted average number of shares used in computing earnings (loss) per share was 3,391,621 for fiscal 1996 and 4,330,239 for fiscal 1997. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, shares issued and stock options and warrants granted at prices below the initial public offering price of $9 per share during the 12-month period preceding the date of the initial filing of the Company's registration statement have been included in the calculation of common stock equivalent shares, using the treasury stock method, as if they were outstanding for all of 1996 and for the first three quarters of 1997. Subsequent to this period, the weighted average number of shares was based on common stock outstanding and common stock equivalents.
(2) DISCONTINUED OPERATIONS
In August 1996, the Company determined to pursue the divestiture of the database and document services businesses and, accordingly has reflected the results of operations of such businesses as discontinued operations. A provision of $350,000 was made as of June 30, 1996 to reflect the anticipated loss from operations until the time of disposal. On January 31, 1997, the Company sold substantially all of the assets of the document services business to Sterling Direct, Inc., the largest customer of the division. The sales price, after giving effect to the post-closing adjustments, was $1,241,000. Of the amount, $200,000 is in the 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, the Company has determined that an additional provision for loss in the amount of $550,000 is required to reflect the anticipated results from operations and the estimated proceeds from the sale of the database business.
The Company has classified the database and document services businesses as a discontinued operation and has reclassified the prior period statements of operations to reflect this change.
Summary balance sheet data as of March 31, 1997 is as follows:
(In thousands)
Current assets.................................. $ 1,740 Property and equipment, net..................... 732 Other assets.................................... 260 ---------- Total assets.......................... 2,732 ---------- Current liabilities, including provision for loss of $1,190................................ 2,006 Noncurrent liabilities.......................... 19 ---------- Total liabilities..................... 2,025 ---------- Net assets of business held for sale.. $ 707 ==========
The results of operations for the discontinued businesses for the years ended March 31, 1995, 1996, and 1997 and the were as follows:
March 31, --------------------------- 1997 1996 1995 ------- ------- ------- (In thousands)
Revenues....................................... $ 8,633 $11,149 $12,010 ======= ======= ======= Loss from discontinued operations.............. (260) (1,052) (681) Income tax benefit............................. (96) (349) (271) ------- ------- ------- Loss from operations of discontinued operations................................ (164) (703) (410) ------- ------- ------- Loss on disposal............................... (1,428) -- -- Income tax benefit............................. (528) -- -- ------- ------- ------- Loss on disposal, net....................... (900) -- -- ------- ------- ------- Net loss....................................... $(1,064) $ (703) $ (410) ======= ======= =======
At March 31, 1997, the database business occupies office space with future minimum lease payments, net of subleases as follows for future fiscal years ending March 31: 1998, $160,000; 1999, $180,000; 2000, $182,000; 2001, $221,000; 2002, $238,000; and 2003, $20,000. Management believes that it will be able to enter into a sublease with respect to the remaining spaces upon divestiture of the database business.
(3) TRADE RECEIVABLES
Trade receivables consist of the following:
March 31, -------------- 1997 1996 ------ ------ (In thousands)
Billed receivables...................... $6,149 $5,211 Unbilled receivables.................... 2,311 951 ------ ------- 8,460 6,162 Less allowance for doubtful accounts.... 19 244 ------ ------ $8,441 $5,918 ====== ======
All amounts are due within one year. Billings to customers are made in accordance with the terms of the individual contracts.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Range of Estimated Useful Lives (in years) March 31, ------------------ -------------- 1997 1996 ------ ------ (In thousands)
Computer equipment........................... 3--5 $3,824 $7,092 Office furniture and equipment............... 5--7 926 1,552 Leasehold improvements....................... 3--10 878 665 Automobile................................... 3 -- 8 ================== ------ ------ 5,628 9,317 Less accumulated depreciation and amortization............................... 2,976 5,738 ------ ------ $2,652 $3,579 ====== ======
(5) PRODUCT DEVELOPMENT AND CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Product development and capitalized software development costs for the years ended March 31, 1997, 1996, and 1995 were as follows:
March 31, ------------------------------ 1997 1996 1995 -------- -------- -------- (In thousands)
Product development costs incurred............. $ 2,015 $ 1,894 $ 1,477 Additions to capitalized software development costs........................................ (1,789) (1,712) (1,429) -------- -------- -------- Product development costs charged to general and administrative expenses.................. $ 226 $ 182 $ 48 ======== ======== ======== Amortization of capitalized software development costs............................ $ 1,161 $ 1,184 $ 876 ======== ======== ========
(6) ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities for the years ended March 31, 1997 and 1996 consist of the following:
March 31, ------------------ 1997 1996 ------- ------- (In thousands)
Accrued compensation and benefits..... $ 561 $ 855 Other................................. 911 887 ------- ------- $ 1,472 $ 1,742 ======= =======
(7) BANK FINANCING ARRANGEMENTS
Notes payable to bank at March 31, 1996 represented the amounts outstanding under several financing agreements with a bank. The agreements allowed borrowings up to $4,500,000, with interest ranging from 0.5% to 1.25% over the prime rate (8.25% at March 31, 1996).
Long-term debt at March 31, 1996 consisted of a note payable to bank, payable in monthly principal installments of $41,667, maturing in August 1997, bearing interest at a variable rate of prime plus 0.75%.
These agreements were secured by accounts receivable, inventory, office furniture and equipment, an insurance policy on the president of the Company, and limited personal guarantees of the president of the Company.
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.
(8) LEASES
The Company is obligated for certain equipment under capital leases which expire in fiscal 1998. Assets capitalized under capital lease obligations and included in property and equipment at March 31, 1997 and 1996 are as follows:
March 31, --------------- 1997 1996 ------ ------ (In thousands)
Computer equipment................ $ 168 $1,163 Less accumulated amortization..... 124 567 ------ ------ $ 44 $ 596 ====== ======
The Company has noncancellable operating leases, primarily for office space and computer equipment, that expire through 2003 and provide for purchase or renewal options. During 1991, a partnership, which included the president of the Company, acquired the building where the Company's headquarters are housed. Rent paid to the partnership amounted
to $422,600 and $391,484 in 1996 and 1995, respectively. The partnership sold the building to an unrelated party in March 1996.
Total rent expense for operating leases, including contingent rentals, was $578,000 in 1997, $595,000 in 1996, and $520,000 in 1995.
Future minimum lease payments under capital leases and noncancellable operating leases as of March 31, 1997 are as follows:
Capital Operating --------- --------- (In thousands)
Fiscal Year: 1998................................................... $ 39 $ 514 1999................................................... -- 467 2000................................................... -- 465 2001................................................... -- 421 2002................................................... -- 413 Thereafter............................................. -- 206 --------- --------- Total minimum lease payments........................ 39 $ 2,486 ========= Less amount representing interest......................... 3 --------- Present value of net minimum capital lease payments.......................................... 36
Less current installments of obligations under capital leases.................................................. 36 --------- Obligations under capital leases, less current installments...................................... $ -- =========
(9) INCOME TAXES
Income tax expense (benefit) consists of the following:
March 31, ------------------------ 1997 1996 1995 ------ ------ ------ (In thousands)
Current--federal .................................... $ -- $ -- $ --
Deferred: Federal .......................................... 428 52 (283) State and local .................................. 38 5 (45) ------ ------ ------ Income tax expense (benefit) before discontinued operations ................. 466 57 (328)
Discontinued operations ............................. (624) (349) (271) Extraordinary loss .................................. (209) -- -- ------ ------ ------ Total income tax (benefit) ................ $ (367) $ (292) $ (599) ====== ====== ======
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:
March 31, ------------------------ 1997 1996 1995 ------ ------ ------ (In thousands)
Computed "expected" tax expense (benefit) ......... $ 428 $ 61 $ (389)
Increase (decrease) in income taxes resulting from: State and local income taxes, net of federal income tax benefit.............................. 25 3 (30) Other, net ....................................... 13 (7) 91 ------ ------ ------ $ 466 $ 57 $ (328) ====== ====== ======
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 1997 and 1996 are presented below:
March 31, -------------- 1997 1996 ------ ------ (In thousands)
Deferred tax assets: Allowance for doubtful accounts ............................. $ 31 $ 90 Valuation allowance on inventory ............................ 57 44 Accrual for compensated absences ............................ 42 61 Accrual for loss on discontinued operations ................. 440 -- Differences in depreciation ................................. 108 91 Differences in expense recognition methods .................. 97 85 Net operating loss and tax credit carryforwards ............. 1,472 1,374 ------ ------ Total deferred tax assets ........................... 2,247 1,745 ------ ------
Deferred tax liabilities: Differences in capitalized software development cost methods 1,202 905 Differences in revenue recognition methods .................. 78 9 Differences in depreciation and amortization ................ 84 140 ------ ------ Total deferred tax liabilities ...................... 1,364 1,054 ------ ------ Net deferred tax assets ............................. $ 883 $ 691 ====== ======
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. TALX Corporation (TALX) and its subsidiaries carry separate tax histories and, as a result, certain net operating loss carryforwards are available to offset future taxable income of TALX. In order to fully realize the deferred tax assets, TALX will need to generate future taxable income of approximately $4,000,000 prior to the expiration of the net operating loss carryforwards in 2012. Taxable income (loss) of TALX for the years ended March 31, 1997, 1996, and 1995 was $(283,000), $(1,076,000), and $(1,914,000), 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, 1997.
At March 31, 1997, the Company has net operating loss carryforwards for federal income tax purposes of $3,500,000, which are available to offset future federal taxable income, if any, through 2012. In addition, the Company has alternative minimum tax credit carryforwards of approximately $39,000, which are available to reduce future federal regular income taxes, if any, over an indefinite period.
(10) STOCKHOLDERS' EQUITY
In July 1996, the Company's Board of Directors authorized and amended the Company's articles of incorporation to effect a 1-for-3.5 reverse stock split for each share of common stock and adjusted all outstanding common stock options and warrants accordingly. The Board of Directors also authorized and amended the Company's articles of incorporation to effect a reduction in all series of preferred stock and common stock par value to $.01. All share data presented within the consolidated financial statements have been revised to effect for the reverse stock split and changes in par value.
In July 1996, the Company amended its articles of incorporation to provide that the aggregate number of shares of common stock the Company shall have the authority to issue shall be 30,000,000 shares of Common Stock, par value $.01 per share, and 13,700,000 shares of preferred stock, par value $.01 per share, 8,700,000 shares of which represent the previously designated Series A, B and C convertible preferred stock.
All series of convertible preferred stock were converted into common stock upon completion of the Company's initial public offering. Upon the closing, the Company filed an amendment to its Articles of Incorporation to reduce the number of authorized shares of preferred stock to 5,000,000.
TALX has adopted two incentive stock option plans for employees which provide for the issuance of a maximum of 619,109 shares of common stock. Options are granted by the Board of Directors at prices not less than fair market value as of the date of the grant. Certain options are 100% vested upon grant. The remaining options vest 20% per year and expire six years after the date of the grant. Total shares exercisable at March 31, 1997 were 152,240. Activity under the plan for the three years ended March 31, 1997 is as follows:
Shares Price ----------- -----------
Outstanding at March 31, 1994 ................... 119,000 $.88--4.38 Granted--1995 ................................... 210,429 3.85 Canceled--1995 .................................. (6,715) .88--4.38 ----------- Outstanding at March 31, 1995 ................... 322,714 .88--4.38 Canceled--1996 .................................. (22,714) .88--4.38 Exercised--1996 ................................. (1,714) 4.38 ----------- Outstanding at March 31, 1996 ................... 298,286 .88--4.38 Granted--1997 ................................... 88,117 7.00 Canceled--1997 .................................. (14,203) 3.85 Exercised--1997 ................................. (30,989) .88--7.00 ----------- Outstanding at March 31, 1997 ................... 341,211 $.88--7.00 =========== ===========
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 consistent with the provisions of SFAS No. 123, the Company's net loss and net loss per share would not have been impacted by a material amount.
The Company made calculations reflecting only options granted in fiscal 1997. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 was not reflected in the determination of the impact, because compensation cost is reflected over the options' vesting period of six years and compensation cost for options granted prior to April 1, 1995 is not considered. The fair value of option grants for 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%, risk-free interest rate of 6.44%, expected life of 6 years; and an expected dividend yield of 0.0%.
This disclosure is provided for informational purposes only and is not necessarily indicative of the results of operations that would have occurred or of the future impact or anticipated results of operations of the Company.
During fiscal 1997, the shareholders approved the TALX Corporation 1996 Employee Stock Purchase Plan (ESPP). The ESPP allows eligible employees the right to purchase common stock on a quarterly basis at the lower of 85% of the market price at the beginning or end of each three-month offering period. As of March 31, 1997, there were 80,000 shares of common stock reserved for the ESPP and there had been 3,285 shares issued to date.
(11) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for the Company's cash and cash equivalents, short-term investments, trade receivables, income tax refund receivable, accounts payable and accrued expenses approximate fair value because of the short-term maturity of these instruments. The carrying amounts of notes payable to bank, long-term debt, and capital lease obligations approximate fair value because the interest rates vary with or approximate market rates.
(12) EMPLOYEE BENEFIT PLANS
The Company sponsors a profit-sharing/401(k) plan. The plans cover substantially all of the Company's employees. The Company makes contributions to the plans, subject to ERISA limitations, up to 2% of employees' earnings. Total expense under the plans for the years ended March 31, 1997, 1996, and 1995 was $99,895, $90,960, and $81,558, respectively.
(13) COMMITMENTS AND CONTINGENCIES
The Company is involved in certain litigation matters arising in the normal course of business. In the opinion of Company management, these matters will not have a material adverse effect on the accompanying consolidated financial statements.
(14) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest totaled $438,000, $503,109, and $319,868 for the years ended March 31, 1997, 1996, and 1995, respectively.
Cash paid during the year for income taxes totaled $0, $279, and $53,050 for the years ended March 31, 1997, 1996, and 1995, respectively.
Additions to assets recorded under capital leases for the years ended March 31, 1997, 1996, and 1995 were $0, $51,000, and $568,367, respectively.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10.
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 1997 Annual Meeting of Stockholders, which information is incorporated herein by reference.
ITEM 11.
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 1997 Annual Meeting of Stockholders, which is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and management is contained under the captions "Common Stock Ownership of Directors, Nominees, and Officers" and "Common Stock Ownership of Certain Benefical Owners," included in the Proxy Statement for the 1997 Annual Meeting of Stockholders, which is incorporated herein by reference.
ITEM 13.
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 1997 Annual Meeting of Stockholders, which is incorporated herein by reference.
PART IV
ITEM 14.
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, 1997.
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 (Registrant)
By /s/ William W. Canfield ------------------------------------- William W. Canfield Chairman, President, Chief Executive Officer and Director
Date: June 27, 1997
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:
/s/ William W. Canfield Chairman, President, Chief June 27, 1997 - ------------------------- Executive Officer and Director William W. Canfield (Principal Executive Officer)
/s/ Richard F. Ford Director June 27, 1997 - ------------------------- Richard F. Ford
/s/ Craig E. LaBarge Director June 27, 1997 - ------------------------- Craig E. LaBarge
/s/ Eugene M. Toombs Director June 27, 1997 - ------------------------- Eugene M. Toombs
/s/ M. Steve Yoakum Director June 27, 1997 - ------------------------- M. Steve Yoakum
/s/ Craig N. Cohen Chief Financial Officer June 27, 1997 - ------------------------- (Principal Financial Craig N. Cohen Officer and Principal Accounting Officer)
EXHIBIT INDEX
Exhibit Number Description - -------------- ----------------------------------------------------------------
2.1* Agreement and Plan of Merger, dated as of July 15, 1996, by and between the Company and Intech Group Inc. +
3.1 Restated Articles of Incorporation of the Company, as amended
3.2 Intentionally Omitted
3.3* Bylaws of the Company
4.1 See Exhibits 3.1 and 3.2
4.2 Warrant Agreement dated as of October 22, 1996 among the Company, First Albany Corporation and Principal Financial Securities, Inc.
10.1* TALX Corporation 1988 Incentive Stock Option Plan ++
10.2* Form of Incentive Stock Option Agreement ++
10.3* TALX Corporation Amended and Restated 1994 Stock Option Plan ++
10.4* Form of Non-Qualified Stock Option Agreement ++
10.5* TALX Corporation 1996 Employee Stock Purchase Plan ++
10.6* TALX Corporation Outside Directors' Stock Option Plan ++
10.7* Loan and Security Agreement, dated June 28, 1996, by and among TALX Corporation, TALX Information Services Corporation and TALX Document Services Corporation, as borrowers, and Petra Capital, LLC, as lender
10.8* 13.25% $4.0 million Subordinated Promissory Note, dated June 28,
10.9** Stock Purchase Warrant issued to Petra Capital, LLC and other participants
10.10* Lease dated March 28, 1996 by and between the Company and Stephen C. Murphy, Thomas W. Holley, Arthur S. Margulis and Samuel B. Murphy, Trustee of the Samuel B. Murphy Revocable Living Trust UTA 1/9/91, dba "Adie Road Partnership"
10.11** Lease dated August 23, 1993 by and between the Prudential Insurance Company of America, a New Jersey corporation and EKI Incorporated
Exhibit Number Description - -------------- ----------------------------------------------------------------
10.12* Registration Rights Agreement dated March 15, 1994 among the Company, Intech Group Inc. and Intech Partners, L.P.
10.13** Amended and Restated Preferred Stock Purchase Agreement dated December 23, 1988 among the Company, MiTek Industries, Inc., Intech Group Inc., Gateway Venture, Zinsmeyer Trusts Partnership, and Missouri Venture Partners, L.P.
10.14** Securities Purchase Agreement dated November 28, 1990 among the Company, MiTek Industries, Inc., Intech Group Inc., Gateway Venture Partners II, L.P., and Zinsmeyer Trusts Partnership
10.15* Amendment and Waiver Agreement dated as of July 28, 1996 between the Company, Intech Group, 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* Variable Rate Note in the principal amount of $1,500,000 dated August 2, 1994 between the Company and Southwest Bank of St. Louis due August 1, 1997
10.18* Line of Credit Note in the principal amount of $4,000,000 dated May 1, 1996 between the Company and Southwest Bank of St. Louis due December 31, 1996
10.19* Debenture Purchase Agreement dated May 11, 1990 among the Company, Intech Group, Inc., MiTek Industries, Inc., Gateway Venture Partners II, L.P., Zinsmeyer Trusts Partnership, H. Richard and Gloria Grodsky, W. Gary and Debra Lowe, Michael and Della Smith and John E. and Janet B. Tubbesing
10.20** First Amendment to the Stock Purchase Warrant issued to Petra Capital, LLC and other participants
10.21*** Employment Agreement between TALX Corporation and Mr. Canfield ++
10.22*** Employment Agreement between TALX Corporation and Mr. Tubbesing ++
10.23*** Employment Agreement between TALX Corporation and Mr. Smith ++
10.24*** Employment Agreement between TALX Corporation and Mr. Cohen ++
11.1 Statement re Computation of Per Share Earnings
21.1* Subsidiaries of the Company
Exhibit Number Description - -------------- ----------------------------------------------------------------
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
- ---------------
* Incorporated by reference to exhibit with corresponding number to the Company's Registration Statement on Form S-1 (File No. 333-10969)
** Incorporated by reference to exhibit with corresponding number to Amendment No. 1 to the Company's Registration Statement on Form S-1 (File No. 333-10969)
*** Incorporated by reference to exhibit with corresponding number to Amendment No. 2 to the Company's Registration Statement on Form S-1 (File No. 333-10969)
+ 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.