<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDING SEPTEMBER 30,
1995
Commission File Number: 0-15692
TOTAL RESEARCH CORPORATION
--------------------------
(Exact name of Registrant as specified in Charter)
DELAWARE 22-2072212
-------- ----------
(State of Incorporation) (IRS Employer Identification No.)
Princeton Corporate Center, 5 Independence Way
Princeton, New Jersey 08543-5305
--------------------- -----------
(Address of principal executive offices) (Zip Code)
(609) 520-9100
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months or such shorter period that the registrant
was required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--------- ----------
Common Stock, $.001 Par Value - 9,850,708 as of November 20, 1995
<PAGE> 2
TOTAL RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
-------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 65,471 $ 128,071
Accounts receivable, less allowance for doubtful accounts
of $58,625 at September 30, 1995 and $58,625 at June 30, 1995 3,781,838 3,578,493
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,808,394 1,685,041
Deferred Taxes 270,478 270,478
Other current assets 437,483 375,209
----------- -----------
Total current assets 6,363,664 6,037,292
Fixed assets, less accumulated depreciation of $2,357,666
at September 30, 1995 and $2,237,727 at June 30, 1995 2,221,544 2,101,383
Capitalized market research products, less accumulated
amortization of $466,402 at September 30, 1995 and
$436,402 at June 30, 1995 436,688 357,458
Deferred data accumulation costs, net of accumulated depreciation of
$888,300 at September 30, 1995 and $770,300 at June 30, 1995 898,942 858,223
Goodwill, net of accumulated amortization of $89,366 at
September 30, 1995 and $71,220 at June 30, 1995 1,716,087 1,734,233
Deferred taxes 433,082 433,082
Other assets 220,089 220,920
----------- -----------
Total assets $12,290,096 $11,742,591
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of notes payable $ 2,363,875 $ 1,666,056
Accounts payable 1,419,920 1,686,193
Accrued expenses 1,262,253 1,277,492
Billings in excess of earnings 1,189,473 1,068,280
Income taxes payable 133,341 128,496
----------- -----------
Total current liabilities 6,368,862 5,826,517
Long-term liabilities
Capital lease obligations 69,314 44,350
Notes payable 1,268,675 1,361,258
Other long-term liabilities 96,094 187,780
----------- -----------
Total liabilities 7,802,945 7,419,905
----------- -----------
Shareholders' equity
Common stock-authorized 20,000,000 shares $.001 par value,
9,850,708 shares issued and outstanding at September 30, 1995 and
9,822,708 shares issued and outstanding at June 30, 1995 9,851 9,823
Additional paid-in capital 3,484,300 3,470,429
Cumulative translation adjustment (61,331) (36,799)
Retained earnings 1,054,331 879,233
----------- -----------
Total shareholders' equity 4,487,151 4,322,686
----------- -----------
Total liabilities and shareholders' equity $12,290,096 $11,742,591
=========== ===========
</TABLE>
(See notes to the consolidated financial statements )
<PAGE> 3
TOTAL RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
September 30, September 30,
1995 1994*
-------------- --------------
<S> <C> <C>
Revenues $ 5,305,127 $4,319,250
Direct costs 2,486,125 1,828,375
----------- ------------
Gross profit 2,819,002 2,490,875
Operating expenses 2,434,127 2,181,774
----------- ------------
Income from operations 384,875 309,101
Interest expense (82,057) (24,182)
Other income (expense), net (30,000) 1,960
------------ ------------
Income before taxes 272,818 286,879
Provision (benefit) for income taxes 97,720 108,153
----------- ------------
Net income $ 175,098 $ 178,726
=========== ============
Earnings per share $ 0.02 $ 0.02
=========== ============
Weighted average common shares
outstanding 10,415,132 9,795,022
=========== ============
</TABLE>
* - Restated
See notes to the consolidated financial statements
<PAGE> 4
TOTAL RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
September 30, September 30,
1995 1994*
------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 175,098 $ 178,726
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation 237,939 190,323
Amortization 48,146 43,032
Accretion of warrants 4,000 4,000
Adjustment for foreign currency translation (24,532) 30,955
(Increase) decrease in assets
Accounts receivable (203,345) 517
Cost and estimated earnings in
excess of billings on uncompleted contracts (123,353) 51,798
Other assets (61,443) 25,851
Increase (decrease) in liabilities
Accounts payable (266,273) (263,998)
Accrued expenses (15,239) 77,410
Billings in excess of earnings 121,193 (245,270)
Income taxes payable 4,845 (20,631)
Other liabilities (91,686) (18,163)
------------ ------------
Net cash provided by operating activities (194,650) 54,550
------------ -----------
Cash flows from investing activities:
Purchases of equipment (242,589) (189,856)
Cash expended for capitalized market
research products (109,230) -
Acquisition of certain assets of BMS,
net of cash acquired - (1,685,551)
Deferred data accumulation costs (160,230) (169,710)
------------ ------------
Net cash used by investing activities (512,049) (2,045,117)
------------ ------------
Cash flows from financing activities:
Repayment of debt (1,244,764) (500,000)
Proceeds from long-term debt 1,850,000 1,791,538
Payment under capital lease obligations, net 24,964 36,456
Proceeds from issuance of common stock 13,899 79,917
----------- -----------
Net cash provided by (used in ) financing
activities 644,099 1,407,911
----------- -----------
Net increase (decrease) in cash and cash
equivalents (62,600) (582,656)
Cash and cash equivalents at beginning of period 128,071 671,646
----------- -----------
Cash and cash equivalents at end of period $ 65,471 $ 88,990
=========== ===========
</TABLE>
* - Restated
See notes to the consolidated financial statements
<PAGE> 5
TOTAL RESEARCH CORPORATION
Notes to Financial Statements
September 30, 1995 and 1994
Note 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended September 30, 1995
are not necessarily indicative of the results that may be expected for the year
ended June 30, 1996.
Note 2 - Presentation of European Subsidiary - TR-Europe
The summary of financial information, set forth below should be read in
conjunction with the consolidated financial statements as of and for the period
ended September 30, 1995 and September 30, 1994. The following summarizes
information on TR-Europe's Statement of Income, converted to U.S. Dollars using
a weighted average exchange rate of $1.59 and $1.58, for the three month
periods ended September 30, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
Three Months Ended
September 30, September 30,
1995 1994
---------------- ---------------
<S> <C> <C>
Revenues $ 1,721,621 $ 732,295
Direct Costs 923,179 225,294
----------- -----------
Gross Profit 798,442 507,001
Operating Expenses 649,792 426,233
----------- -----------
Income from operations 148,650 80,768
Income taxes 41,622 20,191
----------- -----------
Net Income $ 107,028 $ 60,577
=========== ===========
</TABLE>
<PAGE> 6
Note 3 - Measurement of Goodwill
Goodwill has been recorded in relation to the excess of the purchase price over
the fair values of the identified assets acquired. The Company amortizes
goodwill over twenty-five years. The carrying value of goodwill is evaluated
periodically in relation to the operating performance and future undiscounted
net cash flows of the underlying business. Adjustments are recorded if the sum
of the expected future net cash flows is less than the book value of the
goodwill.
Note 4 - Letter of Intent to Acquire Carlson Research Company
On September 9, 1995, the Company signed a letter of intent to acquire the
assets of the Carlson Research Company ("CRC"), a division of Carlson Marketing
Group. CRC provides market research services to a variety of companies,
including Carlson Marketing Group. The purchase price is expected to consist
of approximately $500,000 in cash, payable at closing, and a contingent payment
based upon incremental sales, as defined, subject to certain minimum levels,
for a period of four years.
The Company intends to fund the acquisition with term debt already secured
through United Jersey Bank.
<PAGE> 7
PART II - MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Result of Operations - First Quarter Fiscal 1996 as Compared to First Quarter
Fiscal 1995.
<TABLE>
<CAPTION>
Statement of Income Data:
- -------------------------
(Expressed as a percentage of revenues) September 30,
-------------
1995 1994
---- ----
<S> <C> <C>
Revenues 100.0% 100.0%
Direct costs 46.9% 42.3%
----- -----
Gross profit 53.1% 57.7%
Operating expenses 45.9% 50.5%
----- -----
Income from operations 7.2% 7.2%
Interest expense 1.5% 0.6%
Other income (expense), net (0.6%) 0.0%
------ ------
Income before income taxes 5.1% 6.6%
Provision for income taxes 1.8% 2.5%
---- -------
Net income 3.3% 4.1%
</TABLE>
Revenues for the first quarter of fiscal 1996 increased 23% or $985,877 versus
the same quarter in the prior year, to $5,305,127. This increase in revenue is
the result of a significant increase in revenues from its European division as
well as increasing revenues in its Quality Management and Information
Technologies divisions. The Company's Health Care division maintained the
revenue level of last year. The Company's Consumer Research division revenues
were below last year's level. The decline in revenues in the Consumer Research
Services division during the first quarter of fiscal 1996 can be attributed to
the management focus in the division on the development of new products. This
division, which markets the Company's EQUITREND product, invested heavily in
the second half of fiscal 1995 in developing new products using the EQUITREND
database that it has introduced in the first quarter of fiscal 1996.
The Company's outlook for fiscal year 1996 is for steady improvement in
operating results based on increasing revenues due to increasing clients and
capabilities (including its recent Letter of Intent to purchase Carlson
Research Company), its commitment to its internal total quality management
program (which includes a focus on re-engineering its research processes to
improve profitability and customer
<PAGE> 8
satisfaction on projects), its commitment to develop cutting-edge predictive
market research products and its efforts to reduce its general and
administrative expenses as a percentage of total revenues.
The Company defines backlog as the unearned portions of its existing contracts
at each balance sheet date. The Company's backlog at September 30, 1995 was
approximately $7,400,000 as compared to a backlog of approximately $7,300,000
at June 30, 1995 and approximately $5,700,000 at September 30, 1994. The
amount of backlog at any time may not be indicative of intermediate or
long-term trends in the Company's operations.
Direct costs for the first quarter of fiscal 1996 totaled $2,486,125, an
increase of 36% or $657,750 versus the prior year's total of $1,828,375. As
such, they were 47% of revenues, as compared to 42% of revenues in the prior
year. This increase in direct costs as a percentage of revenues is the result
of the Company's overall change in the mix of work it performed during the
first quarter of fiscal 1996 versus the first quarter of fiscal 1995. The
Company delivered a much greater percentage of quantitative business during the
first quarter, which typically includes substantial out-of-pocket expenses for
data collection versus qualitative business, which is typically more labor
intensive and, therefore, generates higher gross margins.
Operating expenses for the first quarter of fiscal 1996 totaled $2,434,127, an
increase of 12% or $252,353 over the same quarter in the prior year. The
increase in operating expenses is the result of the Company's new conservative
policy on accounting for its Capitalized Market Research Products, which
significantly increases the threshold on when items may be capitalized. The
increase can also be attributed to the payroll costs associated with the
investment in staffing for new levels of business the Company is experiencing
that are only now beginning to pay off. Expressed as a percent of revenue,
operating expenses decreased to 46% of revenue in the first quarter of fiscal
1996, versus 51% in the first quarter of fiscal 1995, due to the change in
business mix towards quantitative studies cited above. Expressed as a
percentage of gross profit, operating expenses decreased to 86% of gross profit
in the first quarter of fiscal 1996, versus 88% in the first quarter of fiscal
1995.
Income from operations increased $75,774 to $384,875 during the first quarter
of fiscal 1996, as compared to $309,101 during the first quarter of fiscal
1995, for all the reasons set forth herein.
The Company's interest expenses increased $57,875 in the first quarter of
fiscal 1996 to $82,057, as compared to $24,182 in the first quarter of fiscal
1995, as a result of the funding of the acquisition of TR - Europe and the
funding of additional working capital related to the Company's growth.
Other income (expense) totaled ($30,000) for the first quarter of fiscal 1996,
a decrease of $31,960 versus income of $1,960 during the first quarter of
fiscal 1995, due primarily to the reserve for the professional services
provided by Price Waterhouse for dealing with the issues before the SEC, as
discussed on the Company's Form 8-K filed on October 13, 1995. Also included
is licensing income of approximately $20,000 earned by the Company as the
result of its licensing arrangement with TRCA in Argentina.
<PAGE> 9
Income before taxes totaled $272,818 for the first quarter of fiscal 1996, a
decrease of 5% versus $286,879 in the first quarter of fiscal 1995 for the
reasons set forth above.
The income tax provision for the first quarter of fiscal 1996 was $97,720,
versus $108,153 for the first quarter of fiscal 1995 due to the decreased
earnings of the Company.
Net income for the first quarter of fiscal 1996 was $175,098, or $.02 per
share, versus earnings of $178,726, or $.02 per share for the first quarter of
fiscal 1995.
Liquidity and Capital Resources
Working capital dropped $215,973, to ($5,198) at September 30, 1995 from
$210,775 at June 30, 1995, and the current ratio dropped to 1.00 from 1.04 at
the same point in time. The reduction of working capital and the corresponding
decline in current ratio is attributable to the increased requirements for
working capital associated with the growth of the Company's continuing business
at a rate of approximately 18% in terms of revenues. The change in business
mix contributed to the decline in working capital; the Company typically incurs
a greater portion of cash costs to external vendors in the early phases of such
projects. The Company also attributes its reduced working capital to
investments in staffing for the new levels of business it is experiencing that
are only now beginning to pay off.
The Company's Notes Payable (both short term and long term) were approximately
$3.6 million at September 30, 1995, compared to $3.0 million at June 30, 1995,
an increase of $.6 million. The uses of cash were the reduction of the
Company's accounts payable, the development of its Capitalized Market Research
Products and a slow down in the collection of receivables from its clients.
The structure of the Company's Notes payable was $1.27 million long-term and
$2.36 million short-term. The Company is currently in negotiation with United
Jersey Bank, to improve the structure of its debt. It should be noted that the
Company's largest tangible asset, its receivables, is currently the primary
mechanism by which the company obtains credit, which is an explanatory factor
for the current debt structure.
Inflation had no material effect on the financial performance of the Company
during the periods reported.
In June 1995, the Company revised its existing line of credit with United
Jersey Bank of Princeton, NJ, as a step towards restructuring the debt. The
components of this loan package are as follows:
A $2.05 million revolving line of credit capped at 75% of eligible
receivables (including standby letters of credit of approximately
$125,000). The interest rate is based on certain financial covenants.
At September 30, 1995, the Company had borrowed $1,650,000 against the
revolving line of credit and was paying interest at prime (9% at
September 30, 1995) plus 1/2%. The Company is obligated to pay United
Jersey Bank a commitment fee of 1/4% on the average unused amount of
the revolving line of credit, paid quarterly.
<PAGE> 10
A five-year $775,000 term loan to finance equipment purchases in June
1994. In June 1995, the Company refinanced this term loan from a
revolving interest rate based on certain financial ratios to a fixed
rate of 8.6% per annum.
A three-year $700,000 term loan to finance the acquisition of Total
Research - Europe drawn down in September 1994. In June 1995, the
Company refinanced this term loan from a revolving interest rate based
on certain financial ratios to a fixed rate of 8.5% per annum.
A three-year $550,000 term loan to finance equipment purchases drawn
down in June 1995. The Company will pay interest at a fixed rate of
8.65% per annum.
The original agreement with United Jersey Bank, executed in 1991, also
contained a provision that the Company grant to United Jersey Bank five-year
warrants for 232,514 shares of the Company's common stock at an exercise price
of $1.75 per share. The agreement also contained restrictions, one of which
requires the Company to maintain certain financial ratios. The Company was in
default of certain financial ratios at September 30, 1995 and has obtained a
waiver of compliance from the United Jersey Bank.
The Company also has a bank overdraft facility of pound sterling 300,000 with
Coutts & Co in London, England. This facility is charged at a rate of 3% above
the UK Base Rate. At September 30, 1995, the bank borrowings were at pound
sterling 201,802 (approximately US$ 319,412) and the UK Base Rate was 6.75%.
Cash totaled $65,471 at September 30, 1995, a 49% decrease from the prior
year-end balance of $128,071. The decrease is mainly the result of the
expansion of the business as set out above. The Company's liquidity, including
cash and the undrawn portions of its revolving credit agreements, are adequate
to fund the Company's ongoing operations.
Net Accounts Receivable totaled $3,781,838 at September 30, 1995, compared to
$3,578,493 at the June 30, 1995, for a net increase of $203,345. The increase
in receivables is the result of a slow down in receiving payment from clients
as well as the Company's increasing business.
Costs and estimated earnings in excess of billings on uncompleted contracts
totaled $1,808,394 at September 30, 1995, compared to $1,685,041 at June
30,1995, for a net increase of $123,353. The normal fluctuations in the billing
cycle of work-in-progress accounted for this increase.
Fixed assets at cost, less accumulated depreciation and amortization increased
by $120,161 at September 30, 1995 to $2,221,544, compared to $2,101,383 at June
30, 1995, due primarily to the expansion of the Company's London operations.
<PAGE> 11
Capitalized Market Research Products, net increased by $79,230 at September 30,
1995 to $436,688, compared to $357,458 at June 30, 1995. The increase is the
result of several new products the Company is currently developing. The
Company plans to introduce these products during fiscal year 1996.
Deferred Data Accumulation Costs increased by $40,719 at September 30, 1995 to
$898,942, compared to $858,223 at June 30, 1995. This increase is the result
of the expansion of EquiTrend product in the U.S. and its introduction in the
U.K., as well as the addition of two new products, AirTrack and BrandMobile, in
the U.K..
Current portion of notes payable increased by $697,819 at September 30, 1995 to
$2,363,875, compared to $1,666,056 at June 30, 1995. The increase is due to
the draw downs under its revolving credit facilities attributable to the
additional working capital needs associated with the growth of the Company's
business.
Accounts payable and accrued expenses decreased by $281,512 at September 30,
1995 to $2,682,173, compared to $2,963,685 at June 30, 1995. The decrease is
the result of the paydown of the Company's payables.
Billings in excess of earnings increased $121,193 at September 30, 1995 to
$1,189,473, compared to $1,068,280 at June 30, 1995. The normal fluctuations in
the billing cycle of work-in-progress accounted for this increase.
Federal and state income taxes payable increased $4,845 at September 30, 1995
to $133,341, compared to $128,496 at June 30, 1995.
The long-term portion of lease obligations increased $24,964 at September 30,
1995 to $69,314, compared to $44,350 at June 30, 1995. Leases assumed by TR -
Europe accounted for this increase.
Notes payable decreased $92,583 at September 30, 1995 to $1,268,675, compared
to $1,361,258 at June 30, 1995. This decrease can be attributed to the normal
paydown of the Company's existing term debt.
<PAGE> 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal actions, proceedings or litigations pending or
threatened to the knowledge of the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other information
None.
Item 6. Exhibits
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
undersigned has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOTAL RESEARCH CORPORATION
--------------------------
(Registrant)
/s/ LORIN ZISSMAN
------------------------
BY: LORIN ZISSMAN,
CHIEF EXECUTIVE OFFICER
/s/ JOHN PARSONS
------------------------
BY: JOHN PARSONS,
CHIEF FINANCIAL OFFICER
Dated: November 20, 1995
<PAGE> 13
EXHIBIT INDEX
-------------
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 65,471
<SECURITIES> 0
<RECEIVABLES> 3,840,463
<ALLOWANCES> 58,625
<INVENTORY> 0
<CURRENT-ASSETS> 6,363,664
<PP&E> 4,579,210
<DEPRECIATION> 2,357,666
<TOTAL-ASSETS> 12,290,096
<CURRENT-LIABILITIES> 6,368,862
<BONDS> 0
<COMMON> 9,851
0
0
<OTHER-SE> 4,477,300
<TOTAL-LIABILITY-AND-EQUITY> 12,290,096
<SALES> 0
<TOTAL-REVENUES> 5,305,127
<CGS> 2,486,125
<TOTAL-COSTS> 4,920,252
<OTHER-EXPENSES> 30,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,057
<INCOME-PRETAX> 272,818
<INCOME-TAX> 97,720
<INCOME-CONTINUING> 175,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 175,098
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
