<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, 1996
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 - 9,937,708 as of November 8, 1996
<PAGE> 2
TOTAL RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 9,586 $ 4,201
Accounts receivable, less allowance for doubtful accounts
of $110,000 at September 30, 1996 and $110,000 at June 30, 1996 4,645,235 4,166,486
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,696,317 1,737,734
Deferred Taxes 482,478 482,478
Income tax refund receivable 850,000 850,000
Other current assets 629,274 695,328
------------ ------------
Total current assets 8,312,890 7,936,227
Fixed assets, less accumulated depreciation of $2,839,030
at September 30, 1996 and $2,691,011 at June 30, 1996 2,106,868 2,230,205
Capitalized market research products, less accumulated
amortization of $580,317 at September 30, 1996 and
$511,947 at June 30, 1996 284,449 304,449
Deferred data accumulation costs, net of accumulated depreciation of
$1,498,670 at September 30, 1996 and $1,450,300 at June 30, 1996 327,436 347,436
Goodwill, net of accumulated amortization of $165,102 at
September 30, 1996 and $145,641 at June 30, 1996 1,772,851 1,792,312
Deferred taxes 296,082 290,640
Other assets 271,095 253,282
------------ ------------
Total assets $ 13,371,671 $ 13,154,551
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of notes payable $ 1,367,685 $ 1,584,792
Accounts payable 1,996,052 2,094,153
Accrued expenses and other current liabilities 1,748,762 1,702,126
Accrued restructuring costs 384,344 516,500
Billings in excess of earnings 2,712,914 2,115,142
Income taxes payable 97,848 86,303
------------ ------------
Total current liabilities 8,307,605 8,099,016
Long-term liabilities
Notes payable 2,000,000 2,142,000
Other long -term liabilities 211,655 92,314
------------ ------------
Total liabilities 10,519,260 10,333,330
------------ ------------
Shareholders' equity
Common stock-authorized 20,000,000 shares $.001 par value, 9,937,708 shares
issued and outstanding at September 30, 1996 and
9,882,108 shares issued and outstanding at June 30, 1995 9,937 9,882
Additional paid-in capital 3,518,903 3,505,835
Cumulative translation adjustment (94,575) (90,685)
Retained earnings (581,854) (603,811)
------------ ------------
Total shareholders' equity 2,852,411 2,821,221
------------ ------------
Total liabilities and shareholders' equity $ 13,371,671 $ 13,154,551
============ ============
</TABLE>
(See notes to the consolidated financial statements )
<PAGE> 3
TOTAL RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Sept 30, Sept 30,
1996 1995
------------ ------------
<S> <C> <C>
Revenues $ 6,561,501 $ 5,305,127
Direct costs 3,285,748 2,486,125
------------ ------------
Gross profit 3,275,753 2,819,002
Operating expenses 3,153,296 2,434,127
------------ ------------
Income from operations 122,457 384,875
Interest expense (93,140) (82,057)
Other income (expense), net 4,463 (30,000)
------------ ------------
Income before taxes 33,780 272,818
Provision for income taxes 11,823 97,720
------------ ------------
Net income $ 21,957 $ 175,098
============ ============
Earnings per share $ 0.00 $ 0.02
============ ============
Weighted average common shares
outstanding 10,171,872 10,415,132
============ ============
</TABLE>
See notes to the consolidated financial statements
<PAGE> 4
TOTAL RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,957 $ 175,098
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation 216,389 237,939
Amortization 39,461 48,146
Accretion of warrants 4,000 4,000
Adjustment for foreign currency translation (3,892) (24,532)
(Increase) decrease in assets
Accounts receivable (478,749) (203,345)
Cost and estimated earnings in
excess of billings on uncompleted contracts 41,417 (123,353)
Other assets 42,802 (61,443)
Increase (decrease) in liabilities
Accounts payable (98,101) (266,273)
Accrued expenses (85,520) (15,239)
Billings in excess of earnings 597,772 121,193
Income taxes payable 11,545 4,845
Other liabilities 127,339 (91,686)
----------- -----------
Net cash provided by operating activities 436,420 (194,650)
----------- -----------
Cash flows from investing activities:
Purchases of equipment (28,682) (242,589)
Cash expended for capitalized market
research products -- (109,230)
Deferred data accumulation costs (48,370) (160,230)
----------- -----------
Net cash used by investing activities (77,052) (512,049)
----------- -----------
Cash flows from financing activities:
Repayment of debt (367,107) (1,244,764)
Proceeds from long-term debt -- 1,850,000
Payment under capital lease obligations, net -- 24,964
Proceeds from issuance of common stock 13,124 13,899
----------- -----------
Net cash provided by (used in ) financing
activities (353,983) 644,099
----------- -----------
Net increase (decrease) in cash and cash
equivalents 5,385 (62,600)
Cash and cash equivalents at beginning of period 4,201 128,071
----------- -----------
Cash and cash equivalents at end of period $ 9,586 $ 65,471
=========== ===========
See notes to the consolidated financial statements
</TABLE>
<PAGE> 5
TOTAL RESEARCH CORPORATION
Notes to Financial Statements
September 30, 1996 and 1995
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, 1996 are not
necessarily indicative of the results that may be expected for the year ended
June 30, 1997.
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, 1996 and September 30, 1995. The following summarizes
information on TR-Europe's Statement of Income, converted to U.S. Dollars, using
a weighted average exchange rate of $1.55 for the three month periods ended
September 30, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Three Months Ended
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Revenues $ 1,816,772 $ 1,721,621
Direct Costs 878,191 923,179
----------- -----------
Gross Profit 938,581 798,442
Operating Expenses 882,345 649,792
----------- -----------
Income from operations 56,236 148,650
Income taxes 16,871 41,622
------------ -----------
Net Income $ 39,365 $ 107,028
=========== ============
</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.
PART II - MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Result of Operations - First Quarter Fiscal 1997 as Compared to First Quarter
Fiscal 1996.
Statement of Income Data:
(Expressed as a percentage of revenues) September 30,
-------------
1996 1995
------ ------
[S] [C] [C]
Revenues 100.0% 100.0%
Direct costs 50.1% 46.9%
----- -----
Gross profit 49.9% 53.1%
Operating expenses 48.0% 45.9%
----- -----
Income from operations 1.9% 7.2%
Interest expense 1.4% 1.5%
Other income (expense), net 0.0% (0.6%)
----- -----
Income before income taxes .5% 5.1%
Provision for income taxes .2% 1.8%
----- -----
Net income .3% 3.3%
===== =====
Revenues for the first quarter of fiscal 1997 increased 23.7% or $1,256,374
versus the same quarter in the prior year, to $6,561,501. This increase is due
to the Global Health Care and Quality Management divisions increasing their
revenues as well as the inclusion of the Minneapolis office, which was acquired
in the second quarter of fiscal 1996. The Company consolidated its Consumer
Research and Information Technologies divisions into its newly formed Strategic
Marketing Services division. This division, which also includes its UK
operation, generated revenues equal to those earned for the same period in
fiscal 1996.
<PAGE> 7
The Company's outlook for fiscal year 1997 is for improvement in its operating
results fueled by the reorganization the Company implemented in July 1996. The
Company expects to steadily increase its revenues while continuing to reduce its
operating costs to further improve profitability and cash generation.
The Company defines backlog as the unearned portions of its existing contracts
at each balance sheet date. The Company's backlog at September 30, 1996 was
approximately $9,000,000 as compared to a backlog of approximately $9,600,000 at
June 30, 1996 and approximately $7,400,000 at September 30, 1995. 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 1997 totaled $3,285,748, an
increase of 32% or $799,623 versus the prior year's total of $2,486,125. As
such, they were 50% of revenues, as compared to 47% 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 1997 versus the first quarter of fiscal 1996. 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 typically is more labor intensive
and, therefore, generates higher gross margins.
Operating expenses for the first quarter of fiscal 1997 totaled $3,153,296, an
increase of 29.5% or $719,169 over the same quarter in the prior year. The
increase in operating expenses is mainly the result of the addition of the
Minneapolis office which was acquired during the second quarter of fiscal 1996.
In addition, the Company also incurred additional operating expenses as a result
of its expansion of its European operations first begun during the third and
fourth quarters of fiscal 1996. Expressed as a percent of revenue, operating
expenses increased to 48% of revenue in the first quarter of fiscal 1997, versus
46% in the first quarter of fiscal 1996. Expressed as a percentage of gross
profit, operating expenses increased to 96% of gross profit in the first quarter
of fiscal 1997, versus 86% in the first quarter of fiscal 1996.
Income from operations decreased $262,418 to $122,457 during the first quarter
of fiscal 1996, as compared to $384,875 during the first quarter of fiscal 1996,
for all the reasons set forth herein.
The Company's interest expenses increased $11,083 in the first quarter of fiscal
1997 to $93,140, as compared to $82,057 in the first quarter of fiscal 1996, as
a result the funding of additional working capital necessary to support the
Company's operations.
Income before taxes totaled $33,780 for the first quarter of fiscal 1997, a
decrease of 88% versus $272,818 in the first quarter of fiscal 1996, for the
reasons set forth above.
The income tax provision for the first quarter of fiscal 1997 was $11,823,
versus $97,720 for the first quarter of fiscal 1996 due to the decreased
earnings of the Company.
Net income for the first quarter of fiscal 1997 was $21,957, or $.00 per share,
versus earnings of $175,098, or $.02 per share for the first quarter of fiscal
1996.
<PAGE> 8
Liquidity and Capital Resources
Working capital increased $168,072, to $5,283 at September 30, 1996 from
($162,789) at June 30, 1996, and the current ratio increased to 1.00 from .98.
The increase in working capital and the corresponding increase in current ratio
is attributable to the improving financial performance of the Company.
For the quarter ending September 30, 1996, the Company generated cash from
operations of approximately $436,000. In addition, employees exercised stock
options in the amount of approximately $13,000. As the result of these
activities, approximately $449,000 in cash was available to the Company during
the first quarter. The major uses of this cash were the following:
o Paydown of its lines of credit of approximately $367,000
o Purchase of equipment of approximately $29,000.
o Deferred data accumulation costs of approximately $48,000.
On October 10, 1996, the Company renegotiated its credit agreement with Summit
Bank. The agreement has been amended as follows:
o Payment terms under the three million dollar term debt remain unchanged
except for a pre-payment of an amount up to $500,000 upon receipt of the
Company's Federal tax refund. The interest rate on the Company's debt was
increased from a fixed rate of 8.25 percent to a fixed rate of 9.5 percent.
o The $1.25 million revolving line of credit remains unchanged until December
1996 when it will be reduced to $1.0 million. The interest rate increased
from prime plus 1 percent to prime plus 3 percent; the interest rate can be
reduced if the Company can meet certain defined financial ratios. The line
of credit is up for renewal on March 31, 1997.
The Company has a bank overdraft facility of (pound)300,000 with Coutts &
Company in London, UK. The borrowings are charged at a rate of 3 percent above
the UK Base Rate. At September 30, 1996 the borrowings were at (pound)237,216
(approximately $368,000) and the UK Base rate was 6.75 percent. The Company
believes that its current sources of liquidity and capital resources will be
sufficient to fund its long-term obligations and working capital needs for the
foreseeable future.
Net Accounts Receivable totaled $4,645,235 at September 30, 1996, compared to
$4,166,486 at the prior year-end, for a net increase of $478,749. The increase
in receivables is primarily the result of increased revenues.
<PAGE> 9
Costs and estimated earnings in excess of billings on uncompleted contracts
totaled $1,696,317 at September 30, 1996, compared to $1,737,734 at June 30,
1996, for a net decrease of $41,417. This amount decreased as the result of
normal fluctuations in the business.
There has been no material change in current and long-term deferred tax assets
from June 30, 1996 to September 30, 1996. Based on the Company's history of
prior operating earnings and its expectations for the future, which include the
Company's recent restructuring to improve performance, management has determined
that the future operating income of the Company should be sufficient to
recognize fully these net deferred tax assets.
Fixed assets at cost, less accumulated depreciation and amortization decreased
by $123,337 as of September 30, 1996 from $2,106,868 at June 30, 1996 to
$2,230,205. Capital expenditures during the first quarter of fiscal 1997 were
approximately $29,000. The Company's only major expenditure during this fiscal
year will be the purchase of furniture for its reconstructed main office in
Princeton, New Jersey. The Company plans on using a work-letter negotiated with
the landlord to fund this expenditure.
Capitalized Market Research Products decreased by approximately $20,000 to
$284,449, versus $304,449 at June 30,1 996. During the first quarter of fiscal
1997 the Company did not invest any money in any new products.
Deferred Data Accumulation Costs decreased by approximately $20,000 from
$304,449 at June 30, 1996 to $284,449 at September 30, 1996. This decline is the
result of a reduction in the annual investment the Company is making in its
EquiTrend product.
Accounts payable, accrued restructuring costs and accrued expenses totaled
$4,129,158, a decrease of $183,621 during the first quarter of fiscal 1997 from
$4,312,779 at June 30, 1996. This decrease is due to the Company reducing the
accrued restructuring costs it incurred in the fourth quarter of fiscal 1996 as
well as normal fluctuations in these accounts.
Billings in excess of earnings totaled $2,712,914, an increase of $597,772
during the first quarter of fiscal 1997 from $2,115,142 at June 30, 1996. The
acquisition of the Minneapolis office as well as the more aggressive billing
policy of the Company have accounted for this increase.
Income taxes payable totaled $97,848, an increase of $11,545 during the first
quarter of fiscal 1997 from $86,303 at June 30, 1996. This increase is the
result of normal business fluctuations.
Inflation had no material effect on the financial performance of the Company
during the first quarter of fiscal 1997.
<PAGE> 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal actions, proceedings or litigation 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
Reference subsequent event incorporated from 10-KSB submission of
October 15, 1996.
Item 6. Exhibits
Restated Credit agreement with Summit Bank dated October 10, 1996
incorporated by reference from 10-KSB submission of October 15, 1996.
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/ ERIC ZISSMAN
---------------------------------
BY: ERIC ZISSMAN
CHIEF FINANCIAL OFFICER
Dated: November 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-START> Jul-1-1996
<PERIOD-END> Sep-30-1996
<EXCHANGE-RATE> 1
<CASH> 9,586
<SECURITIES> 0
<RECEIVABLES> 4,755,235
<ALLOWANCES> 110,000
<INVENTORY> 0
<CURRENT-ASSETS> 8,312,890
<PP&E> 4,945,898
<DEPRECIATION> 2,839,030
<TOTAL-ASSETS> 13,371,671
<CURRENT-LIABILITIES> 8,307,605
<BONDS> 0
0
0
<COMMON> 9,937
<OTHER-SE> 2,842,474
<TOTAL-LIABILITY-AND-EQUITY> 13,371,671
<SALES> 6,561,501
<TOTAL-REVENUES> 6,561,501
<CGS> 3,285,748
<TOTAL-COSTS> 3,153,296
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,140
<INCOME-PRETAX> 33,780
<INCOME-TAX> 11,823
<INCOME-CONTINUING> 21,957
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,957
<EPS-PRIMARY> 0.0
<EPS-DILUTED> 0.0
</TABLE>
