<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[ X ] Annual Report Pursuant To Section 13 or 15 (d) of the Securities
Exchange Act of 1934 (Fee required) for the Fiscal Year Ended June 30,
1996
Commission File Number: 0-15692
TOTAL RESEARCH CORPORATION
(Exact name of Registrant as specified in Charter)
Delaware 22-2072212
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
Princeton Corporate Center
5 Independence Way, CN 5305
Princeton, New Jersey 08543-5305
(Address of principal executive office)
Registrant's telephone number including area code: (609) 520-9100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value;
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ NO / /
The aggregate market value of the voting stock of the registrant held by
non-affiliates as of September 19, 1996 was approximately $6,295,889 based on
the average bid and asked prices for such Common Stock as reported on the NASDAQ
system.
The number of shares of Common Stock outstanding as of September 19, 1996 was
9,912,108.
Documents incorporated by reference: None
<PAGE> 2
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
Total Research Corporation ("The Company"), is engaged in the business of
providing full-service marketing research in the form of information and
analyses for use in strategic and tactical marketing decisions.
The Company became operative in 1975 in the State of New Jersey, then, in 1986,
reincorporated in the State of Delaware and qualified to do business in the
State of New Jersey.
The Company became a Public Company by filing and registering with the
Securities and Exchange Commission effective on March 26, 1987.
In 1994, the Company acquired Business Marketing Services, Ltd., a marketing
research company based in London, England.
(B) NARRATIVE DESCRIPTION OF BUSINESS
The Company is a full-service marketing research firm that provides information
and analyses for use in strategic and tactical marketing decisions. The Company
uses advanced statistical techniques, proprietary software and information
systems to develop statistical data bases to develop market analyses. Its
clients use these analyses as the basis for strategies to enhance the market
performance of existing and proposed products and services. The Company believes
that it is one of the leading companies specializing in the development and
application of advanced statistical techniques to marketing information and
issues.
The Company emphasizes predictive market research, which is typically more
complex and offered at higher prices than other forms of market research. The
Company also performs a substantial volume of traditional market research. The
Company's ability to provide predictive market research has been an important
factor in obtaining contracts for more traditional market research. Traditional
market research makes up for the majority of market research products and
constitutes the primary business of most market research firms. Although the
current market for predictive market research using advanced statistical
techniques is smaller than that for research using more traditional techniques,
the Company believes that demand for market research using advanced statistical
methodologies has been increasing more rapidly.
The Company provides these analyses either through custom-designed studies for
specific clients, or through proprietary standardized packages of advanced
statistical research and analysis techniques that address certain frequently
encountered marketing concerns. Standardized packages currently offered by the
Company include systems for determining price elasticity, the effects of the
introduction or elimination of a particular brand on the market shares of
competing brands, and the effect of product attributes on customer purchase
decisions. The Company has used its standardized packages to conduct studies
relating to products in a number of different industries.
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The Company has a substantial client base that is among the 500 largest
companies in the United States as well as industry leaders around the world.
INDUSTRY BACKGROUND
The market research industry is composed of a diverse group of marketing,
advertising, public opinion, and product development and positioning research
organizations that gather, process and analyze information. They obtain and
measure consumers' reactions and behavior concerning products and services,
promotions, pricing and distribution.
Market research organizations vary greatly in size and scope, ranging from local
field interviewing groups to full-service organizations offering extensive data
base and data collection capabilities providing a wide array of reports and
analyses to many industry groups. Many organizations conduct custom studies,
responding to the issues of a single client, and many conduct multi-client
studies, which typically provide information on issues for a specific industry.
PRODUCTS AND SERVICES
Custom-Designed Studies: The Company's primary business has been to provide
clients with custom-designed research in which the client retains the exclusive
use of the resulting study and the related database. These studies address both
long-term strategic and short-term tactical marketing considerations. These
include market positioning for new and existing products, projections of future
market potential, segmentation of markets, and identification of significant
brand attributes.
The development of a custom-designed study, as conducted by the Company,
involves a number of steps, which begin even before final agreement by the
client to undertake the project. The process of developing a proposal for a
research project begins with the formulation of study objectives. In a
single-client study, study objectives typically originate with the client,
although the Company often assists in refining the objectives. Study design
includes selecting the universe of respondents to be studied and the sampling
techniques to be employed, establishing the information required, and deciding
the methods of statistical analysis and means of reporting.
After a contract is awarded to the Company, it begins the process of collecting,
processing, and analyzing data. The Company develops a database for each study
it conducts. Because of its extensive in-house facilities, the Company can
readily provide the client with several means of accessing this database,
including storage media from which the client can manipulate the data using
software developed by the Company.
The average base price of a custom-designed, single client study in fiscal 1996
was approximately $50,000. The time to complete such a study generally ranges
from 8 to 12 weeks, although studies involving ongoing data collection generally
require monthly or quarterly interim reporting.
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Proprietary Packages: Based on its experience in conducting custom-designed,
single-client studies using statistical methodologies, the Company has been able
to identify certain marketing issues frequently encountered by clients in a
broad range of industries. In response, the Company has developed standardized
packages to address these marketing issues.
The standardized packages are software which embed proprietary combinations of
various advanced statistical methodologies and algorithms that permit a client's
marketing management to compose and alter, on an ongoing basis, various
scenarios designed to explain and predict consumer behavior and product sales
levels. The design of the software allows the Company to tailor the study and
report to the needs of the individual client. The client may receive information
in the form of written reports, company presentations or by delivery of the
database and a customer version of the relevant proprietary software. The use of
standardized packages decreases the Company's cost of designing and implementing
a study for a potential client, while increasing the value of the results.
The Company's standardized packages include:
- Price Elasticity Measurement System ("PEMS") permits the
evaluation of pricing strategies for different products and
services. PEMS is designed to enable the client to predict sales
of products and services under a broad range of possible
competitive pricing scenarios.
- Component Assessment ("COMPASS") is designed to enable clients to
analyze the structure of a competitive market and to determine the
effect that individual product attributes have on a customer's
purchase decision. This package can be utilized in developing
products or selecting attributes for advertising messages for
specific markets.
- Predictive Segmentation is a technology that enables marketers to
identify the various segments and or sub-markets of individual
products and to differentiate the demands of each segment.
Predictive Segmentation is particularly powerful as it combines
demographic and usage and attitude factors in determining the
optimal segmentation.
- Total Research Bias Correction (TRBC) is a technology that
enables marketers to improve the accuracy and value of any
research by reducing fundamental sources of bias, error, and
distortion in market research data. This results in a better
understanding of marketing behavior and substantial improvement of
the predictive accuracy and value of market research.
Multi-Client Studies: Multi-client studies are generally designed by a market
research firm to meet what the firm perceives to be an informational need shared
by a number of potential clients. The initial focus of the study and early study
design are usually developed by the research firm at its own expense before
client commitments are obtained. The completed study is sold to a number of
clients, each of whom obtains access to the study results on a non-exclusive
basis.
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EQUITREND: This product provides strategic guidance to improve brand equity.
Brand equity is defined as the inherent value in a particular brand name of
product or service, resulting from consumer experiences with, and perceptions
of, the brand. As such, it is based on actual usage, as well as the expectations
created by advertising, publicity, word-of-mouth, packaging, etc., and is best
measured as perceived quality.
Because of the nature of the data EQUITREND provides, subscribers tend to
contract for additional projects to provide further in-depth analysis or explore
other aspects of their brands' marketing. EQUITREND is highly compatible with
other proprietary technologies offered by the Company. To date, over 100 US.
corporations have invested in information through EQUITREND.
Customer Loyalty Management: In 1984, the Company began working on a major study
to evaluate and track on an ongoing basis the opinions of customers regarding
their level of satisfaction with a major telecommunications service. This
program became the prototype for the Total Research/Quality Management program.
Subsequently, the Company has developed significant enhancements to the program
in order to maximize its effectiveness for managing customer quality perceptions
and launched the Total Research/Customer Loyalty Management product in 1995.
The Total Research Customer Loyalty program was designed to provide a client
with a definition of its customers' service preferences according to customers'
perceptions, to measure how well that client's products or services are meeting
its customers' quality expectations and to measure the customers' loyalty to the
client's product. Output includes definition of which aspects of the client's
product and service have the greatest impact on its quality image, how the
client is performing with regard to quality as compared to its competitors, how
to retain and improve customer loyalty, and trouble spots that should be watched
or changed.
A typical Total Research Customer Loyalty Management program is made up of four
distinct phases, which may take place over an extended period of time. Clients
may contract for the initial phases, and then add later phases as the need for
in-depth research is required, or may contract for a comprehensive program
including action planning and implementation of the changes suggested by the
requests of the client's customers.
Due to the specific experience required to address customer loyalty management
studies, the unit is organized as a division of the Company. The division enjoys
a series of relationships and alliances with several prominent consulting
organizations, with expertise in specific industries and consulting technologies
related to quality management, which constitute complimentary capabilities to
those of the division staff. Members of the division are frequently asked to
speak at and contribute to quality management conferences.
The division offers a broad scope of customer loyalty and quality management
services including strategy development, organization design, change management,
benchmarking, team building, action quality function deployment, process mapping
and re-engineering, ISO 9000 certification training, as well as training to
support identified skills development needs.
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Study Implementation
The Company gathers information for its research projects in a variety of ways,
including telephone and personal interviews, focus groups, mail surveys, content
analysis of various types of communications, store audits and product-use tests.
The Company operates two telephone data collection centers in Tampa, Florida and
London, England. The Tampa facility has 80 fully computerized interviewing
stations and the London facility is currently being expanded to 80 stations. The
Company has its own focus group facilities and has access to other focus group
facilities in major metropolitan areas. Focus groups provide qualitative
information through structured, in-depth discussions in a controlled
environment. The Company's Princeton focus group facility is fully equipped with
audio-visual equipment, as well as a test kitchen for food testing. In addition,
the Company has developed a nationwide network of several hundred independent
field service organizations to conduct personal interviews.
The Company maintains a national probability sample for use as a tool to collect
data to accurately project market and demographic information. This national
probability sample consists of approximately 250 scientifically selected
locations in 48 states which, taken together, provide a representative
cross-section of U.S. population demographics.
The Company uses both cross-tabular and multivariate statistical techniques to
analyze the collected data. Cross-tabulation is the arithmetic compilation of
the results of the data collected and is used for studies with descriptive
objectives, although cross-tabulation also can meet certain limited diagnostic
goals. Multivariate analysis recognizes the interdependence of multiple
variables and attempts to synthesize the results in a simple equation model or
graphic display. Multivariate analysis is usually used to meet both diagnostic
and predictive objectives. The Company believes it is an industry leader in the
utilization of multivariate analysis for predictive research, and often develops
its own software to interpret and enhance its study results.
Clients
The Company has directed its marketing efforts toward companies and institutions
with sophisticated and comprehensive statistical research and marketing
information needs. In fiscal 1996, approximately 84 percent of the Company's
full-service clients were among the 500 largest commercial and financial
companies in the United States and their equivalents internationally. The
Company currently serves approximately 200 commercial clients and several
government agencies. During fiscal 1996, approximately 78 percent of the dollar
value of contracts from full service clients were from recurring research
projects.
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For the fiscal years ended June 30, 1996 and June 30, 1995, the Company had no
single client that contributed revenues of greater than 10 percent.
Fiscal Year Ended June 30,
<TABLE>
<CAPTION>
Industry 1996 1995 1994 Representative Clients
-------- ---- ----- ----- ----------------------
<S> <C> <C> <C> <C>
Health Care 28.6% 25.3% 21.4% Bristol-Myers Squibb, Amgen, Genentech, Roche, Pfizer,
Abbott, Merck, SmithKline Beecham, Ortho-McNeil
Telecommunications/
Information Systems 28.9 23.8 36.1 AT&T, IBM, Motorola, SNET
Sony, SW Bell, DEC,
Sprint, Bell Atlantic, U.S. West
Manufacturing/
Industrial 7.2 14.8 7.1 FMC, Monsanto, Masonite,
Dow Chemical, WITCO, DuPont
Consumer Products 10.4 13.1 11.2 Bausch & Lomb, 3M, Umbro International, Black & Decker,
Jergens, Sara Lee, Michelin
Financial Services 13.8 10.8 10.6 Merrill Lynch, Prudential, Fidelity Investments,
Chemical, Alliance & Leicester
Other 11.1 12.2 13.6 Mercedes-Benz, Mobil, BP Oil,
---- ---- ---- Ryder, USPS
Totals 100.0% 100.0% 100.0%
========= ========= =========
</TABLE>
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Licensing
In August 1992, the Company entered into an agreement with TRCA, s.a. of Buenos
Aires, Argentina, to license its products and the name "Total Research
Argentina." In May 1995, the Company renewed its agreement and alliance with
TRCA through April 30, 1998. The Company has given TRCA the right to represent
the Company in Argentina and to market the Company's proprietary products.
In consideration for the use of the name Total Research and its products, TRCA
will pay the Company royalties based on the gross TRCA revenues. For fiscal 1996
and fiscal 1995, TRCA's royalty obligations to the Company were approximately
$71,700 and $42,000 respectively. The Company has also been granted the
irrevocable option to acquire 25 percent of TRCA in exchange for $2,500 up to
and including April 30, 1998; the Company had not exercised these options as of
June 30, 1996.
On April 16, 1996, the Company signed an alliance with InterScience, S.A., a
Brazilian marketing research firm, which includes an option to purchase an
equity position in the $3 million privately held company which has not been
exercised to date. Brazil is a significant and strategic market for its global
clients and, along with the Argentina operation, provides the Company with a
strong presence in the South American market.
The Company is currently exploring additional strategic alliances and licensing
agreements under which it might gain representation and access to additional
geographic markets.
International Operations
A significant percentage of projects that the Company carries out for its
clients involved conducting marketing research internationally. As a result, the
Company has carried out projects in over 50 countries including most European
countries, throughout South America, Canada and Mexico, China, Japan, Australia,
India and other countries. To do this, the Company has developed a network of
working relationships in key locations around the world with research firms
which it can depend on to provide quality support
In May of 1996, the Company announced a strategic alliance with Asia Market
Intelligence, (AMI), the largest independent marketing services firm in Asia.
This alliance with the $14 million AMI enables the Company to offer full,
comprehensive service for the Asia component of global studies that it
undertakes for such clients as IBM, Mercedes, and Motorola.
Acquisition of Business Marketing Services
Effective July 1, 1994, the Company's wholly owned subsidiary, Total Research,
Ltd.("TR-UK") acquired BMS through a purchase of assets (see Note 2 to the
Consolidated Financial Statements). The full management team and research staff
joined Total Research as part of the acquisition, and the new subsidiary now
conducts business under the name of Total Research in Europe.
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This acquisition places the Company in a strong position in the European
research market and a strong franchise in the most rapidly growing segment of
the European research market, that of pan-European (multi-country) research
projects for major international companies. The management of Total Research -
Europe has wide experience dealing with the European business environment and
its marketing research needs. Total Research - Europe has substantial experience
in both business-to-business and consumer research throughout Europe, will
continue to market several multi-client products developed prior to acquisition
as well as continue to growth of its health care practice.
Management believes that its international expansion will directly benefit the
Company's domestic business. The Company's clients will be better able to use
its sophisticated research techniques in a consistent fashion across Europe,
North America and South America.
Total Research - Europe maintains a pool of interviewers who are European
nationals living in London, giving it the capability to conduct interviews in
the native languages of a wide variety of European countries. Operationally,
clients will have one single, English-speaking point of contact which can
provide project updates, consistent translations, and multi-cultural analysis of
research results. As a result, this acquisition will allow the Company to
develop stronger relationships with major multi-national companies that conduct
sophisticated marketing research projects worldwide.
Acquisition of Carlson Research Company
In November of 1995 the Company acquired Carlson Research Company of
Minneapolis, Minnesota. As part of the terms of the acquisition, Total Research
entered into a strategic alliance with the Carlson Marketing Group to mutually
develop and service business. Revenues attributed to Carlson for 1996 are
approximately $1,300,000.
Backlog
The Company's backlog at June 30, 1996, was approximately $9,600,000 as compared
to approximately $7,300,000 as of June 30, 1995 and approximately $4,500,000 as
of June 30, 1994. The Company defines backlog as the unearned portions of its
existing contracts. The amount of backlog at any time may not be indicative of
intermediate or long-term trends in the Company's operations. The increase from
year to year can be attributed to the addition of Total Research - Europe and
the continuing increase in business serviced in the United States.
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Fee Arrangements
Basic data collection and tabulation assignments generally are obtained by
competitive bidding at a fixed fee. Full-service and advanced-level research
assignments involve competitive bidding or fees payable on a negotiated basis.
Most contracts are negotiated on a fixed-price basis subject to adjustment for
specified criteria. Included in most current contracts are provisions to recover
certain unanticipated costs. The Company sells multi-client studies and can sell
EQUITREND at a quoted retail price. Enhancement services, to the extent
requested by a purchaser, are expected to be negotiated on an individual basis
or to be set at a fixed hourly rate for the particular level of the Company
employee providing the service.
The Company employs the percentage-of-completion method of accounting for
recognizing its revenues on individual projects. Clients are generally billed in
accordance with the terms of applicable contracts, which are not necessarily
indicative of the stage of completion of the project.
Competition
The market research industry is highly competitive and is characterized by a
large number of relatively small organizations and a limited number of large
full service organizations, many of which are believed to have financial
resources greater than those of the Company. Although the Company is not one of
the largest providers of general market research, management believes that it is
currently one of the leading providers of market research and analysis services
using advanced statistical techniques. In 1995, Total Research was listed as one
of the 50 largest companies in the marketing research industry by Marketing
News. The Company's primary competitors include: Burke Marketing Services, Inc.;
M/A/R/C, Inc.; Market Facts, Inc.; National Analysts; and Walker Research
Incorporated.
The Company believes that the principal competitive factors for traditional
market research are the quality of data collection and validation, the ability
to design, implement and report on marketing research subjects in a short period
of time, and price. In addition the Company believes that the principal
competitive factors for market research using advanced statistical techniques
are the quality and experience in developing and implementing this type of
research and the reputation of its personnel. During economic downturns, the
Company may experience increased competition for research budgets, which are
often vulnerable to cost-cutting activities.
Employees
As of June 30, 1996, the Company employed 195 full-time employees. The Company
uses approximately 250 part-time, hourly employees for data gathering and
processing purposes. All employees are non union. Most of the Company's key
personnel have been with the Company more than ten years. The Company believes
that it maintains a positive relationship with its employees.
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ITEM 2. PROPERTIES
The Company's headquarters and principal US operating facility is located in
Princeton, NJ. As of June 30, 1996, the Company was leasing approximately 48,663
square feet of office space for its Princeton operations; the lease expires June
30, 2006. The Company leases a total of 7,559 square feet for its Tampa, Florida
office; the lease expires July 31, 1997. The Company leases a total of 1,926
square feet for its Chicago, Illinois office; the lease expires on December 31,
1998. The Company leases 2,400 square feet for its Poughkeepsie, New York
office; the lease expires on June 30, 1997. The Company leases 4,800 square feet
for its Chiswick, London office space; the lease expires October 31, 2003 with a
tenant break clause at October 31, 1998. The Company leases approximately 6,000
square feet for its Acton, London data collection facility; the lease expires on
March 31, 1999. The Company leases a total of 6,083 square feet for its
Minneapolis, Minnesota office; the lease expires April 30, 2001.
ITEM 3. LEGAL PROCEEDINGS
As of June 30, 1996, there were no material legal actions, proceedings, or
litigation pending at that time, or, to the knowledge of the Company,
threatened, to which the property of the Company was subject, or to which the
Company was a party.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
The Annual General Meeting of shareholders was held on April 16,1996 at the
company's headquarters in Princeton, New Jersey. The following were the
propositions considered and the votes cast:
1. To elect the slate of Directors, as proposed by management (Lorin
Zissman, Hugh J. Devine, William N. Levy, J. Edward Shrawder, Anthony
Galli, Albert Angrisani, Roger Thomas).
<TABLE>
<S> <C>
For 7,775,027
Against 107,680
Abstentions 0
</TABLE>
2. To confirm the appointment of Amper Politziner & Mattia as auditors to
the Company.
<TABLE>
<S> <C>
For 7,757,399
Against 84,878
Abstentions 40,430
</TABLE>
3. Proposal to approve the 1996 Stock Incentive Plan (800,000 shares) and
the Stock Incentive Plan for Total Research Ltd. (245,000 shares).
<TABLE>
<S> <C>
For 4,387,767
Against 435,366
Abstentions 141,920
</TABLE>
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PART II
ITEM 5. MARKET PRICE FOR THE COMPANY'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The high and low bid prices of the Company's Common Stock, as reported by NASDAQ
for the Company's quarters from fiscal 1993 to date were as follows:
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------------- ----------------- ----------------- ----------------
High Low High Low High Low High Low
---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal 1993
Common Stock $ .500 $ .219 $ .563 $ .250 $ .469 $ .313 $ .656 $ .438
Fiscal 1994
Common Stock $ .844 $ .531 $1.160 $ .656 $1.530 $ .813 $1.250 $ .875
Fiscal 1995
Common Stock $1.031 $ .656 $ .875 $ .656 $2.813 $ .781 $2.438 $1.719
Fiscal 1996
Common Stock $2.563 $ 1.75 $1.688 $1.438 $1.188 $0.938 $1.688 $1.375
</TABLE>
The high and low bid and asked prices of Registrant's Common Stock on September
19, 1996 were $0.906 and $0.969, respectively.
The above listed quotes reflect inter-dealer prices without retail mark-up,
mark-down or commissions and are not necessarily representative of actual
transactions or of the true value of the Common Stock.
As of September 19, 1996, the Company had 396 shareholders of record of its
Common Stock. The Company has never declared a dividend and does not plan to do
so in the near future.
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ITEM 6. SELECTED FINANCIAL DATA FOR YEARS ENDED JUNE 30, 1996, 1995,
1994,1993 AND 1992
The following data has been extracted from the annual financial statements
attached hereto as an exhibit:
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------------
Statement of Income Data (000): 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues 23,715 $ 19,250 $ 13,688 $ 12,570 $ 11,866
Direct Costs 11,001 7,905 6,070 5,443 5,368
------- -------- -------- -------- --------
Gross Profit 12,714 11,345 7,618 7,127 6,498
Operating Expenses 13,683 9,785 6,842 6,494 6,174
Unusual Charges 1,101 -- -- -- --
------- -------- -------- -------- --------
Income(Loss)from Operations (2,070) 1,560 776 633 324
Interest Expense (342) (307) (38) (68) (137)
Other Income (Expense),net 87 59 (52) -- 7
------- -------- -------- -------- --------
Income(Loss) Before Income Taxes (2,325) 1,312 686 565 194
Provision (Benefit) for Income Taxes (842) 552 291 (177) (104)
------- -------- -------- -------- --------
Income(Loss) Before Accounting Change (1,483) 760 395 742 298
------- -------- -------- -------- --------
FAS 109 Accounting Change 0 -- 65 -- --
------- -------- -------- -------- --------
Net Income (Loss) (1,483) $ 760 $ 460 $ 742 $ 298
======= ======== ======== ======== ========
Net Income(Loss)Per Common Share ($ 0.15) $ .08 $ .05 $ .09 $ .03
======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------
Balance Sheet Data (000): 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working Capital.(Deficiency) $ (163) $ 210 $1,573 $ 658 $ 130
Total Assets 13,155 11,743 7,440 5,220 5,406
Capital Lease Obligations 2,142 1,406 604 42 134
And Notes Payable
Shareholders' Equity 2,821 $ 4,323 $3,419 $2,552 $1,744
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(A) LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996 the Company had a deficiency of ($162,789) which was a decrease
of $373,564 from June 30, 1995, and the current ratio dropped to .98 from 1.04
at the same point in time. The majority of the decrease is attributable to the
Company accruing approximately $517,000 in reorganization costs (included in
unusual charges) as of June 30, 1996 as well as a loss from operations for the
fiscal year.
For the year ending June 30, 1996 the Company generated cash from operations of
approximately $802,000. The Company generated cash from financing activities in
the amount of $691,000. In addition, cash decreased from $128,071 at June 30,
1995 to $4,201 at June 30, 1996, a reduction of $123,870. As a result of these
activities, approximately $1,368,000 in cash was available to the Company during
the fiscal year. The major uses of this cash were the following:
The purchase of the necessary computer and office
equipment of approximately $775,000 to support the
expansion of the UK and US revenue base.
The funding of the acquisition of the research
division of the CMG group of approximately $307,000.
The funding of the deferred data acquisition costs
related to the EQUITREND product of approximately
$456,000.
The funding of product development costs for its TRBC
and EQUITREND products of approximately $78,000.
In December 1995, the Company revised a prior Credit Agreement (the "Agreement")
dated December 23, 1991, as amended, with Summit Bank of NJ ( See Note 5). The
original agreement with Summit Bank executed in 1991, contained a provision that
the Company grant to Summit 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 violation of these financial ratios
at June 30, 1996 (which were subsequently waived. See Note 14).
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In October 1996, the Company renegotiated its agreement with Summit Bank. The
agreement has been amended as follows:
Payment terms under the 3 million dollar term debt remain unchanged
except for a pre-payment of an amount up to $500,000 due upon the
receipt of the Company's Federal tax refund. The interest rate on the
company's term debt was increased from a fixed rate of 8.25 percent to
a fixed rate of 9.5 percent.
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 financial
ratios. The line of credit is up for renewal on March 31, 1997.
In addition to the Summit Bank agreement discussed above, the Company has a bank
overdraft facility of (pound)300,000 with Coutts & Co in London, UK. The
borrowings against this facility are charged at a rate of 3 percent above the UK
Base Rate. At June 30, 1996, the borrowings were at (pound)215,300
(approximately US $ 335,000) 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 $4,166,486 at June 30, 1996, compared to
$3,578,493 at the prior year-end, for a net increase of $587,993. The increase
in receivables is primarily the result of the Company's increasing business.
Costs and estimated earnings in excess of billings on uncompleted contracts
totaled $1,737,734 at June 30, 1996, compared to $1,685,041 at the prior
year-end, for a net increase of $52,693. This amount increased as the result of
normal fluctuations in the business.
Current and long term deferred tax assets increased by $69,558 from $703,560 in
fiscal year 1995 to $773,118 in fiscal year 1996. Based on the Company's history
of prior operating earnings and its expectations for the future, which include
the company's restructuring efforts 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 increased
by $128,822 in 1996 from $2,101,383 in the prior year to a year-end balance of
$2,230,205. Capital expenditures in fiscal 1996 were approximately $598,000. The
funding for fiscal 1996's capital investment included enhancements to the
Corporate LAN, expanding the operational capacity of its TR-UK subsidiary and
additional office and computer equipment.
Capitalized Market Research Products decreased by $53,009 to $304,449, versus
$357,458 in fiscal 1995. The majority of this decrease is the result of a
$150,000 write-down of products the Company developed that it no longer believes
will produce future revenues as part of a
15
<PAGE> 16
restructuring plan adopted in the fourth quarter of fiscal 1996 (see Note 13).
In addition, the Company did not invest as heavily as it has in the past in
developing products.
16
<PAGE> 17
Deferred Data Accumulation Costs decreased by $510,787 from $858,223 in fiscal
1995 to $347,436 in fiscal 1996. The majority of this decline is the result of a
$400,000 write-down of the value of its EQUITREND product (see Note 13).
Accounts payable and accrued expenses totaled $3,796,279, an increase of
$832,594 during fiscal 1996 from $2,963,685 in fiscal 1995. Additionally, the
Company has accrued $516,500 related to the restructuring expense incurred
during the last quarter of fiscal 1996. The increase is due to the Company
incurring additional liabilities as the result of the acquisition of the
research division of CMG, the expansion of its UK office and as a result of the
continuing expansion of the business, the Company has increased the volume of
data collection which it subcontracts.
Billings in excess of earnings totaled $2,115,142, an increase of $1,046,862
during fiscal 1996 from $1,068,280 in fiscal 1995. The acquisition of the
research division of CMG, the increasing business in both the US and UK offices
and the more aggressive billing policy of the Company have accounted for this
increase.
Income taxes payable totaled $86,303, a decrease of $42,193 during fiscal 1996
from $128,496 in fiscal 1995.
Other long-term liabilities totaled $92,314, a decrease of $95,466 during fiscal
1996 from $187,780 in fiscal 1995. This decrease is the result of normal
business fluctuations.
Inflation had no material effect on the financial performance of the Company
during fiscal 1996.
(B) RESULTS OF OPERATIONS
Statement of Income Data:
<TABLE>
<CAPTION>
(Expressed as a percentage of revenues) Year Ended June 30
-------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Direct costs 46.4% 41.1% 44.3%
----- ----- -----
Gross profit 53.6% 58.9% 55.7%
Operating expenses 57.7% 50.8% 50.0%
Unusual Costs 4.6% -- --
----- ----- -----
Income (loss) from operations (8.7%) 8.1% 5.7%
Interest expense (1.4%) (1.6%) (0.3%)
Other income (expense), net 0.4% 0.3% (0.4%)
----- ----- -----
Income (loss) before income taxes (9.8%) 6.8% 5.0%
Provision for (benefit) from income taxes (3.6%) 2.9% 2.1%
----- ----- -----
Income(loss) before accounting change (6.3%) 3.9% 2.9%
FAS 109 accounting change -- -- 0.5%
----- ----- -----
Net income(loss) (6.3%) 3.9% 3.4%
===== ===== =====
</TABLE>
17
<PAGE> 18
Fiscal Year Ended June 30, 1996 As Compared To Fiscal Year Ended June 30, 1995
Beginning in fiscal 1996, the Company planned to aggressively increase revenues
through geographic expansion as well as through new product introduction. As a
result, the Company incurred significant planned as well as unanticipated
expenses beyond those normally incurred for recurring operations. Revenues for
fiscal 1996 increased 23 percent, or $4,464,606 versus the prior year, to
$23,715,049. This increase was the result of its acquisition of the research
division of CMG, the growth of its Total Research - Europe division, as well as
growth in its Total Research/Customer Loyalty Management and Health Care
divisions. Its two other divisions, Consumer Research Services and Information
Technologies, generated total revenues less than the previous fiscal year.
During fiscal 1996, the Company experienced a change in its business operations
which did not manifest itself until the fourth quarter. The Company delivered a
much greater percentage of quantitative and international business during fiscal
1996 which includes substantial out of pocket expenses for data collection,
which reduces gross profits. As a result, the Company experienced a major
increase of direct costs of $3,096,415 or 39.2 percent from $7,904,831 in fiscal
1995 to $11,001,246 in fiscal 1996. This had a negative impact on Company's
overall gross margins decreasing it from 58.9 percent in fiscal 1995 to 53.6
percent in fiscal 1996.
Operating expenses for fiscal 1996 totaled $13,682,783, an increase of 39.8
percent or $3,897,465 from the fiscal year 1995 total of $9,785,318. Expressed
as a percent of revenue, operating expenses increased to 57.7 percent of revenue
in fiscal 1996, versus 50.8 percent in the prior year. This increase can be
attributed to a number of factors.
- An increase in expense related to the operations and integration
of the research division of CMG and the expansion of the Company's
UK subsidiary.
- The Company's aggressive corporate development program to develop
strategic alliances with firms in different countries to market
its international EQUITREND product as well as the capability to
perform market research on a global basis significantly increased
its operating costs.
- Costs associated with enhancing the overall data processing and
reporting capacity of the Company.
- Finally, the Company incurred increased salary and fringe benefit
costs and increased sales expenses as the result of its increasing
revenues.
The demand for the EQUITREND product was less than anticipated
which necessitated the reevaluation of it on the balance sheet.
However, management still considers EQUITREND to be important to
the current and future strategy of the Company.
Lower gross profits and unanticipated expenses resulted in reduced profitability
for the Company which necessitated action in the fourth quarter by senior
management to correct the problem. The Company announced and immediately
implemented a plan to restructure and consolidate operations which included the
re-organization of its six divisions into four. This plan resulted in a pre-tax
charge of $1,101,500.
18
<PAGE> 19
The charge includes a write-down of capitalized market research products and
deferred data accumulation costs of $550,000, severance costs of $406,500, and
charges to develop and implement the plan of $145,000. Management does not
anticipate incurring additional charges such as these in the foreseeable future.
Loss from operations totaled $2,070,480 for fiscal 1996, a decrease of 232.7
percent or ($3,630,774), versus income from operations of $1,560,294 during
fiscal 1995 for all the reasons set forth above.
The Company's interest expenses increased from $307,460 in fiscal 1995 to
$342,024 in fiscal 1996 as a result of increased borrowings, as discussed under
Liquidity and Capital Resources. It is anticipated that interest expense will
continue to increase in fiscal year 1997 due to the new terms.
Other income totaled $87,097 for fiscal 1996, an increase of $27,805 versus
income of $59,292 earned in fiscal 1995, due primarily to licensing income of
approximately $68,000 earned by the Company as the result of its licensing
arrangement with TRCA in Argentina.
Loss before taxes totaled $2,325,407 for fiscal 1996, a decrease of 277.2
percent or $3,637,533 versus income before taxes of $1,312,126 in fiscal year
1995 for the reasons set forth above.
The income tax benefit for fiscal 1996 was $842,363, versus an income tax
provision of $552,626 in fiscal 1995 due to the loss of the Company. The income
tax benefit represents approximately 36.2 percent of pretax loss in fiscal 1996.
Net loss for fiscal 1996 was $1,483,044, or $.15 per share, versus net income of
$759,500, or $.08 per share for fiscal 1995.
The Company defines backlog as the unearned portions of its existing contracts
at each balance sheet date. At June 30, 1996 backlog was approximately
$9,600,000 as compared to a backlog of approximately $7,300,000 at June 30,
1995. The amount of backlog at any time may not be indicative of intermediate or
long-term trends in the Company's operations.
Fiscal Year Ended June 30, 1995 As Compared To Fiscal Year Ended June 30, 1994
In 1995 the Company's financial performance registered revenues of $19,250,443
and net income of $759,500, or $.08 per share.
The Company defines backlog as the unearned portions of its existing contracts
at each balance sheet date. At June 30, 1995 backlog was approximately
$7,300,000 as compared to a backlog of approximately $4,500,00 at June 30, 1994.
The amount of backlog at any time may not be indicative of intermediate or
long-term trends in the Company's operations.
19
<PAGE> 20
Revenues for fiscal 1995 increased 41 percent, or $5,564,017 versus the prior
year, to $19,250,443. This increase was the result of its acquisition of Total
Research - Europe and its subsequent strong growth performance, as well as
strong growth in its Total Research/Customer Loyalty Management and Health Care
divisions. Its two other divisions, Consumer Research Services and Information
Technologies, generated total revenues less than the previous fiscal year. The
decline in revenues in the Consumer Research Services division during fiscal
1995 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 is plans to introduce
in fiscal 1996. The decline in revenues in the Information Technologies division
can be attributed to a reduction in business from one of its major clients was
well as a restructuring of the division during the early part of the fiscal
year. By the end of the fiscal year, this division generated monthly revenues
greater than it had at the end of fiscal 1994.
Direct costs in fiscal 1995 totaled $7,904,831, an increase of 30.2 percent or
$1,834,191 versus the prior year's total of $6,070,640. As such, they were
41.1 percent of revenues, as compared to 44.4 percent of revenues in the prior
year. This decrease in direct costs as a percentage of revenues is the result of
the Company's overall change in the mix or work it performed during fiscal 1995
versus fiscal 1994, including the integration of Total Research - Europe. The
Company delivered a greater percentage of qualitative business during the year,
which is typically more labor intensive and, therefore, generates higher gross
margins versus quantitative work, which typically includes substantial
out-of-pocket expenses for data collection.
Operating expenses for fiscal 1995 totaled $9,785,318, an increase of 43.0
percent or $2,942,793 from the fiscal year 1994 total of $6,842,525. This
increase can be attributed to a number of factors. This includes the expenses
related to the operation and integration of Total Research - Europe, the shift
towards more qualitative work, increased fringe benefit costs, additional
expenses related to its internal quality management program, increasing
corporate development expenses, increased sales expenses, and the administrative
restructuring of the Company into individually managed research divisions.
Expressed as a percent of revenue, operating expenses increased to 50.8 percent
of revenue in fiscal 1995, versus 50.0 percent in the prior year. The increase
in operating expenses as a percentage of revenue reflects the adjustments during
fiscal 1995 to integrate the acquisition of Total Research - Europe and to set
up the administrative structure necessary to facilitate growth.
Income from operations totaled $1,560,294 for fiscal 1995, an increase of 101.3
percent or $785,033, versus $775,261 during fiscal 1994 for all the reasons set
forth herein.
The Company's interest expenses increased for $37,619 in Fiscal 1994 to $307,460
in fiscal 1995, as a result of the funding of the acquisition of Total Research
- - Europe and the funding of additional working capital related to the Company's
growth.
20
<PAGE> 21
Other income totaled $59,292 for fiscal 1995, an increase of $111,043 versus
expense of $51,751 during fiscal 1994, due primarily to licensing income of
approximately $42,000 earned by the Company as the result of its licensing
arrangement with TRCA in Argentina. The $51,751 expense in fiscal 1994 related
to the loss incurred upon the disposition of the Company's previous mainframe
computer.
Income before taxes totaled $1,312,126 for fiscal 1995, an increase of 91.3
percent or $626,235 versus $685,891 in fiscal year 1994 for the reasons set
forth above.
The income tax provision for fiscal 1995 was $552,626, versus $290,833 in fiscal
1994 due to the increased earnings of the Company. Income tax represents
approximately 42 percent of pretax income in both years.
Net income for fiscal 1995 was $759,500, or $.08 per share, versus earnings of
$459,726, or $.05 per share for fiscal 1994 (including $.01 per share related to
the cumulative effect of a change in accounting for income taxes.)
ITEM. 8. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement No. 123, "Accounting
for Stock-Based Compensation" (SFAS No. 123). Under this new standard, a new
fair value based method of accounting for stock-based compensation arrangements
with employees is established.
Entities may continue to use the Opinion 25 method or adopt SFAS No. 123, the
fair value based method. It the Company continues to use the Opinion 25 method,
SFAS No. 123 requires a footnote disclosure of proforma net income and earnings
per share information as if the fair value based method had been adopted. The
Company has not yet determined which it will use. This Statement is effective
for financial statements for fiscal years beginning after December 15, 1995, or
for the fiscal year for which the Statement is initially adopted for recognizing
compensation expense, whichever comes first.
ITEM 9. DISAGREEMENTS OR ACCOUNTING AND FINANCIAL DISCLOSURE
Price Waterhouse LLP declined to stand for re-election. Their report for fiscal
year 1995 on the financial statements contained no adverse opinion or
disclaimers of opinion and was not qualified or modified as to uncertainty,
audit scope, or accounting principle.
On April 16, 1996, the Company appointed Amper, Politziner, and Mattia as its
new independent accountants.
ITEM 10. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See annexed financial statements.
21
<PAGE> 22
PART III
ITEM 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AT JUNE 30, 1996
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Director
Name Age Since Position Held with Company(1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lorin Zissman 65 1975 Chief Executive Officer, and Chairman
of the Board of Directors
Hugh Devine(2) 57 1978 Director
William Van Zandt 56 - Executive Vice President, Global Health
Care Division
John Morton 50 - Senior Vice President, Strategic Marketing
Services
Patti Hoffman 47 - President, US Regional Offices
Dr. Bashir Datoo 54 - Senior Vice President, Strategic Marketing
Services
Mark Nissenfeld 39 - President, Global Health Care
Theresa Flanagan 35 - President, Quality Management
Eric C. Zissman(3) 31 - Chief Financial Officer and Vice President,
Finance & Administration
William N. Levy, Esq. 55 1984 Secretary and Director
J. Edward Shrawder 55 1993 Director
Anthony Galli(2) 69 1990 Director
Albert Angrisani 47 1994 Director
Roger Thomas 51 1994 President, Strategic Marketing Services
</TABLE>
(1)All directors hold office until the next annual meeting of shareholders or
until their successors are duly elected and qualified. Executive officers are
elected annually by the Board of Directors and serve at the discretion of the
Board.
(2)Mr. Devine and Mr. Galli ceased to be employed by the Company due to the
restructuring; they remain on the Board of Directors.
(3)Mr. Eric Zissman is the son of Mr. Lorin Zissman.
Upon review of Forms 3,4, and 5, there have been no delinquencies with filing
of same for any of the so stated officers and directors of the Company.
22
<PAGE> 23
LORIN ZISSMAN has been the Chairman of the Board of Directors and Chief
Executive Officer of the Company since it began operating in 1975. From 1974 to
1975, Mr. Zissman was the President of the Total Research Division of US Testing
Corp. and from 1970 to 1974 he was the President of Total Research, Inc. prior
to its acquisition by US Testing Corp. From 1969 to 1970, Mr. Zissman was an
officer and director of Response Analysis, a market research company. From 1956
to 1969, he was employed by Opinion Research Corporation, and served as the
President of ORC Caravan Surveys, a subsidiary of Opinion Research Corporation,
from 1965 to 1969. Mr. Zissman has worked in market research from 1955 to the
present. He graduated from Temple University in 1951.
HUGH DEVINE has been an officer of the Company since it began operating in 1975,
and became a director of the Company in 1980. In 1993, he was promoted to
President of the Company. Mr. Devine ceased to be employed in July, 1996. From
1974 to 1975 Mr. Devine was a Senior Vice President of the Total Research
Division of U.S. Testing Corp. From 1971 to 1974 he was Senior Vice President of
Total Research, Inc. From 1961 to 1971 he was employed by the Winchester-Western
division of Olin Corporation, first as a market analyst, then as supervisor of
telemarketing research and development, and later as manager of market
intelligence. Mr. Devine received a B.A. in Economics from Bethany College in
1961 and a Masters degree in Marketing from the University of Bridgeport in
1971.
WILLIAM VAN ZANDT has been an officer of the Company since it began operating in
1975. From 1974 to 1975 he was Vice President, Account Executive for the Total
Research Division of U.S. Testing Corp. From 1970 to 1974 he was Vice President
of Total Research, Inc.
JOHN MORTON joined the Company in 1982 as a Vice President and Director of
Advanced Statistical Research. In 1995 he was promoted to Senior Vice President,
Strategic Marketing Services. From 1981 to 1982 Mr. Morton was founder and
president of John L. Morton, Inc., a company engaged in advanced marketing
analysis and research. During that time he also provided consulting services to
the Company. From 1976 to 1981 Mr. Morton was the Executive Vice President of
Robinson Associates, Inc., where he was primarily responsible for project
direction and was technical supervisor of the research personnel. He served as
Vice President of Aulino/Baen (formerly a marketing research company) from 1974
to 1976, and held other market research positions at Prudential Insurance
Company and General Foods from 1967 to 1974. He received his B.S. in psychology
from Muhlenberg College.
DR. BASHIR DATOO joined the Company in 1977. In 1982, Dr. Datoo was appointed
Vice President and Director of Quantitative Research and, in 1989, was promoted
to Senior Vice President. From 1976 to 1977, he was a visiting scholar at
Princeton University. From 1973 to 1976, Dr. Datoo was an associate professor at
the University of Dar Es Salaam. Dr. Datoo received a B.A. from Makerere
University College, Uganda, in 1964, and a Ph.D. from the London School of
Economics in 1968.
ERIC C. ZISSMAN joined the Company in 1988. In September 1993, he was named Vice
President of Accounting and Finance. Before joining Total Research, Mr. Zissman
was a first level manager at AT&T and a staff accountant at Margaretten &
Company during the years 1986 to 1988. Mr. Zissman graduated Rider University in
1986.
23
<PAGE> 24
WILLIAM N. LEVY, ESQ. has been the Secretary of the Company since 1978 and a
director since 1984. Since 1966, Mr. Levy has practiced law in New Jersey. He is
a principal of Levy & Levy, P.A., a law firm with offices in Voorhees, New
Jersey. Levy & Levy, P.A. acts as general and securities counsel to the Company.
Mr. Levy received a B.A. in 1963 and a J.D. in 1966, both from the University of
Pennsylvania.
J. EDWARD SHRAWDER was elected to the Company's Board of Directors in November
1993. Mr. Shrawder, former president of Elrick and Lavidge, a marketing research
firm, has started his own marketing and marketing research consultancy in
Illinois in 1992. He was director of the Council of American Survey Research
Organizations (CASRO) in 1990 and 1991. He received his undergraduate degree in
economics from Oberlin College and his MBA in marketing and mathematical methods
from the University of Chicago.
ANTHONY GALLI was elected to the Company's Board of Directors in October 1990.
Mr. Galli joined Total Research in 1995 from Galli Associates, Inc., an
affiliate of Hill & Knowlton, a large public relations firm. Mr. Galli ceased to
be employed with the Company in July, 1996. He is a former Vice President and
General Manager of the New Jersey-Delaware office of Hill & Knowlton. Before
joining Hill & Knowlton, Mr. Galli was Vice President and World Director of
Marketing for Business Wire, an international press relations wire service. Mr.
Galli graduated from Temple University, began his graduate work at Harvard and
completed it for his MBA degree at Pace University in New York.
ROGER THOMAS, a director of the Company since 1994, is also the Managing
Director of Total Research - Europe, the Company's European research subsidiary.
He joined Business Marketing Services Ltd., the predecessor company in 1984 and
became Managing Director in 1986. Prior to this he worked for Industrial Market
Research Ltd., a leading European business-to-business research firm for six
years, and the Ladbroke Group, a major UK hotel and leisure company, where he
was responsible for acquisitions and new business development. Mr. Thomas is a
graduate of the University of Southampton with a degree in economics and
accounting.
ALBERT ANGRISANI is President of Princeton Management, which provides U.S.
corporations and public institutions with turn-key consulting and project
finance services, and he also currently serves as an appointee of Gov. Christine
Todd Whitman to the New Jersey State Assembly task force responsible for
planning the creation and development of more global business opportunities for
New Jersey companies. Mr. Angrisani served as U.S. Assistant Secretary of Labor
from 1980 to 1984. Subsequently, he started the government services practice for
the financial industries division of Arthur D. Little Inc. Mr. Angrisani
received a BA Degree from Washington and Lee University and an MBA in finance
and an MA in accounting from New York University.
THERESA FLANAGAN has been with Total Research in a number of positions of
increasing responsibility since 1983; she currently is Division President,
Quality Management. Ms. Flanagan possesses an intimate understanding of both the
practical aspects of conducting Quality and Customer Loyalty Management
processes and the strategic issues involved in a company's decision to utilize
the QM approach. Ms. Flanagan has her B.A. in Economics and an MBA in Marketing
from Rutgers University.
24
<PAGE> 25
MARK NISSENFELD, PH.D is the President, Global Health Care Division. Dr.
Nissenfeld has over 16 years experience conducting both qualitative and
quantitative research. During this time he has conducted a large number of
in-depth personal interviews as well as moderated focus groups. In addition, he
has conducted numerous quantitative research studies utilizing a variety of
multivariate techniques. In the past seven years, he has focused his energies on
the field of health care marketing research. Dr. Nissenfeld has a Ph.D. and M.S.
in Psychology from the University of Pennsylvania, and B.S. from Boston
University.
PATTI HOFFMAN joined the Company in 1995 as Vice President, Human Resources. In
addition to this responsibility, Ms. Hoffman has 20 plus years of professional
experience working for four publicly-held corporations. As a member of the
Senior Management Committee at West America Bank in California, Ms. Hoffman
honed those skills which will be utilized in realizing the projected success of
Total Research Corporation. Ms. Hoffman has a B.A. from the University of
Tennessee.
25
<PAGE> 26
ITEM 12. EXECUTIVE COMPENSATION
(A) CASH COMPENSATION
There were no directors' fees paid during this period. The following table sets
forth a summary of compensation paid by the Company with respect to services
rendered during fiscal 1994,1995 and 1996 to the Chief Executive Officer and
each of the other four most highly-compensated Officers who received at least
$100,000 in total annual compensation.
Annual Compensation
<TABLE>
<CAPTION>
Name and Principal Other Annual Restricted Stock
Position Year Salary Bonus Compensation Option Award(s)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lorin Zissman CEO
1996 $213,600 -- -- --
1995 209,406 $19,500 -- --
1994 184,577 -- -- --
Hugh Devine (1)
1996 $394,200 -- -- --
1995 157,389 $13,000 -- --
1994 139,787 -- -- --
William Van Zandt
Executive VP 1996 $125,000 $83,302 -- --
Global Health Care 1995 115,000 75,504 -- --
1994 110,000 18,482 -- --
John Morton (2)
Senior VP
Strategic Marketing 1996 $154,038 -- -- --
Services
1995 153,692 -- -- --
1994 145,372 -- -- --
Dr. Bashir Datoo
Senior VP, Director
Strategic Marketing
Services 1996 $128,338 -- -- --
1995 125,166 $5,200 -- --
1994 115,142 -- -- --
</TABLE>
- --------
(1) Mr. Devine ceased to be employed by the Company due to the restructuring; he
remains on the Board of Directors. His salary reflects $234,000 accrued
severance pay.
(2) Mr. Morton exercised 20,000 options during fiscal 1996.
26
<PAGE> 27
(B) COMPENSATION PURSUANT TO PLANS
Included within Section A, above. No individual received more than 5 percent of
the total funds allocated and paid into the Company's 401(k) Plan.
For additional information see Notes to Financial Statements, Notes 8 and 11
concerning 401(k) and Stock Options respectively.
(C) OTHER COMPENSATION
None other than the use of one (1) vehicle by the Chief Executive Officer.
(D) COMPENSATION OF DIRECTORS
None other than the stock options issued to directors as set forth in (B) above.
(E) TERMINATION OF EMPLOYMENT & CHANGE OF CONTROL ARRANGEMENTS
James Alleborn, Hugh Devine, Anthony Galli, and John Parsons ceased to be
employed due to the re-structuring plan implemented June 30, 1996; Messrs.
Devine and Galli remain on the Board of Directors.
27
<PAGE> 28
ITEM 13. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) (B) The following table sets forth as of September 19, 1996 certain
information with regard to the record and beneficial ownership of the company's
common stock by (i) each shareholders owning of record or beneficially 5 percent
or more of the Company's Common Stocks (ii) each Director individually, and
(iii) all Officers and Directors of the Company as a group:
<TABLE>
<CAPTION>
Name and Address of Shares Percent of
Title of Class Beneficial Owner Owned(1) Options Total Class
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Lorin Zissman 2,039,100 70,000 2,109,100 21.28%
7F Marten Road
Princeton, NJ 08540
Common Hugh Devine 395,304 70,000 465,304 4.69
49 Krebs Road
Plainsboro, NJ 08536
Common William N. Levy, Esq. 151,600 80,000 231,600 2.34
Suite 309,Plaza 1000
Voorhees, NJ 08043
Common William Van Zandt 125,200 30,000 155,200 1.54
12 Bridgewood Court
Belle Mead, NJ 08043
Common J. Edward Shrawder 35,778 10,000 45,778 0.46
1716 Livingston Street
Evanston, Ill. 60201
Common Anthony Galli 12,000 16,000 28,000 0.28
17 Exeter Court
Princeton, NJ 08540
Common Roger Thomas 150,000 150,000 1.51
27 Chesterman Court
Corney Reach Way
Chiswick, London W4 2TP
Common Albert Angrisani (2) - 10,000 10,000 0.10
55 Westcott Road
Princeton, NJ 08540
All Officers and Directors as a group
(13 persons) 3,626,310 36.58%
</TABLE>
(1)The Company believes the beneficial owner has sole voting and investment
power over such shares.
28
<PAGE> 29
(2)Mr. Agrisani has been granted 150,000 5-year stock options to be paid in
three equal installments upon successful completion of certain established
goals - See Item 14.
29
<PAGE> 30
(C) CHANGE IN CONTROL
There has been no change in control of the Company
ITEM 14. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the requirement contained in the amended loan agreement with Summit
Bank the Company has entered into a consulting agreement with Albert Angrisani,
a member of the Board of Directors, to provide financial management services for
compensation of $10,000 a month for one year. In addition, he has been granted
150,000 5-year stock options to be paid in three installments upon the
successful completion of established goals at the exercise price of $0.875,
which is 100 percent of the market value at time of grant (September 12, 1996).
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULED, AND REPORTS ON FORM 8K
(A) The following documents are filed as part of this Form 10-KSB at the page
indicated.
<TABLE>
<CAPTION>
Page
<S> <C> <C>
(a) (1) Consolidated Financial Statements - Report of Independent Accountants..............................F-1, F-2
Consolidated Balance Sheets - June 30, 1996 and 1995...............................................F-3
Consolidated Statements of Income - Years ended June 30, 1996, 1995 and 1994.......................F-4
Consolidated Statements of Stockholders' Equity - Years Ended June 30, 1996,
1995 and 1994......................................................................................F-5
Consolidated Statements of Cash Flows - Years ended June 30, 1996, 1995
and 1994...........................................................................................F-6
Notes to Consolidated Financial Statements.........................................................F-7
(a) (2) Exhibits
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the last quarter of the
fiscal year covered by this report.
</TABLE>
<TABLE>
<CAPTION>
Sequential
Number Description Page Number
- ------ ----------- -----------
<S> <C> <C>
3.1 Certificate of Incorporation of the Company *
3.2 By-Laws of the Company *
10.2 Lease for 5 Independence Way, Princeton, NJ *
10.3 401(k) Savings Plan *
10.4 1996 Stock Option Plan #
10.5 1996 Stock Option Plan- TRC- Europe #
10.6 Restated Credit Agreement with Summit Bank +
dated October 10, 1996
10.7 Financial Consulting Agreement +
</TABLE>
- -----------------
* Incorporated by reference from the like numbered exhibit to Form S-18
Registration Statement, SEC File No. 33-9078-NY.
# Items 10.4 and 10.5 are incorporated by reference from Proxy Statement for
1996 Shareholders Meeting.
30
<PAGE> 31
+Attached at end of document.
31
<PAGE> 32
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors Reports....................................................... F-1, F-2
Consolidated Balance Sheets as of June 30, 1996 and 1995........................... F-3
Consolidated Statements of Income for the years ended
June 30, 1996, 1995 and 1994....................................................... F-4
Consolidated Statements of Shareholders' Equity for the years
ended June 30, 1996, 1995 and 1994................................................. F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1996, 1995 and 1994....................................................... F-6
Notes to the Consolidated Financial Statements..................................... F-7
</TABLE>
32
<PAGE> 33
Independent Auditors Report
To the Board of Directors and
Shareholders of Total
Research Corporation and Subsidiary
We have audited the accompanying consolidated balance sheet of Total Research
Corporation and Subsidiary as of June 30, 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Total
Research Corporation and Subsidiary as of June 30, 1996, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Amper, Politziner & Mattia
Edison, New Jersey
September 19, 1996
(Except for Note 14,
which is dated October 10, 1996.)
F-1
<PAGE> 34
Independent Auditor's Report
To the Board of Directors and
Shareholders of Total
Research Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Total Research Corporation and its subsidiary at June 30, 1995 and 1994, and the
results of their operations and their cash flows for each of the two years in
the period ended June 30, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Morristown, New Jersey
October 30, 1995
F-2
<PAGE> 35
TOTAL RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 4,201 $ 128,071
Accounts receivable, less allowance for doubtful accounts
of $110,000 at June 30, 1996 and $58,625 at June 30, 1995 4,166,486 3,578,493
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,737,734 1,685,041
Deferred taxes 482,478 270,478
Income tax refund receivable 850,000
Other current assets 695,328 375,209
------------ ------------
Total current assets 7,936,227 6,037,292
Fixed assets, less accumulated depreciation of $2,691,011
at June 30, 1996 and $2,237,727 at June 30, 1995 2,230,205 2,101,383
Capitalized market research products, less accumulated
amortization of $511,947 at June 30, 1996 and $436,402 at June 30, 1995 304,449 357,458
Deferred data accumulation costs, net of accumulated depreciation of
$1,450,300 at June 30, 1996 and $720,300 at June 30, 1995 347,436 858,223
Goodwill, net of accumulated amortization of $145,641 at June 30, 1996 1,792,312 1,734,233
and $71,220 at June 30,1995
Deferred taxes 290,640 433,082
Other assets 253,282 220,920
------------ ------------
Total assets $ 13,154,551 $ 11,742,591
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of notes payable $ 1,584,792 $ 1,666,056
Accounts payable 2,094,153 1,686,193
Accrued expenses and other current liabilities 1,702,126 1,277,492
Accrued restructuring costs 516,500 --
Billings in excess of costs and estimated earnings 2,115,142 1,068,280
Income taxes payable 86,303 128,496
------------ ------------
Total current liabilities 8,099,016 5,826,517
Long-term liabilities
Capital lease obligations -- 44,350
Notes payable 2,142,000 1,361,258
Other long-term liabilities 92,314 187,780
------------ ------------
Total liabilities 10,333,330 7,419,905
Commitments and contingencies (Note 6)
Shareholders' equity
Common stock-authorized 20,000,000 shares $.001 par value, 9,882,108 shares
issued and outstanding at June 30, 1996 and
9,822,708 shares issued and outstanding at June 30, 1995 9,882 9,823
Additional paid-in capital 3,505,835 3,470,429
Cumulative translation adjustment (90,685) (36,799)
Retained earnings (accumulated deficit) (603,811) 879,233
------------ ------------
Total shareholders' equity 2,821,221 4,322,686
------------ ------------
Total liabilities and shareholders' equity $ 13,154,551 $ 11,742,591
============ ============
</TABLE>
See notes to the consolidated financial statements
F-3
<PAGE> 36
TOTAL RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Revenues $ 23,715,049 $ 19,250,443 $ 13,688,426
Direct costs 11,001,246 7,904,831 6,070,640
------------ ------------ ------------
Gross profit 12,713,803 11,345,612 7,617,786
Operating expenses 13,682,783 9,785,318 6,842,525
Unusual Charges (See Note 13) 1,101,500 -- --
------------ ------------ ------------
Income (loss) from operations (2,070,480) 1,560,294 775,261
Interest expense (342,024) (307,460) (37,619)
Other income (expense), net 87,097 59,292 (51,751)
------------ ------------ ------------
Income (loss) before taxes and effect
of accounting change (2,325,407) 1,312,126 685,891
Provision (benefit) for income taxes (842,363) 552,626 290,833
------------ ------------ ------------
Net income(loss) before accounting change (1,483,044) 759,500 395,058
FAS 109 accounting change -- -- 64,678
Net income (loss) $ (1,483,044) $ 759,500 $ 459,736
============ ============ ============
Earnings (loss) per share before accounting change ($ 0.15) $ 0.08 $ 0.04
Effect of FAS 109 accounting change -- -- 0.01
------------ ------------ ------------
Earnings (loss) per share ($ 0.15) $ 0.08 $ 0.05
============ ============ ============
Weighted average common shares
outstanding 9,866,398 10,031,750 9,536,931
============= ============ ============
</TABLE>
See notes to the consolidated financial statements
F-4
<PAGE> 37
TOTAL RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
<TABLE>
<CAPTION>
Cumulative Retained Earnings
Shares Additional Translation (Accumulated
Issued Amount Paid-in Capital Adjustment Deficit)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, June 30, 1993(unaudited) 8,250,288 $ 8,250 $ 2,884,249 -- $ (340,003)
Private Placement 1,111,120 1,111 366,937 -- --
Stock Options Granted -- -- 39,000 -- --
Warrant Adjustments 400 1 (1) -- --
Net Income, 1994 -- -- -- -- 459,736
--------- ----------- ----------- ----------- -----------
Balance, June 30, 1994 9,361,808 9,362 3,290,185 -- 119,733
Stock Issuance- BMS acquisition 243,750 244 79,673 -- --
Stock Issuance 10,000 10 27,771 -- --
Exercise of Options 207,150 207 77,800 -- --
Translation Adjustment -- -- -- (36,799) --
Net Income, 1995 -- -- -- -- 759,500
--------- ----------- ----------- ----------- -----------
Balances, June 30, 1995 9,822,708 9,823 3,470,429 (36,799) 879,233
Exercise of Options 59,400 59 35,406 -- --
Translation Adjustment -- -- -- (53,886) --
Net (loss), 1996 -- -- -- -- (1,483,044)
--------- ----------- ----------- ----------- -----------
Balance, June 30, 1996 9,882,108 $ 9,882 $ 3,505,835 $ (90,685) $ (603,811)
========= =========== =========== =========== ===========
</TABLE>
See notes to the consolidated financial statements
F-5
<PAGE> 38
TOTAL RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30
---------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,483,044) $ 759,500 $ 459,736
Adjustments to reconcile net income (loss) to cash
provided by operating
activities:
Depreciation 1,411,480 984,370 468,954
Amortization 237,585 129,974 77,776
Accretion of warrants 16,000 16,000 16,000
Non-cash consulting expense -- -- 39,000
Deferred tax benefit (69,558) (1,157) (182,865)
Loss on disposal of asset -- -- 54,517
Adjustment for foreign currency translation (53,886) (36,799) --
(Increase) decrease in assets
Accounts receivable (367,294) (614,530) (507,333)
Cost and estimated earnings in excess of billing
on uncompleted contracts 41,974 (121,623) (658,720)
Other current assets (83,794)
Other assets (48,362) (199,471) 30,576
Income tax refund receivable (850,000) -- --
Increase (decrease) in liabilities
Accounts payable 407,960 731,682 208,611
Accrued expenses and other current liabilities 365,219 (79,760) 86,109
Accrued restructuring costs 516,500 -- --
Billings in excess of costs and estimated 939,318 474 447,648
earnings
Income taxes payable (42,193) (65,752) 2,963
Other long term liabilities (136,286) 45,962 (71,075)
----------- ---------- -----------
Net cash provided by operating activities 801,619 1,548,870 471,897
----------- ---------- -----------
Cash flows from investing activities:
Purchases of equipment (775,338) (812,299) (598,307)
Acquisition of certain assets, net of cash (306,965) (1,806,510) --
acquired
Cash expended for capitalized market research
products (78,241) (283,468) --
Deferred data accumulation costs (455,538) (945,968) (312,898)
----------- ---------- -----------
Net Cash used by investing activities (1,616,082) (3,848,245) (911,205)
----------- ---------- -----------
Cash flows from financing activities:
Repayment of debt (419,585) (4,339,121) (2,184,000)
Proceeds from long-term debt 1,119,063 6,064,985 2,875,000
Payment under capital lease obligations, net (44,350) (70,852) (27,491)
Proceeds from issuance of common stock 35,466 100,788 368,048
----------- ---------- -----------
Net Cash provided by financing activities 690,593 1,755,800 1,031,557
----------- ---------- -----------
Net increase (decrease) in cash and cash
equivalents (123,870) (543,575) 592,249
Cash and cash equivalents at beginning of period 128,071 671,646 79,397
----------- ---------- -----------
Cash and cash equivalents at end of period $ 4,201 $ 128,071 $ 671,646
=========== =========== ===========
Supplemental disclosures
Income taxes paid 233,435 $ 600,442 $ 195,888
Interest paid 345,324 $ 248,516 $ 25,186
</TABLE>
See notes to the consolidated financial statements
F-6
<PAGE> 39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - LIQUIDITY
As shown in the accompanying financial statements, the Company incurred a net
loss of $1,483,044 during the year ended June 30, 1996 and as of that date, the
Company's current liabilities exceeded its current assets by approximately
$163,000. Included in the current year net loss are unusual charges of
$1,101,500 which the Company has incurred as a result of restructuring its
operations (Note 13). In addition to the company's restructuring plan and as
part of the overall plans to alleviate liquidity concerns, the Company
renegotiated its bank debt. This renegotiated loan agreement (Note 14)
alleviates the violations that existed at June 30, 1996 and management believes
it provides the liquidity necessary to implement its restructuring plan and
attain profitable operations in fiscal year ending June 30, 1997.
NOTE 2- THE COMPANY
Total Research Corporation ("TRC" or "the Company") was formed in 1975. The
Company performs market research for various Fortune 1000 companies in a broad
spectrum of industries.
The Company services these clients through its locations in Princeton, NJ,
Poughkeepsie, Minneapolis, Chicago, Tampa, and London, UK.
Effective July 1, 1994, the Company acquired certain assets and assumed certain
liabilities of Business Marketing Services Ltd. (BMS), a United Kingdom
Corporation with its principal offices located in London, England. BMS was a
full-service marketing research firm specializing in business-to- business
research based in London but carrying out a large portion of its business in
continental Europe. Subsequent to the BMS acquisition the Company formed Total
Research Limited (TR-UK), a subsidiary, to continue the operation of BMS.
The acquisition has been accounted for as a purchase. As consideration for the
purchase, the Company paid an aggregate of approximately $1,565,000 in cash and
243,750 shares of the Company's restricted common stock, valued at approximately
$80,000 (the then estimated market value of the Company's common stock). The
purchase price, including acquisition-related costs of approximately $250,000,
was allocated to the assets acquired based on their relative fair values. This
treatment resulted in the recognition of approximately $1,800,000 in goodwill as
of the acquisition date. TR-UK results of operations have been included in the
consolidated results of operations since the date of acquisition.
The unaudited consolidated results of operations on a pro forma basis as though
TR-UK had been acquired as of July 1,1993 are as follows:
<TABLE>
<CAPTION>
June 30,
---------------------------------
1995 1994
---- ----
<S> <C> <C>
Revenue $19,250,443 $16,266,000
Income before accounting change
759,500 443,000
Earnings per share before accounting change
$.08 $.05
</TABLE>
F-7
<PAGE> 40
TOTAL RESEARCH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company employs the percentage of completion method of accounting for
reporting its revenues on its single-client studies, while on multi-client
studies it recognizes revenues when the results are delivered to its clients.
Clients are generally billed in accordance with the terms of the applicable
contracts, which are not necessarily indicative of the stage of completion of
the project.
For single-client studies, the stage of completion and earned revenues are
determined for each project for the applicable period. The amount by which the
value of work completed exceeds billings to clients is carried as a current
asset on the Company's balance sheet and is shown as "costs and estimated
earnings in excess of billings on uncompleted contracts." Billings to clients in
excess of the value of work completed are carried on the Company's balance sheet
as a current liability and are shown as "billings in excess of costs and
estimated earnings."
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiary, TR-UK, after elimination of material intercompany accounts and
transactions.
Use of Estimates
The preparation of the 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Capitalized Market Research Products
The costs of producing the Company's Market Research Products are capitalized
and amortized using the straight-line method over five years or the estimated
remaining periods for which the products provide future economic benefits,
whichever is shorter.
Market Research Products are standardized packages and are comprised of certain
computer software and proven methodologies which are used to process and analyze
data for single-client or multi-client studies.
F-8
<PAGE> 41
TOTAL RESEARCH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Capitalization of costs begins on establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized costs; this requires
considerable judgment by management with respect to certain factors including
the anticipated future gross revenue, estimated economic life and changes in
technology. These factors are considered on a product-by-product basis. Total
amortization expense for Capitalized Market Research Products was approximately
$163,000 (which includes write-down of $150,000 as discussed in Note 13),
$59,000 and $78,000 for the years ended June 30, 1996, 1995 and 1994,
respectively.
Deferred Data Accumulation Costs
The Company accumulates data across a wide variety of products and industries
for use in its analysis of client-specific data. The costs of accumulating data
related to single-client studies are charged to client projects as incurred. The
costs of accumulating data for use in specific multi- client studies are
capitalized and depreciated over five years or the estimated remaining periods
for which the data provides future economic benefits, whichever is shorter. The
assessment of recoverability of such costs requires considerable judgment by
management with respect to certain factors including anticipated future gross
revenue and estimated economic life. These factors are considered on a
database-by-database basis. Total depreciation expense for deferred data
accumulation costs was approximately $730,000 (which includes write-down of
$400,000 as discussed in Note 13), $150,000, and $164,000 for the years ended
June 30, 1996, 1995 and 1994, respectively.
Foreign operations
The assets and liabilities of TR-UK's operations are translated at current
exchange rates, and related translation adjustments are recorded as a separate
component of shareholders' equity. Income statement accounts are translated at
the weighted average rates during the period.
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 expected future net cash flows is less than the book value of the goodwill.
Income taxes
The provision for income taxes includes Federal, foreign, state and local income
taxes currently payable and receivable and those deferred because of temporary
differences between the financial statement and tax basis of assets and
liabilities. The unremitted earnings of the Company's foreign subsidiary are
considered to be permanently reinvested and are not expected to be remitted to
the parent company.
F-9
<PAGE> 42
TOTAL RESEARCH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Fixed assets
Fixed assets are stated at cost. Depreciation is computed using various methods
over the estimated useful lives of the assets: three years for transportation
equipment and five to ten years for office equipment and furnishings. Leasehold
improvements are amortized over the shorter of the economic lives or the
underlying lease term. Repairs and maintenance which do not extend the useful
lives of the related assets are expensed as incurred.
Earnings per common share
Earnings per share of common stock are computed by dividing net income by the
weighted average number of common shares outstanding during the year as adjusted
for subsequent stock splits and after giving effect to stock options considered
to be dilutive common stock equivalents.
In the current year, the Company experienced a loss per share. The weighted
average number of shares were not affected by stock options as they were
considered to be anti-dilutive due to the loss.
Cash and cash equivalents
For the purpose of the statement of cash flows, cash equivalents include time
deposits, certificates of deposit and all highly-liquid debt instruments with
original maturities of three months or less.
Impairment of Long-Lived Assets
During the year ended June 30, 1996, the Company adopted SFAS No. 121,
Accounting for the Impairment of long-lived Assets and for Long-Lived Assets to
be Disposed of, which had no effect on its financial condition or results of
operations. The Company records impairment losses on long-lived assets used in
operations or expected to be disposed when events and circumstances indicate
that the assets might be impaired and the undiscounted cash flows estimated to
be generated by those assets are less than the carrying amounts of those assets.
F-10
<PAGE> 43
TOTAL RESEARCH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 4 - FIXED ASSETS
Fixed assets consist of the following:
June 30,
--------
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Equipment $4,645,145 $4,063,039
Leasehold Improvements 276,071 276,071
---------- ----------
4,921,216 4,339,110
Less: accumulated depreciation and
amortization 2,691,011 2,237,727
---------- ----------
$2,230,205 $2,101,383
========== ==========
</TABLE>
Depreciation expense for the years ended June 30, 1996, 1995 and 1994 was
approximately $682,000, $440,000, and $303,000 respectively.
NOTE 5 - NOTES PAYABLE
In December 1995, the Company revised a prior Credit Agreement (the Agreement)
dated December 23, 1991, as amended, with Summit Bank (formerly the United
Jersey Bank of Princeton, NJ, "The Bank"). The components of this revised
Agreement are:
- $1.25 million revolving line of credit, is collateralized by
receivables, and capped at 50 percent of eligible receivables
(including standby letters of credit totaling approximately
$100,000). The interest rate is based on certain financial
covenants. At June 30, 1996, the Company is paying interest at
the prime rate (8.25 percent at June 30, 1996) plus 1 percent.
The Company is obligated to pay the Bank a quarterly
commitment fee of 1/4 percent of the average unused amount of
the revolving line of credit.
- three year $3,000,000 term loan, is collateralized by
equipment, furniture and fixtures and stock in its subsidiary.
The interest rate is fixed at 8.25 percent. The principal
balance is payable in 35 equal monthly installments of $50,000
plus a final payment of the entire outstanding principal
balance thereof and all accrued and unpaid interest.
F-11
<PAGE> 44
TOTAL RESEARCH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The agreement also contains certain covenants which require the Company to
maintain certain financial ratios. At June 30, 1996, the company was in
violation of these financial ratios covenants. The agreement was subsequently
amended (Note 14) which alleviates the violation.
Also, TR-UK has a bank overdraft facility of(pound)300,000 with Coutts and
Company, London, England (approximately US $467,000 at June 30, 1996). This
facility bears interest at a rate of 3 percent above the UK Base Rate. At June
30, 1996, the UK Base Rate was 6.75 percent.
The amounts outstanding of this loan package are as follows:
<TABLE>
<CAPTION>
June 30,
----------------------
1996 1995
---- ----
<S> <C> <C>
Summit Bank Debt:
One year $1.25 million revolving line $ 650,000 $ --
One-year $2.05 million revolving line -- 900,000
Three-year $700,000 term loan -- 594,250
Five-year $550,000 term loan -- 550,000
Five year $775,000 term loan -- 632,000
Three year $3,000,000 term loan 2,750,000 --
Coutls and Company Bank Debt:
TR-UK Overdraft Facility 335,000 375,064
----------- -----------
Total notes payable 3,735,000 3,051,314
Discount (8,000) (24,000)
----------- -----------
Notes payable, net of discount 3,727,000 3,027,314
Less: current portion 1,585,000 1,666,056
----------- -----------
Long-term portion $ 2,142,000 $ 1,361,258
=========== ===========
</TABLE>
The maturities of debt are as follows:
<TABLE>
<CAPTION>
June 30 Amount
------- ------
<S> <C>
1997 $1,585,000
1998 600,000
1999 1,542,000
$3,727,000
</TABLE>
As of June 30,1996, the fair value of long-term debt was approximately
equivalent to its carrying value, due to the fact that the going market interest
rates currently available for debt with similar terms are approximately equal to
the interest rates for its existing debt.
F-12
<PAGE> 45
TOTAL RESEARCH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Pursuant to the Agreement, the Company granted to the Bank five-year warrants to
purchase 232,514 shares of Company's common stock at an exercise price of $1.75
per share. The Company has valued the warrants at their estimated fair value of
$80,000 and is amortizing such amount on a straight line basis over five years.
The un-amortized portion of $8,000 and $24,000 at June 30, 1996 and 1995,
respectively, is included in the balance sheets as a discount on the notes
payable. At June 30, 1996, all the warrants were exercisable.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Operating leases
The Company is committed under various leases for office space. Approximate
future minimum rental payments under non-cancelable leases are as follows:
<TABLE>
<CAPTION>
For the Years Ending
June 30,
--------------------
<S> <C>
1997 $1,180,000
1998 1,050,000
1999 980,000
2000 1,130,000
2001 1,110,000
2002 1,020,000
2003 1,020,000
2004 1,070,000
2005 1,070,000
2006 1,070,000
-----------
Total minimum
payments required $10,700,000
</TABLE>
In addition to the above minimum rentals, the leases are subject to escalation
clauses covering increases in real estate taxes and operating costs over the
base year. The leases provide for renewal options for periods from two to ten
years. Rental expense charged to operations was approximately $1,030,000,
$915,000 and $830,000 for the fiscal years ended June 30, 1996, 1995 and 1994,
respectively.
As discussed in Note 5, the Company was in violation of amended operation
covenants (see Note 14).
F-13
<PAGE> 46
TOTAL RESEARCH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - INCOME TAXES
Deferred tax attributes resulting from differences between financial accounting
amounts and tax bases of assets and liabilities at June 30 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax liabilities:
Depreciation $123,442 $181,620
Other 3,200 -
-------- --------
Total Deferred tax liabilities 126,642 181,620
Deferred tax assets:
Capitalized market research products 251,136 560,406
Accrued rent 14,113 49,824
Accrued vacation 122,400 92,622
Accrued royalties 39,175 39,175
Accrued restructuring costs 206,600 -
Retirement plan 58,400 40,000
Other accruals 49,956 98,681
Other - 4,472
State net operating loss carry forward 157,980 -
-------- --------
Total deferred tax assets 899,760 885,180
Net deferred tax assets 773,118 703,560
Less: Current portion 482,478 270,478
-------- --------
$290,640 $433,082
======== ========
</TABLE>
Based on the Company's history of prior operating earnings and its expectations
for the future, which include the Company's restructuring efforts to improve
performance, management has determined that the future operating income of the
company will more likely than not be sufficient to recognize fully these net
deferred tax assets.
As of June 30,1996, the Company has available a New Jersey net operating loss
carry forward for tax purposes of approximately $2,633,000 expiring June 30,
2003.
The source of income (loss) before income taxes for the years ended June 30 is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
United States $(2,521,251) $1,093,099 $685,891
United Kingdom 195,844 219,027 -
----------- ---------- --------
Total $(2,325,407) $1,312,126 $685,891
=========== ========== ========
</TABLE>
F-14
<PAGE> 47
TOTAL RESEARCH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The components of the provision (benefit) for income taxes for the year ended
June 30 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current expense (benefit):
Federal $(850,000) $ 354,841 $ 319,428
State - 106,424 89,590
United Kingdom 77,195 92,518 -
---------- --------- ---------
(772,805) 553,783 409,018
Deferred benefit (69,558) ( 1,157) (118,185)
---------- --------- ---------
$(842,363) $ 552,626 $ 290,833
========= ========= =========
</TABLE>
A reconciliation of the U.S. statutory tax rate to the effective tax rate for
the years ended June 30 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed (benefit)
provision at the
statutory tax rate $(790,038) $ 446,123 $ 233,202
International rate
differences 15,667 12,319 --
State income tax, net (151,275) 70,239 59,129
Alternative minimum
tax 40,000 -- --
Other 43,283 23,945 (1,498)
--------- --------- ---------
Income tax (benefit)
provision
$(842,363) $ 552,626 $ 290,833
========= ========= =========
</TABLE>
F-15
<PAGE> 48
TOTAL RESEARCH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 8 - EMPLOYEE BENEFIT AND DEFERRED COMPENSATION
The Company maintains a 401(k) Savings Plan for the benefit of all its
employees. The 401(k) Savings Plan is funded through the Company's and
participating employees' contributions and generally provides that employees may
contribute, through payroll reductions, from 1 percent to 15 percent of their
compensation. The Company has, in the past, made a matching contribution in an
amount equal to 50 percent of each participating employee's elective
contribution up to 6 percent of the participating employee's compensation.
Company contributions charged to operating expense were approximately $170,000,
$144,000, and $127,000 for fiscal years ended June 30, 1996, 1995, and 1994,
respectively.
NOTE 9 - MAJOR CLIENTS
In the years ended June 30, 1996 and 1995, the Company did not derive a
significant portion of revenues (more than 10 percent) from any one client. In
the year ended June 30, 1994, the Company derived 16.1 percent of its total
revenue from one client within the Information Technologies industry segment.
NOTE 10 - RELATED PARTY TRANSACTIONS
Included in other current assets are advances from officers/shareholders of
$43,584 and $42,951 as of June 30, 1996 and 1995, respectively.
F-16
<PAGE> 49
TOTAL RESEARCH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 11 - STOCK OPTIONS
On July 1, 1986, the Board of Directors adopted a stock option plan (the "plan")
covering a total of 600,000 shares. At subsequent shareholder meetings, the
Company's shareholders voted to approve four increases of 300,000 options that
would be available to be issued under the plan, for a total of 1,800,000
options. Under the Plan, options may be granted at not less than fair market
value on the date of grant (85 percent of fair market value with respect to
non-qualified options). Options granted under the plan become exercisable
immediately and expire five years after the date of grant (five years and one
day with respect to non-qualified options). The following summarizes information
with regard to the Plan for the years ended June 30, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Outstanding at the beginning of year
($.25 to $2.00 per share) 796,376 1,212,915 1,231,915
Granted ($1.0313 to $2.00 per share) 109,000 58,000 13,000
Surrendered ($.69 to $1.25 per share) (23,500) (367,389) (32,000)
Exercised ($.25 to $1.25 per share) (41,000) (107,150) -
------- --------- ---------
Outstanding and exercisable at the
end of the year ($.25 to $2.00 per share) 840,876 796,376 1,212,915
======== ========= =========
</TABLE>
The Company issued 100,000 non-qualified options in 1994 to unrelated third
parties in consideration for consulting services provided. The options have an
exercise price of $.75 per share, and were exercisable immediately. The Company
valued the options at their estimated fair market value of approximately
$39,000 and recognized consulting expense in an equal amount for the year ended
June 30, 1994.
On April 16, 1996 the Company adopted the 1996 Stock Incentive Plan and the 1996
Stock Option Plan and froze the 1986 Stock Option Plan. Under these new plans,
Officers, Directors, Employees and Consultants of the Company are eligible to
receive stock options from one of the two plans, (one is designated for the UK
Subsidiary). The Plan is authorized to issue options to acquire 800,000 shares
of Common Stock and 245,000 Shares of Common Stock respectively.
F-17
<PAGE> 50
TOTAL RESEARCH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Incentive Stock Options or Non-Statutory Stock Options may be issued for a term
of no more than five years from the date of grant, at an option price not less
than 100 percent of the fair market value of the Company's Common Stock at the
time of grant. In addition, the Board may award Common Stock under that Plan as
stock bonuses; restricted stock; stock appreciation rights (SAR's); cash bonus
rights; and foreign qualified grants. In addition, any non-employee Director
and/or Advisory Board Directors shall be automatically granted an option to
purchase 10,000 Shares of Common Stock for each year that such person serves as
a Director. However, such options shall vest 33-1/3 percent for each 12 months
of continuous service until fully vested on a month-by-month basis. Any
Director, Officer or Employee (except Consultants) who cease to be employed by
the Company has only 30 days (or 12 months in the event of death) after such
termination of employment to exercise whatever options they own that are vested.
Also, such Option holder shall not have any voting rights for the underlying
Common Stock, until such options are exercised. Effective April 10, 1996, 3
non-employee directors each received options for 10,000 shares in accordance
with the provision of this plan.
F-18
<PAGE> 51
NOTE 12 - SEGMENT INFORMATION
The Company operates in one principal industry segment: market research
services. Geographic financial information for the years ended June 30 (in
000's) is as follows:
<TABLE>
<CAPTION>
June 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue - United States $ 18,210 $ 15,527 $ 13,688
- Europe 6,236 4,014 -
- Eliminations (731) (291) -
-------- -------- --------
Totals $ 23,715 $ 19,250 $ 13,688
======== ======== ========
Operating (Loss) - United States $ (2,320) $ 1,277 $ 775
Income
- Europe 250 283 -
- Eliminations - - -
-------- -------- --------
Totals $ (2,070) $ 1,560 $ 775
======== ======== ========
Identifiable Assets - United States $ 11,206 $ 10,277 $ 7,440
- Europe 3,795 3,721 -
- Eliminations (1,841) (2,256) -
-------- -------- --------
Totals $ 13,160 $ 11,742 $ 7,440
======== ======== ========
</TABLE>
F-19
<PAGE> 52
TOTAL RESEARCH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 13 - UNUSUAL CHARGES
During the fourth quarter of 1996, the Company announced a plan to restructure
and consolidate operations, concentrate resources, and better position itself to
achieve its strategic growth objectives. This plan results in a $1,101,500
pre-tax charge. The charge includes a write-down of capitalized market research
products and deferred data accumulation costs of $550,000, severance costs of
$406,500 and charges to develop and implement the plan of $145,000.
NOTE 14 - SUBSEQUENT EVENT
On October 10, 1996, the Company renegotiated its credit agreement (Note 5) with
Summit Bank. The agreement has been amended as follows:
Payment terms under the 3 million dollar term debt remain unchanged except
for a pre-payment of an amount up to $500,000 due upon the receipt of the
Company's Federal tax refund. The interest rate on the company's term debt
was increased from a fixed rate of 8.25 percent to a fixed rate of 9.5
percent.
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 financial ratios. The line of
credit is up for renewal on March 31, 1997.
The financial covenants have been amended which include financial ratios of
tangible net worth, total liabilities to tangible net worth, debt service
coverage ratio, current ratio, and quick ratio.
Pursuant to a requirement contained in the amended loan agreement the
Company has entered into a consulting agreement with a member of the Board
of Directors, to provide financial management services for compensation of
$10,000 a month for one year. In addition, he has been granted 150,000 5-
year stock options to be paid in three installments upon the successful
completion of established goals at the exercise price of $0.875, which is
100 percent of the market value at time of grant (September 12, 1996).
F-20
<PAGE> 53
TOTAL RESEARCH CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, Total Research Corporation has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
Dated: October 14, 1996 By: /s/ LORIN ZISSMAN
----------------- ----------------------------------------------
LORIN ZISSMAN, Chief Executive Officer and
Chairman of the Board of Directors
Dated: Octobet 14, 1996 By: /s/ ERIC C. ZISSMAN
---------------- ----------------------------------------------
ERIC C. ZISSMAN, Chief Financial Officer
</TABLE>
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, this report has been signed on behalf of Total Research Corporation
and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Dated: October 14, 1996 By: /s/ LORIN ZISSMAN
---------------- ----------------------------------------------
LORIN ZISSMAN, Chief Executive Officer and
Chairman of the Board of Directors
Dated: October 14, 1996 By: /s/ AL ANGRISANI
---------------- ----------------------------------------------
AL ANGRISANI, Director
Dated: October 14, 1996 By: /s/ HUGH DEVINE
---------------- ----------------------------------------------
HUGH DEVINE, Director
Dated: October 14, 1996 By: /s/ WILLIAM N. LEVY
---------------- ----------------------------------------------
WILLIAM N. LEVY, Esq., Secretary and Director
Dated: October 14, 1996 By: /s/ ANTHONY GALLI
---------------- ----------------------------------------------
ANTHONY GALLI, Director
</TABLE>
<PAGE> 54
<TABLE>
<S> <C>
Dated: By:
---------------- ----------------------------------------------
J. EDWARD SHRAWDER, Director
</TABLE>
<PAGE> 1
AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This Amendment to Amended and Restated Credit Agreement (the "AMENDMENT") is
made this 10 day of October, 1996 between Total Research Corporation
("BORROWER"), a Delaware corporation having its chief executive office at 5
Independence Way, Princeton, New Jersey 08543-5303 and Summit Bank ("BANK"),
successor-in-interest to United Jersey Bank, having offices at 301 Carnegie
Center, CN 5316, Princeton, New Jersey 08540-5316.
BACKGROUND
A. Pursuant to the terms and subject to the conditions of that certain
Amended and Restated Credit Agreement dated December 28, 1995 between Borrower
and Bank (the "CREDIT AGREEMENT") and related instruments, agreements and
documents (collectively, along with the Credit Agreement, hereinafter referred
to as the "FINANCING AGREEMENTS"). Borrower is currently indebted to Bank for
repayment of (i) a term loan in the original principal sum of Three Million
($3,000,000.00) Dollars (referred to in the Credit Agreement and this Amendment
as the "FACILITY A LOAN"), which indebtedness is evidenced by Borrower's
Promissory Note dated December 28, 1995 in the principal sum of Three Million
($3,000,000.00) Dollars executed and delivered by Borrower to Bank (referred to
in the Credit Agreement and this Amendment as the "FACILITY A NOTE"), and (ii)
various loans, advances and extensions of credit made by Bank to or for the
benefit of Borrower under an asset-based revolving credit facility in the
principal sum of up to One Million Two Hundred Fifty Thousand ($1,250,000.00)
Dollars (referred to in the Credit Agreement an this Amendment as the
"FACILITY C LOAN"), which indebtedness is evidenced by that certain Promissory
Note dated December 28, 1995 in the principal sum of One Million Two Hundred
Fifty Thousand ($1,250,000.00) Dollars executed and delivered by Borrower to
Bank (referred to in the Credit Agreement and this Amendment as the "FACILITY C
NOTE").
B. Also pursuant to the terms and subject to the conditions of the
Credit Agreement, Bank established for the benefit of Borrower an equipment
acquisition line of credit facility (referred to in the Credit Agreement and
this Amendment as the "FACILITY B LOAN"). No loans or advances are outstanding
under the Facility B Loan and Borrower and Bank hereby acknowledge and agree
that no loans or advances shall be requested, considered or made under the
Facility B Loan and that such facility is hereby acknowledged to be cancelled,
with no commitment on the part of Bank to consider or make any such loans or
advances.
C. Borrower has requested that Bank extend the term of the Facility C
Loan and otherwise modify certain terms, covenants and conditions set forth in
the Financing Agreements, and Bank is willing to do so under the terms and
subject to the conditions set forth in this Amendment and in the instruments,
agreements and documents referred to in this Amendment.
<PAGE> 2
NOW, THEREFORE, with the foregoing Background deemed incorporated hereinafter
by this reference and hereby made a part hereof, the parties hereto, intending
to be legally bound, hereby further covenant and agree as follows:
SECTION 1. DEFINITIONS.
1.01 CAPITALIZED TERMS. All capitalized terms not otherwise defined in
this Amendment shall have the meanings ascribed to such terms in the Credit
Agreement.
SECTION 2. CONFIRMATION OF EXISTING INDEBTEDNESS AND
RATIFICATION OF FINANCING AGREEMENTS.
2.01 CONFIRMATION OF EXISTING INDEBTEDNESS. Borrower hereby
unconditionally acknowledges and confirms that; the unpaid principal
indebtedness of Borrower to Bank evidenced by the Facility A Note is, as of the
date hereof, Two Million Five Hundred Fifty Thousand ($2,550,000.00) Dollars;
the unpaid principal indebtedness of Borrower to Bank evidenced by the Facility
C Note is, as of October 9, 1996, Five Hundred Thousand ($500,000.00) Dollars; a
standby letter of credit in the face amount of One Hundred Thousand
($100,000.00) issued for the account of Borrower under the Facility C Loan for
the benefit of 5. Independent Associates is outstanding and no draft or other
request for payment thereunder has been made; interest on the Obligations as
been paid through September 30, 1996; and that the foregoing indebtedness,
together with continually accruing interest and related costs, fees and expenses
is, as of the date hereof, owing without claim, counterclaim, right of
recoupment, defense or set-off of any kind or of any nature whatsoever.
2.02 RATIFICATION OF FINANCING AGREEMENTS. Borrower hereby
unconditionally ratifies and confirms and reaffirms in all respects and without
condition, all of the terms, covenants and conditions set forth in the
Financing Agreements and any other instruments, agreements and documents
evidencing and/or securing the Obligations, and agrees that it remains
unconditionally liable to Bank in accordance with the respective terms,
covenants and conditions of such instruments, agreements and documents, and
that all liens, security interests, mortgages and pledges encumbering the
Collateral created pursuant to and/or referred to in the Credit Agreement and
the other Financing Agreements including, without limitation, that certain
Security Agreement dated December 23, 1991 between Borrower and Bank, continue
unimpaired, are in full force and effect, and secure and shall continue to
secure all of the Obligations of Borrower to Bank including, without
limitation, the Obligations evidenced by the Notes.
SECTION 3. AMENDMENTS TO FINANCING AGREEMENTS.
3.01 AMENDMENTS TO CREDIT AGREEMENT. Under the terms and subject to the
conditions set forth in this Amendment, the Credit Agreement and the other
Financing Agreements are hereby amended as follows:
2
<PAGE> 3
(a) Subsection 2.02(C) of the Credit Agreement, and the Facility A
Note, are hereby amended to provide for the rate of interest on the Facility A
Loan to be increased to the rate of nine and one-half (9 1/2%) percent per
annum and, from and after maturity (whether as scheduled or by acceleration),
and notwithstanding any bankruptcy, insolvency, judgment for payment of
Obligations, or otherwise, for interest to accrue on the Obligations, including
the Facility A Loan, at three (3%) percent per annum in excess of the then
applicable rate of interest on the Obligations;
(b) The Facility Maturity Date, defined at Section 2.04 of the
Credit Agreement, is hereby amended to be March 31, 1997; accordingly, the
maturity of the Facility C Loan and the date through which Facility C Advances
may be available to or for the benefit of Borrower thereunder, is hereby
extended to March 31, 1997;
(c) Section 2.04(A) of the Credit Agreement is hereby amended to
provide for a reduction in the Facility C Commitment Amount from the sum of up
to the lesser of fifty (50%) percent of Eligible Accounts or One Million Two
Hundred Fifty Thousand ($1,250,000.00) Dollars to the sum of up to the lesser
of fifty (50%) percent of Eligible Accounts or One Million ($1,000,000.00)
Dollars, which reduction shall be effective on December 31, 1996, and on such
date, without any action on the part of Bank to be taken (including notice to
Borrower), all outstanding Facility C Advances in excess of the sum of the
lesser of fifty (50%) percent of Eligible Accounts or One Million
($1,000,000.00) Dollars shall be immediately paid to Bank. In addition to the
foregoing reduction in the Facility C Commitment Amount, Borrower hereby agrees
that the aggregate of all Obligations (including Obligations under the Facility
A Loan, the Facility C Commitment and in respect of outstanding letters of
credit issued for the account of Borrower) shall not, as of October 31, 1996
and at all times thereafter through December 31, 1996, exceed the aggregate of
ninety (90%) percent of the net book value of Borrower's fixed assets and
eighty (80%) percent of Borrower's Eligible Accounts, and shall not, as of
December 31, 1996 and at all times thereafter, exceed the aggregate of
seventy-five (75%) percent of the net book value of Borrower's fixed assets
and seventy-five (75%) percent of Borrower's Eligible Accounts. Obligations in
excess of the maximum sums described in this Paragraph shall be immediately paid
to Bank;
(d) The first paragraph of Subsection 2.04(D) of the Credit
Agreement is hereby amended to increase the interest rate applicable to the
Facility C Loan by modifying the Margin based upon Borrower's ratio of Total
Liabilities to Tangible Net Worth in accordance with the following schedule
(which replaces and supersedes in all respects the schedule set forth in such
subsection):
<TABLE>
<CAPTION>
Ratio of Total Liabilities
to Tangible Net Worth Margin
-------------------------- ------
<S> <C>
9.00 to 1.00 or greater 3%
between 5.00 to 1.00 and 8.99 to 1.00 2%
</TABLE>
3
<PAGE> 4
between 4.00 to 1.00 and 4.99 to 1.00 1 1/2%
between 3.00 to 1.00 and 3.99 to 1.00 1%
between 2.00 to 1.00 and 2.99 to 1.00 3/4%
between 1.00 to 1.00 and 1.99 to 1.00 1/2%
below 1.00 to 1.00
(e) Clause (i) of Subsection 2.05(A) of the Credit Agreement is hereby
amended to reduce the aggregate amount of all Letters of Credit which may be
outstanding under the Facility C Loan to the aggregate amount of One Hundred
Thousand ($100,000.00) Dollars;
(f) Subsection 5.02(j) is hereby deleted in its entirety and replaced
with the following:
(j) Maintenance of Tangible Net Worth. Permit consolidated
Tangible Net Worth of the Borrower to be less than Two Hundred
Seventy-Five Thousand ($275,000.00) Dollars as of September 30, 1996,
Three Hundred Seventy-Five Thousand ($375,000.00) Dollars as of December
31, 1996, Five Hundred Thousand ($500,000.00) Dollars as of June 30,
1997 and One Million ($1,000,000.00) Dollars as of June 30, 1998;
(g) Subsection 5.02(k) is hereby deleted in its entirety and replaced
with the following:
(k) Maintenance of Ratio of Total Liabilities to Tangible Net
Worth. Permit the ratio of consolidated total Liabilities to
Consolidated Tangible Net Worth of the Borrower to be more than 9.00 to
1.00 as of June 30, 1997;
(h) Subsection 5.02(l) is hereby deleted in its entirety and replaced
with the following:
(l) Debt Service Coverage Ratio. Permit the ratio of (i) the
sum of net income after taxes, plus depreciation, amortization and
interest expense for any fiscal year, commencing with Borrower's fiscal
year ending June 30, 1997, to (ii) the sum of current maturities of
Long-Term Indebtedness as of the end of such fiscal year plus interest
expense for such fiscal year, to be less than 1.50 to 1.00 on a
consolidated basis.
(i) Subsection 5.02(n) is hereby deleted in its entirety and replaced
with the following:
(n) Quick Ratio. Permit the ratio of: (i) the sum of
consolidated cash and equivalents plus consolidated accounts
receivable, to (ii) consolidated Current Liabilities, as of the last
day of the fiscal quarter ending December 31, 1996 and
4
<PAGE> 5
each fiscal quarter thereafter to and including March 31, 1997,
to be less than .50 to 1.00, and as of the last day of each
fiscal quarter thereafter, commencing June 30, 1997, to be less
than .70 to 1.00.
(j) Subsection 5.03(e) requiring the submission of quarterly
work-in-process reports in form and substance satisfactory to Bank is hereby
amended to require such management prepared work-in-process reports on a
monthly basis, within twenty (20) days after the end of each calendar month;
(k) Subsection 5.03(f) of the Credit Agreement is hereby
amended to require, in addition to the monthly reports referred to therein, (i)
a management prepared accounts receivable aging report (as required monthly) on
a weekly basis, on Wednesday of each week for the prior week, and (ii) a four
(4) week cash flow projection on a rolling weekly basis, also on Wednesday of
each week; and
(l) On or before October 31, 1996, Borrower agrees to
retain a management/financial consultant, selected by Borrower and acceptable
to Bank, pursuant to an agreement reasonably acceptable to Bank and providing
for, among other things, an engagement on an ongoing basis for a term of not
less than one (1) year. Bank and its counsel are hereby authorized to
communicate directly with such consultant and such consultant is hereby
directed to provide Bank with all reports and to respond to all requests for
information from Bank and its counsel relating to Borrower and its business and
prospects.
Borrower acknowledges and confirms that the amendment to the Credit Agreement
and the other Financing Agreements to include financial and other covenants
requiring compliance subsequent to the Facility Maturity Date, as hereby
amended and extended, shall not be construed as, and is not intended to be, any
commitment on the part of Bank to further extend such maturity date or
availability under the Facility A Loan.
SECTION 4. WARRANTIES AND REPRESENTATIONS.
4.01 REAFFIRMATION OF WARRANTIES AND REPRESENTATIONS. All warrants
and representations set forth in the Credit Agreement and the other Financing
Agreements are hereby reasserted and restated by Borrower as of the date hereof
as if set forth at length herein. Borrower hereby acknowledges that such
warranties and representations, and the warranties and representations set
forth below, are being specifically relied upon by Bank as a material inducement
to Bank to enter into this Amendment.
4.02 ADDITIONAL WARRANTIES AND REPRESENTATIONS. As a further
inducement to Bank to enter into this Amendment, Borrower further represents
and warrants to Bank that:
(a) Borrower has the power, authority and capacity to enter
into and perform this Amendment and all related instruments, agreements and
documents, and to incur the
5
<PAGE> 6
Obligations herein and therein provided for, and Borrower has taken all proper
and necessary corporate action to authorize the execution, delivery and
performance of this Amendment and related instruments, agreements and documents;
(b) This Amendment is valid, binding and enforceable against Borrower
in accordance with its terms; and
(c) No consent, approval or authorization of, or filing, registration
or qualification with, any Person is required to be obtained by Borrower in
connection with the execution and delivery of this Amendment or any related
instrument, agreement or document, or undertaking or performance of any
Obligation hereunder or thereunder.
SECTION 5. CONDITIONS PRECEDENT.
This Amendment is subject to the following conditions precedent (all
instruments, agreements and documents to be in form and substance satisfactory
to Bank and its counsel):
5.01 DOCUMENTS REQUIRED FOR CLOSING. Borrower shall have duly executed
and/or delivered (or caused to be duly executed and/or delivered) to Bank the
following:
5.02 This Amendment and each other instrument, agreement and document
to be executed and/or delivered pursuant to this Amendment and/or the
instruments, agreements and documents referred to in this Amendment;
5.03 Such instruments, agreements and documents as Bank or its counsel
deems necessary or desirable to confirm Bank's lien on and security interest in
and to Borrower's existing and future federal, state and local tax refunds, it
being acknowledged and agreed that such sums, upon receipt thereof, shall be
applied to the Obligations as follows: absent the existence of any Event of
Default or any event which, with the passage of time or the giving of notice,
or both, could constitute an Event of Default, such sums, up to Five Hundred
Thousand ($500,000.00) Dollars, shall be applied to principal installments
under the Facility A Loan in the inverse order of their maturity (last
installment credited first) and sums in excess of Five Hundred Thousand
($500,000.00) Dollars shall be applied to the Facility C Loan. After the
occurrence of any Event of Default or any event which, with the passage of
time or the giving of notice, or both, could constitute an Event of Default,
such sums may be applied by Bank to the Obligations in such order and manner
as Bank, in its sole discretion, may determine.
5.04 As additional collateral security for the Obligations, pursuant to
an Assignment of Life Insurance Policy as Collateral executed and delivered by
Borrower to Bank, Borrower shall assign to Bank and grant to Bank a lien on and
security interest in and to a certain policy of life insurance in the face
amount of One Hundred Fifty Thousand ($150,000.00) Dollars on the life of Lorin
Zissman ("ZISSMAN");
6
<PAGE> 7
5.05 As additional collateral security for the Obligations, pursuant to
a Collateral Pledge Agreement executed and delivered by Zissman to Bank,
Zissman shall pledge to Bank and grant to Bank a lien on and security interest
in and to five hundred thousand (500,000) shares of the issued and outstanding
capital stock of Borrower, which shares shall stand as collateral security for
the Obligations until the earlier of payment and satisfaction in full of the
Obligations or, so long as no Event of Default has occurred and is continuing,
until Borrower has made a prepayment of the Obligations evidenced by the
Facility A Note with proceeds of the tax refund referred to in Paragraph 5.03
of this Amendment or other sums of not less than Five Hundred Thousand
($500,000.00) Dollars;
5.06 A certified (as of the date of this Amendment) copy of the
unanimous consent if directors of Borrower authorizing the execution, delivery
and performance of this Amendment and each other document to be executed and/or
delivered pursuant hereto and any other instrument, agreement or document
referred to herein;
5.07 A certificate (dated the date of this Amendment) of Borrower's
corporate secretary as to the incumbency and specimen signatures of the
officers of Borrower executing this Amendment and each other document to be
executed and/or delivered pursuant hereto or thereto; and
5.08 Such other instruments, agreements and documents as may be
required by Bank and/or its counsel including, without limitation, specific
amendments to the Notes.
SECTION 6. MISCELLANEOUS.
6.01 INTEGRATED AGREEMENT. This Amendment and all of the instruments,
agreements and documents executed and/or delivered in conjunction with this
Amendment shall be effective upon the date of execution hereof and thereof by
all parties hereto and thereto, and shall be deemed incorporated into and made
a part of the Credit Agreement and the other Financing Agreements. All such
instruments, agreements and documents, and this Amendment, shall be construed
as integrated and complementary of each other, and as augmenting and not
restricting Bank's rights, remedies, benefits and security. If, after applying
the foregoing, an inconsistency still exists, the provisions of this Amendment
shall constitute an amendment thereto and shall govern and control.
6.02 EXPENSES OF BANK. Borrower shall pay expenses (including the
reasonable fees and expenses of legal counsel to Bank) relating to this
Amendment and all related instruments, agreements and documents. Borrower
hereby authorizes Bank to debit any account of Borrower for any of the
Obligations, including the reimbursement Obligation pursuant to this Paragraph.
6.03 NO DEFENSES: RELIANCE. Borrower hereby confirms and reconfirms
that there are no existing defenses, claims, counterclaims or rights of
recoupment or set-off against Bank in connection with the negotiation,
preparation, execution, performance or any other matters
7
<PAGE> 8
relating to the Financing Agreements or this Amendment. It is hereby and thereby
further acknowledged and agreed that notwithstanding anything to the contrary
set forth in this Amendment, Bank has and shall have no obligation to (i)
further amend the Financing Agreements, or otherwise further restructure the
Obligations, (ii) further extend the Facility Maturity Date, (iii) refrain from
terminating the Facility C Commitment upon the occurrence of any Event of
Default or (iv) enter into any other instruments, agreements or documents
regarding any of the same with Borrower, and that neither Bank nor its
representatives have made any agreements with, or commitments or
representations or warranties to, Borrower or any other obligor for the
Obligations (either in writing or orally) other than as expressly stated in this
Amendment. Nothing contained in this Amendment, or any compliance with the
terms of this Amendment or any of the instruments, agreements or documents
referred to in this Amendment, shall impose any obligation on the part of Bank
to consummate a further restructure of the Obligations.
6.04 RELEASE. In consideration of the accommodations being made
available by Bank to or for the benefit of Borrower under this Amendment,
Borrower, for itself and its agents, employees, successors and assigns, do
hereby remise, release and forever discharge Bank and its agents, employees,
representatives, officers, successors and assigns of and from any and all
claims, counterclaims, demands, actions and causes of action of any nature
whatsoever, whether at law or in equity, including, without limitation, any of
the foregoing arising out of or relating to the transactions described in this
Amendment, which against Bank or its agents, employees, representatives,
officers, successors or assigns, or any of them, Borrower now has or hereafter
can or may have for or by reason of any cause, matter of thing whatsoever, from
the beginning of the world to the date of this Amendment.
6.05 APPLICABLE LAW. The substantive Laws of the State of New Jersey
shall govern the construction of this Amendment and the rights and remedies of
the parties hereto.
8
<PAGE> 9
6.06 COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
Loan and Security Agreement to be duly executed and exchanged as of the day and
year first above written.
TOTAL RESEARCH CORPORATION,
a Delaware corporation
(CORPORATE SEAL)
ATTEST: /s/ ERIC ZISSMAN By: /s/ LORIN ZISSMAN
-------------------------- --------------------------
Name: Eric Zissman Name: Lorin Zissman
Title: VP Acctg & Finance Title: Chairman
SUMMIT BANK,
By: /s/ TIMOTHY I. MERKEL
--------------------------
Timothy I. Merkel,
Vice President
9
<PAGE> 1
[PRINCETON MANAGEMENT LETTERHEAD]
August 16, 1996
Mr. Lorin Zissman
Chairman & CEO
Total Research Corporation
5 Independence Way
Princeton, NJ 08543
Dear Lorin:
This letter is an amendment to our Agreement of April 15, 1996 to provide for
the delivery of additional services to Total Research Corporation (herein
called "TRC") by Princeton Management Company (herein called "PMC").
This amendment recognizes that PMC has successfully completed the tasks
identified in the Scope of Services section of the April 15, 1996 Agreement.
Accordingly all compensation identified in the Compensation section of the
April 15, 1996 Agreement is due PMC.
TRC would like to amend the April 15, 1996 Agreement as follows:
Section 2. Scope of Services:
TRC agrees to retain PMC to perform the additional tasks identified below:
Task D. To facilitate and coordinate all activities of the Management Council,
including: organization of weekly agendas, running of Council meetings,
establishing Council priorities, etc. Assist Council members in
addressing financial issues within their businesses.
Task E. To assist the CFO in the management and restructuring of TRCs financial
office and operations. Key tasks will include: organization of reporting
activities to division presidents and the Management Council, completion
of manual accounting system and start of transition to workable on-line
system for 1998, redefining of relationship and responsibilities between
CFO and division presidents, validation of all information provided by
the financial office, liaison to Summit Bank, etc.
Task F. Exclusively lead search for new equity or debt financing as warranted by
the business conditions of TRC. Lead activities that may include sale of
TRC assets as warranted by business conditions of TRC.
<PAGE> 2
Page 2
TRC Amendment Letter
August 16, 1996
Task G. Assist CEO in organization of a corporate development program for 1998
and an investor relations program for the second half of 1997. Begin
focusing Council on longer term strategic issues that will impact TRC.
Section 3. Duration and Terms of Agreement:
The April 15, 1996 Agreement will be extended to TRCs fiscal year-end 1997.
Section 4. Compensation:
A. The $10,000 per month retainer payable on the fifteenth of each month will
be continued for the amended term of the Agreement, TRCs fiscal year-end 1997.
B. Upon execution of this amendment to the April 15, 1996 Agreement, PMC will
be granted an additional 75,000 options to purchase TRC common stock at the
publicly traded price on September 12, 1996. On March 31, 1997 an additional
37,500 common stock options if the terms of September/October 1996 Summit Bank
loan extension are satisfied. As soon as June 30, 1997 corporate operating plan
results are finalized, an additional 37,500 common stock options if the
corporate operating plan profitability results identified in the management
contracts for the Division Presidents are achieved. The March 31, 1997 and June
30, 1997 common stock options will be granted at the publicly traded price of
TRC common stock on September 12, 1996.
In the event TRCs option plan ever becomes classified as a registered option
plan then, at PMCs discretion the above mentioned common stock options may be
exchanged for the registered common stock of TRC according to the exact same
formula above. In the event TRC is acquired or merged into another company all
150,000 common stock options above will be due PMC and all PMC common stock
options granted under the April 15, 1996 Agreement and this Amendment will be
converted to common equity shares of TRC at a cost basis of $.01 (one cent) per
share. PMC agrees to give TRC "first right of refusal" to purchase its TRC
common shares of stock or options to purchase common shares of stock, at a
price not less than the market price, if and when such stock ever becomes
available for sale.
[PRINCETON MANAGEMENT LETTERHEAD]
<PAGE> 3
Page 3
TRC Amendment Letter (signature page)
August 16, 1996
C. PMC will be paid a success fee of 5% of all equity raised and 2.5% of all
debt raised for TRC on sources of equity and debt produced by PMC. If the
source of equity or debt is provided by another internal TRC party, and PMC is
asked to participate in the negotiation of the transaction PMC will be paid
2.5% of the equity and 1.25% of the debt raised for TRC. In the event PMC is
asked to sell all or a portion of TRCs assets, with identification of the buyer
by PMC, then PMC will be paid a Lehman formula success fee of 5% of the first
million, 4% of the second million, 3% of the third million, 2% of the second
million and 1% on the remainder of assets sold. If TRC identifies the buyer and
PMC is asked to participate in the negotiation of the transaction, then a
mutually agreeable success fee will be agreed to between the parties.
D. If TRC achieves the corporate operating plan profitability goals identified
in the Division Presidents 1997 management contracts then, PMC will be entitled
to a cash bonus of $25,000.
Sections 1, 5, 6 and 7 of the April 15, 1996 Agreement will remain in force and
unchanged.
Very truly yours,
/s/ ALBERT ANGRISANI
- -------------------------------------------
Albert Angrisani
President
Agree to and accepted on September 12, 1996,
/s/ LORIN ZISSMAN
- -------------------------------------------
Lorin Zissman
Chairman and Chief Executive Officer
Total Research Corporation
Witnessed,
/s/ PATTI HOFFMAN
- -------------------------------------------
Patti Hoffman
Compensation Committee of The Board of Directors
Total Research Corporation
[PRINCETON MANAGEMENT LETTERHEAD]
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 4,201
<SECURITIES> 0
<RECEIVABLES> 4,276,486
<ALLOWANCES> 110,000
<INVENTORY> 0
<CURRENT-ASSETS> 7,936,227
<PP&E> 4,921,216
<DEPRECIATION> 2,691,011
<TOTAL-ASSETS> 13,154,551
<CURRENT-LIABILITIES> 8,099,016
<BONDS> 2,142,000
0
0
<COMMON> 9,882
<OTHER-SE> 2,811,339
<TOTAL-LIABILITY-AND-EQUITY> 13,154,551
<SALES> 23,715,049
<TOTAL-REVENUES> 23,715,049
<CGS> 11,001,246
<TOTAL-COSTS> 14,784,283
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 342,024
<INCOME-PRETAX> (2,325,407)
<INCOME-TAX> (842,363)
<INCOME-CONTINUING> (1,483,044)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,483,044)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
