<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDING SEPTEMBER 30, 1997
Commission File Number: 0-15692
TOTAL RESEARCH CORPORATION
(Exact name of Registrant as specified in Charter)
DELAWARE 22-2072212
(State of Incorporation) (IRS Employer Identification No.)
Princeton Corporate Center, 5 Independence Way
Princeton, New Jersey 08543-5305
(Address of principal executive offices) (Zip Code)
(609) 520-9100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months or such shorter period that the registrant was required
to file such reports, and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
Common Stock, $.001 Par Value - 10,061,134 as of November 4, 1997
<PAGE> 2
TOTAL RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,188,943 $ 678,350
Accounts receivable, less allowance for doubtful accounts
of $110,000 at September 30, 1997 and June 30, 1997 5,924,047 5,101,596
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,133,819 1,240,852
Deferred taxes 281,900 281,900
Income tax refund receivable -- 8,505
Other current assets 532,631 559,281
----------- -----------
Total current assets 9,061,340 7,870,484
Fixed assets, less accumulated depreciation of $3,494,074
at September 30, 1997 and $3,334,556 at June 30, 1997 2,235,448 2,316,630
Capitalized market research products, less accumulated
amortization of $611,947 at September 30, 1997 and
$591,947 at June 30, 1997 204,449 224,449
Deferred data accumulation costs, net of accumulated depreciation of
$1,550,300 at September 30, 1997 and $1,530,300 at June 30, 1997 247,436 267,436
Goodwill, net of accumulated amortization of $242,954 at
September 30, 1997 and $223,493 at June 30, 1997 1,780,923 1,800,384
Deferred taxes 228,880 228,880
Other assets 234,250 240,031
----------- -----------
Total assets $13,992,726 $12,948,294
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable - bank $ 315,708 $ 214,575
Accounts payable 3,241,002 2,106,555
Accrued expenses and other current liabilities 1,712,581 2,555,230
Accrued restructuring costs 55,000 91,000
Billings in excess of costs and estimated earnings 4,007,288 3,887,372
Income taxes payable 348,855 166,474
----------- -----------
Total current liabilities 9,680,434 9,021,206
Long-term liabilities
Other long -term liabilities 334,402 279,020
----------- -----------
Total liabilities 10,014,836 9,300,226
----------- -----------
Shareholders' equity
Common stock-authorized 20,000,000 shares $.001
par value, 10,056,134 shares issued and outstanding
at September 30, 1997 and 10,044,108 shares issued
and outstanding at June 30, 1997 10,054 10,044
Additional paid-in capital 3,580,910 3,576,545
Cumulative translation adjustment 26 27,095
Retained earnings 386,900 34,384
----------- -----------
Total shareholders' equity 3,977,890 3,648,068
----------- -----------
Total liabilities and shareholders' equity $13,992,726 $12,948,294
=========== ===========
</TABLE>
(See notes to the consolidated financial statements )
<PAGE> 3
TOTAL RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
------------ ------------
<S> <C> <C>
Revenues $ 8,242,025 $ 6,561,501
Direct costs 4,063,724 3,285,748
------------ ------------
Gross profit 4,178,301 3,275,753
Operating expenses 3,592,638 3,153,296
------------ ------------
Income from operations 585,663 122,457
Interest expense, net (2,909) (93,140)
Other income, net 10,000 4,463
------------ ------------
Income before taxes 592,754 33,780
Provision for income taxes 240,239 11,823
------------ ------------
Net income $ 352,515 $ 21,957
============ ============
Earnings per share $ 0.03 $ 0.00
============ ============
Weighted average common shares
outstanding 11,240,125 10,171,872
============ ============
</TABLE>
See notes to the consolidated financial statements
<PAGE> 4
TOTAL RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 352,515 $ 21,957
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation 159,518 216,389
Amortization 59,461 39,461
Accretion of warrants -- 4,000
Adjustment for foreign currency translation (27,069) (3,892)
(Increase) decrease in assets
Accounts receivable (822,451) (478,749)
Cost and estimated earnings in
excess of billings on uncompleted contracts 107,033 41,417
Other assets 40,934 42,802
Increase (decrease) in liabilities
Accounts payable 1,134,447 (98,101)
Accrued expenses (916,138) (85,520)
Billings in excess of earnings 119,916 597,772
Income taxes payable 182,381 11,545
Other liabilities 56,879 127,339
----------- -----------
Net cash provided by operating activities 447,426 436,420
----------- -----------
Cash flows from investing activities:
Purchases of equipment (78,336) (28,682)
Deferred data accumulation costs -- (48,370)
----------- -----------
Net cash used by investing activities (78,336) (77,052)
----------- -----------
Cash flows from financing activities:
(Repayment) Proceeds of debt 101,133 (367,107)
Proceeds under capital lease obligations, net 35,994 --
Proceeds from issuance of common stock 4,376 13,124
----------- -----------
Net cash provided by (used in ) financing
activities 141,503 (353,983)
----------- -----------
Net increase (decrease) in cash and cash
equivalents 510,593 5,385
Cash and cash equivalents at beginning of period 678,350 4,201
----------- -----------
Cash and cash equivalents at end of period $ 1,188,943 $ 9,586
=========== ===========
</TABLE>
See notes to the consolidated financial statements
<PAGE> 5
TOTAL RESEARCH CORPORATION
Notes to Financial Statements
September 30, 1997 and 1996
Note 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
June 30, 1998.
Note 2 - Presentation of European Subsidiary - TR-Europe
The summary of financial information, set forth below should be read in
conjunction with the consolidated financial statements as of and for the period
ended September 30, 1997 and September 30, 1996. The following summarizes
information on TR-Europe's Statement of Income, converted to U.S. Dollars using
a weighted average exchange rate of $1.64 and $1.55, for the three month periods
ended September 30, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
Three Months Ended
September 30, September 30,
1997 1996
---------- ----------
<S> <C> <C>
Revenues $2,807,136 $1,816,772
Direct Costs 1,380,067 878,191
---------- ----------
Gross Profit 1,427,069 938,581
Operating Expenses 1,265,106 882,345
---------- ----------
Income from operations 161,963 56,236
Income taxes 53,448 16,871
---------- ----------
Net Income $ 108,515 $ 39,365
========== ==========
</TABLE>
<PAGE> 6
Note 3 - Measurement of Goodwill
Goodwill has been recorded in relation to the excess of the purchase price over
the fair values of the identified assets acquired. The Company amortizes
goodwill over twenty-five years. The carrying value of goodwill is evaluated
periodically in relation to the operating performance and future undiscounted
net cash flows of the underlying business. Adjustments are recorded if the sum
of the expected future net cash flows is less than the book value of the
goodwill.
<PAGE> 7
PART II - MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Result of Operations - First Quarter Fiscal 1997 as Compared to First Quarter
Fiscal 1996.
Statement of Income Data:
(Expressed as a percentage of revenues) September 30,
1997 1996
----- -----
Revenues 100.0% 100.0%
Direct costs 49.3% 50.1%
----- -----
Gross profit 50.7% 49.9%
Operating expenses 43.6% 48.0%
----- -----
Income from operations 7.1% 1.9%
Interest expense 0.0% 1.4%
Other income (expense), net 0.1% 0.0%
----- -----
Income before income taxes 7.2% .5%
Provision for income taxes 2.9% .2%
----- -----
Net income 4.3% .3%
Revenues for the first quarter of fiscal 1998 increased 25.6% or $1,680,524
versus the same quarter in the prior year, to $8,242,025. During this period the
Company realized increases in revenues in three of it's four research
divisions. Both the Strategic Marketing Services and Global Health Care
Divisions realized increased revenues of over 20% each; the Customer Loyalty
Division realized increased revenues of just over 9% while the Regional Offices
Division revenues remained consistent with last year's totals.
Direct costs for the first quarter of fiscal 1998 totaled $4,063,724, an
increase of 23.7% or $777,976 versus the prior year's total of $3,285,748. As
such, they were 49.3% of revenues, as compared to 50% of revenues in the prior
year. This decrease in direct costs as a percentage of revenues is mainly the
result of the improvement in pricing projects and realization of operating
efficiencies.
<PAGE> 8
Operating expenses for the first quarter of fiscal 1998 totaled $3,592,637, an
increase of 13.9% or $439,341 over the same quarter in the prior year. The
increase in operating expenses is mainly the result of the increase in staff and
related training to complete the additional $1.7 million dollars of additional
work during the period. Other factors contributing to the increase include an
increase an marketing costs as well as a more focused investor relations
program. Expressed as a percent of revenue, operating expenses decreased to
43.6% of revenue in the first quarter of fiscal 1998, versus 48% in the first
quarter of fiscal 1997. This reduction as a percentage of revenues is part of an
ongoing commitment of management to control its operating expenses. Expressed as
a percentage of gross profit, operating expenses decreased to 86% of gross
profit in the first quarter of fiscal 1998, versus 96% in the first quarter of
fiscal 1997.
Income from operations increased $463,206 to $585,663 during the first quarter
of fiscal 1998, as compared to $122,457 during the first quarter of fiscal 1997,
for all the reasons set forth herein.
The Company's interest expense decreased $90,231 in the first quarter of fiscal
1998 to $2,909, as compared to $93,140 in the first quarter of fiscal 1997, as a
result of the paydown of it's bank debt during fiscal 1997.
Other income totaled $10,000 for the first quarter of fiscal 1998, an increase
of $5,537 versus income of $4,463 during the first quarter of fiscal 1997, due
to the licensing income earned by the Company as the result of its licensing
arrangement with TRCA in Argentina.
Income before taxes totaled $592,754 for the first quarter of fiscal 1998, an
increase of 1655% versus $33,780 in the first quarter of fiscal 1997, for the
reasons set forth above.
The income tax provision for the first quarter of fiscal 1998 was $240,239,
versus $11,823 for the first quarter of fiscal 1997 due to the increased
earnings of the Company.
Net income for the first quarter of fiscal 1998 was $352,515, or $.03 per share,
versus earnings of $21,957 or $.00 per share for the first quarter of fiscal
1997.
The Company defines backlog as the unearned portions of its existing contracts
at each balance sheet date. The Company's backlog at September 30, 1997 was
approximately $12,100,000 as compared to a backlog of approximately $12,000,000
at June 30, 1997 and approximately $9,000,000 at September 30, 1995. The amount
of backlog at any time may not be indicative of intermediate or long-term trends
in the Company's operations.
Liquidity and Capital Resources
At September 30, 1997, the Company had a working capital deficiency of
($619,094), an increase of $531,628 from June 30, 1997, and the current ratio
increased to .94 from .87. The increase in working capital and the corresponding
increase in current ratio is attributable to the improving financial performance
of the Company.
<PAGE> 9
- - For the quarter ending September 30, 1997, the Company generated cash from
operations of approximately $447,000. An increase of UK revolving bank debt,
additional capital leases and employee exercised stock options added an
additional $142,000, for a total of $589,000 of cash available during the
quarter. The major uses of this cash were an increase in cash balances of
approximately $511,000 and the purchase of computer equipment and office
furnishings of approximately $78,000.
On June 30, 1997, the Company renegotiated its agreement with Summit Bank
(formerly the United Jersey Bank of Princeton, New Jersey, "the Bank"").
The Agreement has been amended as follows:
- A one year $2.5 million revolving line of credit at a variable
interest rate based on certain financial ratios. As of September 30,
1997, the rate is prime plus one-half percent. As of September 30,
1997, the Company was in compliance with all of the financial ratios
and has not borrowed against this line.
- A three year $500,000 term line, secured by equipment, furniture and
fixtures at an interest rate based on certain financial ratios. As of
September 30, 1997, the rate is prime plus one-half percent. As of
September 30, 1997, the Company has not borrowed against this line.
The Company also has a bank overdraft facility of [pound sterling] 300,000 with
Coutts & Company in London, UK. The borrowings are charged at a rate of 3
percent above the UK Base Rate. At September 30, 1997 the borrowings were at
[pound sterling] 196,092 (approximately U.S. $316,000) 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 $5,924,047 at September 30, 1997, compared to
$5,101,596 at the prior year-end, for a net increase of $822,451. The increase
in receivables is primarily the result of the Company's improved invoicing
procedures and increasing business.
Costs and estimated earnings in excess of billings on uncompleted contracts
totaled $1,133,819 at September 30, 1997, compared to $1,240,852 at the prior
year-end, for a net decrease of $107,033. This amount decreased as the result of
normal fluctuations in the business.
Current and long-term deferred tax assets are at $510,780 for both September 30,
1997 and June 30, 1997. Based on the Company's history of prior operating
earnings and its expectations for the future, management has determined that the
future operating income of the Company should be sufficient to recognize fully
these net deferred tax assets.
Fixed assets at cost, less accumulated depreciation and amortization decreased
by $81,182 as of September 30, 1997 from $2,316,630 at June 30, 1997 to
$2,235,448. For the foreseeable future, the Company believes that it will not
make significant fixed assets purchases.
<PAGE> 10
Capitalized Market Research Products decreased by $20,000 to $204,449, versus
$224,449 at June 30, 1997. During the first quarter of fiscal 1998 the Company
did not invest any money in any new products.
Deferred Data Accumulation Costs decreased by $20,000 from $267,436 at June 30,
1997 to $247,436 at September 30, 1997. This decline is the result of a
reduction in the annual investment the Company makes for its EquiTrend product.
Accounts payable and accrued expenses totaled $5,008,583, an increase of
$255,798 during the first quarter of fiscal 1998 from $4,752,785 at June 30,
1997. This increase is primarily the result of the increasing business of the
Company.
Billings in excess of earnings totaled $4,007,288, an increase of $119,916
during the first quarter of fiscal 1998 from $3,887,372 at June 30, 1997. This
amount increased as the result of normal fluctuations in the business.
Income taxes payable totaled $348,855, an increase of $182,081 during the first
quarter of fiscal 1998 from $166,474 at June 30, 1997. This increase is the
result of the increasing profitability of the Company.
Inflation had no material effect on the financial performance of the Company
during the first quarter of fiscal 1998.
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal actions, proceedings or litigation's pending or
threatened to the knowledge of the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other information
None.
Item 6. Exhibits
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
undersigned has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOTAL RESEARCH CORPORATION
---------------------------------
(Registrant)
/s/ Lorin Zissman
---------------------------------
BY: LORIN ZISSMAN,
CHIEF EXECUTIVE OFFICER
/s/ Eric Zissman
---------------------------------
BY: ERIC ZISSMAN
CHIEF FINANCIAL OFFICER
Dated: November 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,188,943
<SECURITIES> 0
<RECEIVABLES> 6,034,047
<ALLOWANCES> 110,000
<INVENTORY> 0
<CURRENT-ASSETS> 9,061,340
<PP&E> 5,729,522
<DEPRECIATION> 3,494,074
<TOTAL-ASSETS> 13,992,726
<CURRENT-LIABILITIES> 9,680,434
<BONDS> 0
0
0
<COMMON> 10,054
<OTHER-SE> 3,967,836
<TOTAL-LIABILITY-AND-EQUITY> 13,992,726
<SALES> 0
<TOTAL-REVENUES> 8,242,025
<CGS> 4,063,724
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,592,638
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,909)
<INCOME-PRETAX> 592,754
<INCOME-TAX> 240,239
<INCOME-CONTINUING> 352,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 352,515
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0
</TABLE>
