<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 DECEMBER 31,
1996
Commission File Number: 0-15692
TOTAL RESEARCH CORPORATION
--------------------------
(Exact name of Registrant as specified in Charter)
DELAWARE 22-2072212
-------- ----------
(State of Incorporation) (IRS Employer Identification No.)
Princeton Corporate Center, 5 Independence Way
Princeton, New Jersey 08543-5305
--------------------- -----------
(Address of principal executive offices) (Zip Code)
(609) 520-9100
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months or such shorter period that the registrant
was required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- -----
Common Stock, $.001 Par Value - 10,017,708 as of February 7, 1997
<PAGE> 2
TOTAL RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 31, June 30,
1996 1996
---- ----
ASSETS (Unaudited) (Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,050,261 $4,201
Accounts receivable, less allowance for doubtful accounts of $110,000
at December 31, 1996 and $110,000 at June 30, 1996 5,078,098 4,166,486
Costs and estimated earnings in excess of billings on uncompleted 1,299,573 1,737,734
contracts
Deferred taxes 482,478 482,478
Income tax refund receivable 850,000 850,000
Other current assets 631,592 695,328
------- -------
Total current assets 9,392,002 7,936,227
Fixed assets, less accumulated depreciation of $2,839,030 at September
30, 1996 and $2,691,011 at June 30, 1996 2,245,244 2,230,205
Capitalized market research products, less accumulated amortization of
$551,947 at September 30, 1996 and $511,947 at June 30, 1996 264,449 304,449
Deferred data accumulation costs, net of accumulated depreciation of
$1,498,670 at September 30, 1996 and $1,450,300 at June 30, 1996 307,436 347,436
Goodwill, net of accumulated amortization of $184,563 at December 31,
1996 and $145,641 at June 30, 1996 1,753,390 1,792,312
Deferred taxes 296,082 290,640
Other assets 255,368 253,282
------- -------
Total assets $14,513,971 $13,154,551
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of notes payable $ 910,429 $1,584,792
Accounts payable 2,134,447 2,094,153
Accrued expenses and other current liabilities 1,605,686 1,702,126
Accrued restructuring costs 174,350 516,500
Billings in excess of earnings 4,497,870 2,115,142
Income taxes payable 151,244 86,303
------- ------
Total current liabilities 9,474,026 8,099,016
Long-term liabilities
Notes payable 1,850,000 2,142,000
Other long-term liabilities 234,320 92,314
------- ------
Total liabilities 11,558,346 10,333,330
---------- ----------
Shareholders' equity
Common stock-authorized 20,000,000 shares $.001 par value, 10,017,708
shares issued and outstanding at December 31, 1996 and 9,882,108
shares issued and outstanding at June 30, 1996 9,937 9,882
Additional paid-in capital 3,529,840 3,505,835
Cumulative translation adjustment (80,648) (90,685)
Retained earnings (accumulated deficit) (503,504) (603,811)
--------- ---------
Total shareholders' equity 2,955,625 2,821,221
--------- ---------
Total liabilities and shareholders' equity $14,513,971 $13,154,551
=========== ===========
</TABLE>
See notes to the consolidated financial statements.
<PAGE> 3
TOTAL RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended December 31, Ended December 31,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $6,765,057 $5,741,807 $13,326,558 $11,046,934
Direct costs 3,407,130 2,574,202 6,692,878 5,060,327
---------- ---------- ---------- ----------
Gross Profit 3,357,927 3,167,605 6,633,680 5,986,607
Operating Expenses 3,175,467 3,033,347 6,328,763 5,467,474
---------- ---------- ---------- ----------
Income from Operations 182,460 134,258 304,917 519,133
Interest Expense (74,375) (102,121) (167,515) (184,178)
Other income (expense), net 20,886 (15,241) 25,349 (45,241)
------- -------- ------- --------
Income before taxes 128,971 16,896 162,751 289,714
Provision for income taxes 50,621 9,993 62,444 107,713
------- ------ ------- --------
Net income $78,350 $6,903 $100,307 $182,001
======= ====== ======== ========
Weighted average common shares outstanding 10,186,173 10,396,715 10,206,780 10,410,916
Earnings per share $0.01 $0.00 $0.01 $0.02
</TABLE>
See notes to the consolidated financial statements.
<PAGE> 4
TOTAL RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Dec. 31, 1996 Dec. 31, 1995
-------------- -------------
<S> <C> <C>
Cash Flows from operating activities
Net Income $100,307 $182,001
Adjustments to reconcile net income to cash provided by operating
activities
Depreciation 459,914 421,686
Amortization 38,922 85,900
Accretion of warrants 8,000 8,000
Adjustment for foreign currency translation 10,037 18,187
(Increase) decrease in assets
Accounts receivable (911,612) (755,431)
Cost and estimated earnings in excess of billings on uncompleted 438,161 (190,020)
contracts
Other assets 56,208 (69,071)
Increase (decrease) in liabilities
Accounts payable 40,294 (193,869)
Accrued expenses (438,590) 202,871
Billings in excess of earnings 2,382,728 1,043,480
Income taxes payable 64,941 96,528
Other long term liabilities 142,005 (190,425)
-------------- -------------
Net cash provided by operating activities 2,391,315 659,837
Cash flows from investing activities:
Purchase of equipment (314,580) (453,431)
Acquisition of certain assets of Carlson net of cash acquired -- (286,965)
Cash expended for capitalized market research products -- (140,030)
Deferred data accumulation costs (88,370) (221,645)
-------------- -------------
Net cash used by investing activities (402,950) (1,102,071)
Cash flows from financing activities:
Repayment of debt (1,866,365) (4,428,262)
Proceeds from short-term debt 900,000 --
Proceeds from long-term debt -- 4,748,012
Payment under capital lease obligations, net -- 9,850
Proceeds from issuance of common stock 24,060 31,400
-------------- -------------
Net cash provided by (used in) financing activities (942,305) 361,000
Net increase (decrease) in cash and cash equivalents 1,046,060 (81,234)
Cash and cash equivalents at beginning of period 4,201 128,071
-------------- -------------
Cash and cash equivalents at end of period $ 1,050,261 $46,837
============== =============
</TABLE>
<PAGE> 5
TOTAL RESEARCH CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(Unaudited)
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 and six months ended December
31, 1996 are not necessarily indicative of the results that may be expected for
the year ended June 30, 1997.
Note 2 - Presentation of European Subsidiary - TR-Europe
The summary of financial information, set forth below should be read in
conjunction with the consolidated financial statements as of and for the period
ended December 31, 1996 and December 31, 1995. The following summarizes
information on TR-Europe's Statement of Income, converted to U.S. Dollars using
a weighted average exchange rate of $1.60 and $1.56, for the six month periods
ended December 31, 1996 and 1995, respectively and a weighted average exchange
rate of $1.60 and $1.54 for the three month periods ended December 31, 1996 and
1995, respectively.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $1,934,768 $1,344,463 $3,810,146 $3,066,084
Direct Costs 896,268 647,106 1,802,786 1,570,285
------- ------- --------- ---------
Gross Profit 1,038,500 697,357 2,007,360 1,495,799
Operating Expenses 946,906 673,805 1,880,775 1,323,597
------- ------- --------- ---------
Income from operations 91,594 23,552 126,585 172,202
Income taxes 34,806 16,927 50,634 58,549
------ ------ ------ ------
Net Income $56,788 $6,625 $75,951 $113,653
======= ====== ======= ========
</TABLE>
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
<PAGE> 6
value of goodwill is evaluated periodically in relation to the operating
performance and future undiscounted net cash flows of the underlying business.
Adjustments are recorded if the sum of the expected future net cash flows is
less than the book value of the goodwill.
PART II - MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Result of Operations - Second Quarter Fiscal 1997 as Compared to Second Quarter
Fiscal 1996.
<TABLE>
<CAPTION>
Statement of Income Data:
- -------------------------
(Expressed as a percentage of revenues) Three Months Ended December 31,
-------------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues 100.0% 100.0%
Direct costs 50.4% 44.8%
----- -----
Gross profit 49.6% 55.2%
Operating expenses 46.9% 52.8%
----- -----
Income from operations 2.7% 2.4%
Interest expense 1.1% 1.8%
Other income (expense), net 0.3% (0.3%)
---- ------
Income before income taxes 1.9% .3%
Provision for income taxes .7% .2%
--- ---
Net income 1.2% .1%
==== ===
</TABLE>
Revenues for the second quarter of fiscal 1997 increased 17.8% or $1,023,250,
versus the same quarter in the prior year, to $6,765,057. The Company
experienced increased revenues in its Global Health Care, Total
Research/Quality Management and newly reorganized Strategic Marketing Services
division (which includes the UK subsidiary). In addition, the increase in
revenue is also the result of a full quarter of revenue earned from its
Minneapolis office (acquired on November 27, 1995).
The Company's outlook for fiscal year 1997 is for steady improvement in
operating results. Management believes that certain carry-over operating
commitments from previous management and contractual obligations which included
the completion of low-margin business has been completed as of December 31,
1996. In addition, the Company has replenished it's backlog with business sold
at increased profit levels.
<PAGE> 7
The Company defines backlog as the unearned portions of its existing contracts
at each balance sheet date. The Company's backlog at December 31, 1996 was
approximately $10,700,000 as compared to a backlog of approximately $9,600,000
at June 30, 1996 and approximately $8,000,000 at December 31, 1995. The amount
of backlog at any time may not be indicative of intermediate or long-term
trends in the Company's operations.
Direct costs for the second quarter of fiscal 1997 totaled $3,407,130, an
increase of 32.4% or $832,928 versus the prior year's total of $2,574,202. As
such, they were 50.4% of revenues, as compared to 44.8% of revenues in the
prior year. This increase in direct costs as a percentage of revenues is the
result of work finished during the quarter that was completed at profit levels
that are not indicative of the Company's goals.
Operating expenses for the second quarter of fiscal 1997 totaled $3,175,467, an
increase of 4.7% or $142,120 over the same quarter in the prior year. As such,
they were 46.9% of revenues, as compared to 52.8% of revenues in the prior
year. The reduction as a percentage of revenue is the result of the
implementation of the Company's reorganization plan of July 1996, which was
offset by a full quarter of operating expenses from its Minneapolis office,
acquired on November 27, 1995.
Income from operations increased $48,202 to $182,460 during the second quarter
of fiscal 1997, as compared to $134,258 during the second quarter of fiscal
1996, for all the reasons set forth herein.
The Company's interest expense decreased $27,746 in the second quarter of
fiscal 1997 to $74,375, as compared to $102,121 in the second quarter of fiscal
1996, a result of reducing of the Company's debt by approximately $600,000
during the three month period.
Other income (expense) totaled $20,886 for the second quarter of fiscal 1997,
an increase of $36,127 versus expense of ($15,241) during the second quarter of
fiscal 1996. The other income largely consists of licensing income earned by
the Company as the result of its licensing arrangement with TRAC in Argentina.
Income before taxes totaled $128,971 for the second quarter of fiscal 1997
versus $16,896 in the second quarter of fiscal 1996 for the reasons set forth
above. The income tax provision for the second quarter of fiscal 1997 was
$50,621, versus $9,993 for the second quarter of fiscal 1996 due to the
increased earnings of the Company.
Net income for the second quarter of fiscal 1997 was $78,350, or $.01 per
share, versus earnings of $6,903, or $.00 per share for the second quarter of
fiscal 1996.
<PAGE> 8
Result of Operations - Six Months Year to Date Fiscal 1996 as compared to Six
Months Year to Date Fiscal 1995
Statement of Income Data:
(Expressed as a percentage of revenues)
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues 100.0% 100.0%
Direct costs 50.2% 45.8%
----- -----
Gross profit 49.8% 54.2%
Operating expenses 47.5% 49.5%
----- -----
Income from operations 2.3% 4.7%
Interest expense 1.3% 1.7%
Other income (expense), net 0.2% (0.4)%
---- -----
Income before income taxes 1.2% 2.6%
Provision for income taxes .5% 1.0%
--- ----
Net income .7% 1.6%
=== ====
</TABLE>
Revenues for the first six months of fiscal 1997 increased 20.6% or $2,279,624
versus the same six months in the prior year, to $13,326,558. The Company
experienced increasing revenues in its Global Health Care, Total
Research/Quality Management and newly reorganized Strategic Marketing Services
division (which includes the UK subsidiary). In addition, the increased
revenue includes a full six months of revenue earned from its Minneapolis
office acquired on November 27, 1995.
The Company defines backlog as the unearned portions of its existing contracts
at each balance sheet date. The Company's backlog at December 31, 1996 was
approximately $10,700,000 as compared to a backlog of approximately $9,600,000
at June 30, 1996 and approximately $8,000,000 at December 31, 1995. The amount
of backlog at any time may not be indicative of intermediate or long-term
trends in the Company's operations.
Direct costs increased 32.3% or $1,632,551 for the first six months of fiscal
1997 to $6,692,878 versus the prior year's six month total of $5,060,327. As
such, they were 50.2% of revenues, as compared to 45.8% of revenues in the
prior year. This increase in direct costs as a percentage of revenues is the
result of work competed during the six months that was completed at profit
levels that are not indicative of the Company's goals.
Operating expenses for the first six months of fiscal 1997 totaled $6,328,763
an increase of 15.8% or $861,289 over the first six months of fiscal 1996. As
such, they were 47.5% of revenues, as compared to 49.5% of revenues in the
prior year. The reduction as a percentage of revenue is
<PAGE> 9
mainly the result of the implementation of the Company's reorganization plan of
July 1996, which was offset by a full quarter of operating costs from the
Minneapolis office.
Income from operations decreased $214,216 to $304,914 during the first six
months of fiscal 1997, as compared to $519,133 during the first six months of
fiscal 1996, for all the reasons set forth herein.
The Company's interest expense decreased $16,663 in the first six months of
fiscal 1997 to $167,515, as compared to $184,178, in the first six months of
fiscal 1996, as a result of the reduction of corporate bank debt.
Other income (expense) totaled $25,349 for the fist six months of fiscal 1997,
an increase of $70,590 versus expense of ($45,241) during the first six months
of fiscal 1996, due primarily to the licensing income of approximately $25,000
earned by the Company as the result of its licensing arrangement with TRCA in
Argentina.
Income before taxes totaled $162,751 for the first six months of fiscal 1997
versus $289,714 in the first six months of fiscal 1996 for the reasons set
forth above.
The income tax provision for the first six months of fiscal 1997 was $62,444,
versus $107,713 for the first six months of fiscal 1996 due to the decreased
earnings of the Company.
Net income for the first six months of fiscal 1997 was $100,307, or $.01 per
share, versus earnings of $182,001 or $.02 per share for the first six months
of fiscal 1996.
Liquidity and Capital Resources
Working capital deficiency decreased to ($82,024), at December 31, 1996, from
($162,789) at June 30, 1996, and the current ratio increased to .99 from .98 at
June 30, 1996. The increase in working capital is mostly attributable to the
increased profitability of the Company.
Billings in excess of earnings (work invoiced before the work is completed)
increased $2,382,728 at December 31, 1996 to $4,497,870, compared to $2,115,142
at June 30, 1996. As a percentage of current liabilities, billings in excess
of earnings represented 47.5% at December 31, 1996 versus 26.1% at June 30,
1996 due to the Company's improved billings and collection procedures.
The Company's Notes Payable (both short term and long term) were approximately
$2.76 million at December 31, 996, compared to $3.73 million at June 30, 1996.
The reduction is the result of the Company's improving cash flow. Currently,
the Company's US bank debt is the only term debt.
The agreement with Summit Bank contains restrictions, one of which requires the
Company to maintain certain financial ratios. As of December 31, 1996, the
Company has met these minimum ratios.
<PAGE> 10
Cash totaled $1,050,261 at December 31, 1996 versus $4,201 at June 30, 1996.
The increase in cash is the result of improved cash collections.
Net Accounts Receivable totaled $5,078,098 at December 31, 1996, compared to
$4,166,486 at the June 30, 1996, for a net increase of $911,612. The increase
in receivables is the result of an acceleration in the billing of clients and
increasing business levels.
Costs and estimated earnings in excess of billings on uncompleted contracts
totaled $1,299,573 at December 21, 1996, compared to $1,737,734 at June 30,
1996, for a net decrease of $438,161. The acceleration in the billing of
clients as well as normal fluctuations in the billing cycle of work-in-progress
accounted for this decrease.
Fixed assets at cost, less accumulated depreciation and amortization increased
by $15,039 at December 31, 1996 to $2,245,244, compared to $2,230,205 at June
30, 1996, due primarily to furniture purchased for the newly renovated offices
in Princeton. The Company funded the purchase of the furniture as part of the
lease agreement it signed with its landlord in December 1995.
Capitalized Market Research Products, Net, decreased by $40,000 at December 31,
1996 to $264,449, compared to $304,449 at June 30, 1996. The decrease is the
result of the amortization of its existing products. The Company is currently
not developing any new products but plans to do so in the future.
Deferred Data Accumulation Costs, Net, decreased by $40,000 at December 31,
1996 to $307,436, compared to $347,436 at June 30, 1996. The fluctuation
represents the fact that the Company is amortizing historical costs at a rate
slightly higher than it incurs costs with its current product offerings.
Current portion of notes payable decreased by $674,363 at December 31, 1996 to
$910,429, compared to $1,584,792 at June 30, 1996. The decrease is due to the
reduction of the Company's bank debt by virtue of its improved financial
situation.
Accounts payable increased by $40,294 at December 31, 1996 to $2,134,447,
compared to $2,094,153 at June 30, 1996.
Federal and state income taxes payable increased $64,941 at December 31, 1996
to $151,244, compared to $86,303 at June 30, 1996, as a result of the increased
earnings of the Company in the second quarter of fiscal 1997.
Notes payable decreased $292,000 at December 31, 1996 to $1,850,000, compared
to $2,142,000 at June 30, 1996. The decrease is due to the paydown of the
Company's term debt as per its agreement with Summit Bank.
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal actions, proceedings or
litigations pending or threatened to the knowledge of the Company.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other information
Item 6. Exhibits
Restated credit agreement with Summit Bank dated October 10,
1996 incorporated by reference from 10-KSB submission of October 15, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
undersigned has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOTAL RESEARCH CORPORATION
--------------------------
(Registrant)
BY: LORIN ZISSMAN,
CHIEF EXECUTIVE OFFICER
BY: ERIC ZISSMAN
CHIEF FINANCIAL OFFICER
Dated: February 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,050,261
<SECURITIES> 0
<RECEIVABLES> 5,188,098
<ALLOWANCES> 110,000
<INVENTORY> 0
<CURRENT-ASSETS> 9,392,002
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,513,971
<CURRENT-LIABILITIES> 9,474,026
<BONDS> 0
0
0
<COMMON> 9,937
<OTHER-SE> 2,945,688
<TOTAL-LIABILITY-AND-EQUITY> 14,513,971
<SALES> 13,326,558
<TOTAL-REVENUES> 13,326,558
<CGS> 6,692,878
<TOTAL-COSTS> 6,328,763
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 167,515
<INCOME-PRETAX> 162,751
<INCOME-TAX> 62,444
<INCOME-CONTINUING> 100,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100,307
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0
</TABLE>
