<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, 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 - 10,131,134 as of February 13, 1998
<PAGE> 2
TOTAL RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,647,023 $ 678,350
Accounts receivable, less allowance for doubtful accounts
of $110,000 at December 31, 1997 and June 30, 1997 6,155,147 5,101,596
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,348,896 1,240,852
Deferred Taxes 281,900 281,900
Income tax refund receivable - 8,505
Other current assets 513,869 559,281
----------- ------------
Total current assets 9,946,835 7,870,484
Fixed assets, less accumulated depreciation of $3,595,184
at December 31, 1997 and $3,334,556 at June 30, 1997 2,134,338 2,316,630
Capitalized market research products, less accumulated
amortization of $631,947 at December 31, 1997 and
$591,947 at June 30, 1997 184,449 224,449
Deferred data accumulation costs, net of accumulated depreciation of
$1,570,300 at December 31, 1997 and $1,530,300 at June 30, 1997 227,436 267,436
Goodwill, net of accumulated amortization of $262,415 at
December 31, 1997 and $223,493 at June 30, 1997 1,761,462 1,800,384
Deferred taxes 228,880 228,880
Other assets 383,767 240,031
------------- -----------
Total assets $14,867,167 $12,948,294
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable - bank $ 199,272 $ 214,575
Accounts payable 3,035,063 2,106,555
Accrued expenses and other current liabilities 1,799,180 2,646,230
Billings in excess of costs and estimated earnings 4,562,431 3,887,372
Income taxes payable 552,212 166,474
----------- ------------
Total current liabilities 10,148,158 9,021,206
Long-term liabilities
Other long -term liabilities 312,801 279,020
------- -------
Total liabilities 10,460,959 9,300,226
----------- ------------
Shareholders' equity
Common stock-authorized 20,000,000 shares $.001 par value, 10,056,134 shares
issued and outstanding at December 31, 1997 and
10,131,134 shares issued and outstanding at June 30, 1997 10,131 10,044
Additional paid-in capital 3,580,834 3,576,545
Cumulative translation adjustment 20,819 27,095
Retained earnings 794,424 34,384
------------ ------------
Total shareholders' equity 4,406,208 3,648,068
----------- ------------
Total liabilities and shareholders' equity $14,867,167 $12,948,294
============= ===========
</TABLE>
(See notes to the consolidated financial statements)
<PAGE> 3
TOTAL RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $8,749,086 $6,765,057 $16,991,111 $13,326,558
Direct Costs 4,204,615 3,407,130 8,268,339 6,692,878
---------- ---------- ----------- -----------
Gross Profit 4,544,471 3,357,927 8,722,772 6,633,680
Operating Expenses 3,935,362 3,175,467 7,528,000 6,328,763
----------- ---------- ---------- -----------
Income from Operations 609,109 182,460 1,194,772 304,917
Interest Expense (1,904) (74,375) (4,813) (167,515)
Other income, net 25,912 20,886 35,911 25,349
------------- ----------- ------------ ------------
Earnings before income
taxes 633,117 128,971 1,225,870 162,751
Income taxes 225,592 50,621 465,830 62,444
----------- ---------- ----------- -----------
Net income $ 407,525 $ 78,350 $ 760,040 $ 100,307
----------- ---------- ----------- -----------
Basic Earnings Per Share $0.04 $0.01 $0.08 $0.01
Diluted Earnings Per Share $0.03 $0.01 $0.07 $0.01
Basic Weighted Ave. Shares Outstanding 10,087,764 9,965,097 10,071,330 9,933,537
Diluted Weighted Ave. Shares Outstanding 11,646,107 10,186,173 11,426,471 10,206,780
</TABLE>
(See notes to Financial Statements)
<PAGE> 4
TOTAL RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 760,040 $ 100,307
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation 359,036 459,914
Amortization 78,922 38,922
Accretion of warrants - 8,000
Adjustment for foreign currency translation ( 6,276) 10,037
(Increase) decrease in assets
Accounts receivable (1,053,551) (911,612)
Cost and estimated earnings in
excess of billings on uncompleted contracts (108,044) 438,161
Other assets (89,819) 56,208
Increase (decrease) in liabilities
Accounts payable 928,508 40,294
Accrued expenses (846,134) (438,590)
Billings in excess of earnings 675,059 2,382,728
Income taxes payable 385,738 64,941
Other liabilities 16,684 142,005
------------- -------------
Net cash provided by operating activities 1,100,163 2,391,315
------------- --------------
Cash flows from investing activities:
Purchases of equipment (136,743) (314,580)
Cash expended for Deferred data accumulation
costs - (88,370)
------------- ---------------
Net cash used by investing activities (136,743) (402,950)
-------------- --------------
Cash flows from financing activities:
(Repayment) Proceeds of debt (15,303) (966,365)
Proceeds under capital lease obligations, net 16,180 -
Proceeds from issuance of common stock 4,376 24,060
------------- -------------
Net cash provided by (used in ) financing
activities 5,253 (942,305)
------------- --------------
Net increase (decrease) in cash and cash
equivalents 968,673 1,046,060
Cash and cash equivalents at beginning of period 678,350 4,201
------------- -------------
Cash and cash equivalents at end of period $ 1,647,023 $1,050,261
============== =============
</TABLE>
See notes to the consolidated financial statements
<PAGE> 5
TOTAL RESEARCH CORPORATION
Notes to Financial Statements
December 31, 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-QSB 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 six months ended December 31, 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 December 31, 1997 and December 31, 1996. The following summarizes
information on TR-Europe's Statement of Income, converted to U.S. Dollars using
a weighted average exchange rate of $1.66 and $1.60, for the three month periods
ended September 30, 1997 and 1996, respectively and a weighted average exchange
rate of $1.66 and $1.60 for the six month period ended December 31, 1997 and
1996, respectively.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1997 1996 1997 1996
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues $2,811,119 $1,934,768 $5,618,255 $3,810,146
Direct Costs 1,452,350 896,268 2,832,417 1,802,786
---------- --------- ---------- ------------
Gross Profit 1,358,769 1,038,500 2,785,838 2,007,360
Operating Expenses 1,173,056 946,906 2,418,311 1,880,775
------------ --------- ---------- ----------
Income from Operations 185,713 91,594 367,527 126,585
Income Taxes 61,286 34,806 128,635 50,634
---------- --------- ---------- ----------
Net Income $ 124,427 $ 56,788 $ 238,892 $ 75,951
---------- --------- ---------- ----------
</TABLE>
<PAGE> 6
Note 3 - Measurement of Goodwill
Goodwill has been recorded in relation to the excess of the purchase price over
the fair values of the identified assets acquired. The Company amortizes
goodwill over twenty-five years. The carrying value of goodwill is evaluated
periodically in relation to the operating performance and future undiscounted
net cash flows of the underlying business. Adjustments are recorded if the sum
of the expected future net cash flows is less than the book value of the
goodwill.
PART II - MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Result of Operations - Second Quarter Fiscal 1998 as Compared to Second Quarter
Fiscal 1997.
<TABLE>
<CAPTION>
Statement of Income Data:
(Expressed as a percentage of revenues) December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Revenues 100.0% 100.0%
Direct costs 48.1% 50.4%
----- -----
Gross profit 51.9% 49.6%
Operating expenses 45.0% 46.9%
----- -----
Income from operations 6.9% 2.7%
Interest expense <0.0%> <1.1%>
Other income (expense), net 0.3% 0.3%
---- ----
Income before income taxes 7.2% 1.9%
Provision for income taxes 2.6% .7%
---- ---
Net income 4.7% 1.2%
</TABLE>
Revenues for the second quarter of fiscal 1998 increased 29.3% or $1,984,029
versus the same quarter in the prior year, from $6,765,057 to $8,749,086 All
four of the Company's divisions realized revenue increases during the period.
<PAGE> 7
Direct costs for the second quarter of fiscal 1998 totaled $4,204,615, an
increase of 23.% or $797,485 versus the prior year's total of $3,407,130. As
such, they were 48.1% of revenues, as compared to 50.4% of revenues in the prior
year. This decrease in direct costs as a percentage of revenues is mainly the
result of operating efficiencies.
Operating expenses for the second quarter of fiscal 1998 totaled $3,935,362, an
increase of 23.9% or $759,895 versus the prior year's total of $3,175,467. The
increase in operating expenses is mainly the result of the increase in staff
and related fringe benefit costs incurred to complete the additional $1.98
million dollars of additional work during the period. Other factors
contributing to the increase include an increase in marketing, training and
systems costs. Expressed as a percent of revenue, operating expenses decreased
to 45.0% of revenue in the second quarter of fiscal 1998, versus 46.9% in the
second 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
86.6% of gross profit in the second quarter of fiscal 1998, versus 94.6% in the
second quarter of fiscal 1997.
Income from operations increased $426,649 to $609,109 during the second quarter
of fiscal 1998, as compared to $182,460 during the second quarter of fiscal
1997, for all the reasons set forth herein.
The Company's interest expense decreased $72,471 in the second quarter of fiscal
1998 to $1,904, as compared to $74,375 in the second quarter of fiscal 1997, as
a result of the paydown of it's bank debt during fiscal 1997.
Other income totaled $25,912 for the second quarter of fiscal 1998, an increase
of $5,026 versus income of $20,886 during the second quarter of fiscal 1997, due
to the licensing income earned by the Company as the result of its licensing
arrangement with TRCA in Argentina and rental income earned from its sub-lease
agreements at its Princeton offices.
Income before taxes totaled $633,117 for the second quarter of fiscal 1998, an
increase of 391% versus $128,971 in the second quarter of fiscal 1997, for the
reasons set forth above.
The income tax provision for the second quarter of fiscal 1998 was $225,592,
versus $50,621 for the second quarter of fiscal 1997 due to the increased
earnings of the Company.
Net income for the second quarter of fiscal 1998 was $407,525, or $.03 per
diluted share, versus earnings of $78,350 or $.01 per diluted share for the
second 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 December 31, 1997 was
approximately $11,700,000 as compared to a backlog of approximately $12,000,000
at June 30, 1997 and approximately $10,700,000 at December 31, 1996. The amount
of backlog at any time may not be indicative of intermediate or long-term trends
in the Company's operations.
<PAGE> 8
Results of Operations - Six Months Year to Date Fiscal 1998 as Compared to Six
Months Year to Date Fiscal 1997
Statement of Income Data:
(Expressed as a percentage of revenues)
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Revenues 100.0% 100.0%
Direct costs 48.7% 50.2%
----- -----
Gross profit 51.3% 49.8%
Operating expenses 44.3% 47.5%
----- -----
Income from operations 7.0% 2.3%
Interest expense (0.0%) (1.3%)
Other income (expense), net 0.2% 0.2%
---- ----
Income before income taxes 7.2% 1.2%
Provision for income taxes 2.7% .5%
---- ---
Net income 4.5% .7%
</TABLE>
Revenues for the first six months of fiscal 1998 increased 27.5% or $3,664,553
versus the first six months of the prior year, from $13,326,558 to $16,991,111.
All four of the Company's divisions realized revenue increases during the
period.
Direct costs increased $1,575,461 to $8,268,339 for the first six months of
fiscal 1998 from $6,692,878 in fiscal 1997 for the same period, and decreased
slightly to 48.7% of revenue versus 50.2% during the first six months of fiscal
1997. This decrease in direct costs as a percentage of revenues is mainly the
result of operating efficiencies.
Gross profits grew $2,089,092 or 31.5% to $8,722,772 for the first six months of
fiscal 1998 from $6,633,680 during the first six months of fiscal 1997. As a
percent of revenues they increased to 51.3% of revenues as compared with 49.8%
in the prior year period.
Operating expenses for the first six months of fiscal 1998 totaled $7,528,000,
an increase of $1,199,237 or 18.9% versus the prior year's total of $6,328,763.
The increase in operating expenses is mainly the result of the increase in staff
and related fringe benefit costs incurred to complete the additional $3.66
million dollars of additional work during the period. Other factors contributing
to the increase include an increase in marketing, training and systems costs as
well as a more aggressive investor relations program. However, as a percentage
of revenues, operating expenses decreased to 44.3% for the first six months of
fiscal 1998 versus 47.5% for the first six months of fiscal 1997.
<PAGE> 9
Income from operations increased $889,855 for the first six months of fiscal
1998, from $304,917 to $1,194,772, for the reasons set forth above. Income
before income taxes increased to $1,225,870 versus $162,751 in the same period
in the prior year.
Net income for the first six months of fiscal 1998 was $760,040 versus $100,307
for the same period in the prior year.
Liquidity and Capital Resources
At December 31, 1997, the Company had a working capital deficiency of
($201,323), an increase of $949,399 from June 30, 1997, and the current ratio
increased to .98 from .87. The increase in working capital and the corresponding
increase in current ratio is attributable to the improving financial performance
of the Company.
For the six months ending December 31, 1997, the Company generated cash from
operations of approximately $1,100,000. Additional capital leases and employee
exercised stock options added approximately $5,000, for a total of $1,105,000 of
cash available during the quarter. The major uses of this cash were the
following:
- - Increase cash balances by approximately $968,000.
- - Purchase of computer equipment and office furnishings of approximately
137,000.
On June 30, 1997, the Company renewed 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 December
31, 1997, the rate is prime plus one-half percent. As of December
31, 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, collateralized by equipment,
furniture and fixtures at an interest rate based on certain
financial ratios. As of December 31, 1997, the rate is prime plus
one-half percent. As of December 31, 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 December 31, 1997 the borrowings were at
pound sterling 120,771 (approximately $199,272) and the UK Base rate was 7.25
percent. The
<PAGE> 10
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 $6,155,147 at December 31, 1997, compared to
$5,101,596 at the prior year-end, for a net increase of $1,053,551. 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 $1,348,896 at December 31, 1997, compared to $1,240,852 at the prior
year-end, for a net increase of $108,044. This amount increased as the result of
normal fluctuations in the business.
Current and long-term deferred tax assets are at $510,780 for both December 31,
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 $182,292 as of December 31, 1997 from $2,316,630 at June 30, 1997 to
$2,134,338. For the foreseeable future, the Company believes that it will not
make significant fixed assets purchases.
Capitalized Market Research Products decreased by $40,000 to $184,449, versus
$224,449 at June 30, 1997. During the first six months of fiscal 1998 the
Company's investment in new products was minimal.
Deferred Data Accumulation Costs decreased by $40,000 from $267,436 at June 30,
1997 to $227,436 at December 31, 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 $4,834,243, an increase of $81,458
during the first six months 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 $4,562,431, an increase of $675,059
during the first six months 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 $552,212, an increase of $385,738 during the first
six months 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 litigations pending or
threatened to the knowledge of the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other information
None.
Item 6. Exhibits
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
undersigned has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOTAL RESEARCH CORPORATION
--------------------------
(Registrant)
/s/ LORIN ZISSMAN
--------------------------
BY: LORIN ZISSMAN,
CHIEF EXECUTIVE OFFICER
/S/ ERIC ZISSMAN
---------------------------------
BY: ERIC ZISSMAN
CHIEF FINANCIAL OFFICER
Dated: February 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUN-30-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,647,023
<SECURITIES> 0
<RECEIVABLES> 6,265,147
<ALLOWANCES> 110,000
<INVENTORY> 0
<CURRENT-ASSETS> 9,946,835
<PP&E> 5,729,522
<DEPRECIATION> 3,595,184
<TOTAL-ASSETS> 14,867,167
<CURRENT-LIABILITIES> 10,148,158
<BONDS> 0
0
0
<COMMON> 10,131
<OTHER-SE> 4,396,077
<TOTAL-LIABILITY-AND-EQUITY> 14,867,167
<SALES> 0
<TOTAL-REVENUES> 16,991,111
<CGS> 0
<TOTAL-COSTS> 8,268,339
<OTHER-EXPENSES> 7,528,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,813
<INCOME-PRETAX> 1,225,870
<INCOME-TAX> 465,830
<INCOME-CONTINUING> 760,040
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</TABLE>
