<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDING MARCH 31, 1998
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
Commission File Number: 0-15692
TOTAL RESEARCH CORPORATION
(Name of small business issuer in its charter)
DELAWARE 22-2072212
- -------- ----------
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Princeton Corporate Center
5 Independence Way
Princeton, New Jersey 08543-5305
(Address of principal executive offices)
Issuer's telephone number: 609-520-9100
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 |_|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of May 14, 1998.
Common Stock, Par Value $.001 10,131,134
- ----------------------------- ----------
(Class) Outstanding
Transactional Small Business Disclosure Format (check one): Yes |_| No |X|
<PAGE> 2
Part I - Financial Information - Form 10 QSB
TOTAL RESEARCH CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,757,213 $ 678,350
Accounts receivable, less allowance
for doubtful accounts of $110,000
at March 31, 1998 and June 30, 1997 6,228,009 5,101,596
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,547,643 1,240,852
Deferred Taxes 281,900 281,900
Income tax refund receivable -- 8,505
Other current assets 488,115 559,281
----------- -----------
Total current assets 10,302,880 7,870,484
Fixed assets, less accumulated depreciation
of $3,814,191 at March 31, 1998 and
$3,334,556 at June 30, 1997 2,174,600 2,316,630
Capitalized market research products, less
accumulated amortization of $651,947 at
March 31, 1998 and $591,947 at June 30, 1997 164,449 224,449
Deferred data accumulation costs, net of
accumulated depreciation of
$1,590,300 at March 31, 1998 and
$1,530,300 at June 30, 1997 207,436 267,436
Goodwill, net of accumulated amortization
of $281,876 at March 31, 1998 and $223,493
at June 30, 1997 1,742,001 1,800,384
Deferred taxes 228,880 228,880
Other assets 223,131 240,031
----------- -----------
Total assets $15,043,377 $12,948,294
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable - bank $ -- $ 214,575
Accounts payable 3,045,374 2,106,555
Accrued expenses and other current
liabilities 1,837,662 2,646,230
Billings in excess of earnings 4,360,137 3,887,372
Income taxes payable 660,555 166,474
----------- -----------
Total current liabilities 9,903,728 9,021,206
Long-term liabilities
Other long-term liabilities 368,844 279,020
----------- -----------
Total liabilities 10,272,572 9,300,226
----------- -----------
Shareholders' equity
Common stock-authorized 20,000,000 shares
$.001 par value, 10,131,134 shares
issued and outstanding at March 31, 1998
and 10,044,108 shares issued and
outstanding at June 30, 1997 10,131 10,044
Additional paid-in capital 3,591,771 3,576,545
Cumulative translation adjustment 36,585 27,095
Retained earnings 1,132,318 34,384
----------- -----------
Total shareholders' equity 4,770,805 3,648,068
----------- -----------
Total liabilities and shareholders' equity $15,043,377 $12,948,294
=========== ===========
</TABLE>
(See notes to the consolidated financial statements )
<PAGE> 3
TOTAL RESEARCH CORPORATION
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31, Ended March 31,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $8,033,068 $7,470,957 $25,024,179 $20,797,515
Direct costs 4,045,681 3,782,370 12,314,021 10,475,248
------------ ------------ ------------ ------------
Gross Profit 3,987,387 3,688,587 12,710,158 10,322,267
Operating Expenses 3,440,816 3,299,297 10,968,815 9,628,060
------------ ------------ ------------ ------------
Income from Operations 546,571 389,290 1,741,343 694,207
Interest (Expense) income 4,332 (34,423) (481) (201,938)
Other income (expense), net (5,911) (298) 30,000 25,051
------------ ------------ ------------ ------------
Income before taxes 544,992 354,569 1,770,862 517,320
Provision for income taxes 207,097 134,736 672,928 197,180
------------ ------------ ------------ ------------
Net income $ 337,894 $ 219,833 $ 1,097,934 $ 320,140
============ ============ ============ ============
Basic Earnings per share $ 0.03 $ 0.02 $ 0.11 $ 0.03
Diluted Earnings Per Share $ 0.03 $ 0.02 $ 0.10 $ 0.03
Basic Weighted Avg
Shares Outstanding 10,131,134 10,017,108 10,097,973 9,919,485
Diluted Weighted Avg
Shares Outstanding 11,670,543 10,324,065 11,557,312 10,311,955
</TABLE>
(See notes to the consolidated financial statements)
<PAGE> 4
TOTAL RESEARCH CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Mar. 31, Mar. 31,
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows from operating activities
Net Income $ 1,097,934 $ 320,140
Adjustments to reconcile net income to
cash provided by operating activities
Depreciation 479,635 670,806
Amortization 178,383 110,383
Accretion of warrants -- 8,000
Adjustment for foreign currency translation 9,490 10,037
(Increase) decrease in assets
Accounts receivable (1,126,413) (344,652)
Cost and estimated earnings in excess of
billings on uncompleted contracts (306,791) 733,633
Other assets 96,571 1,050,697
Increase (decrease) in liabilities
Accounts payable 938,819 759
Accrued expenses (808,569) (341,038)
Billings in excess of earnings 472,765 2,586,244
Income taxes payable 494,081 199,677
Other long term liabilities 89,824 124,181
----------- -----------
Net cash provided by operating activities 1,615,729 5,128,867
Cash flows from investing activities:
Purchase of equipment (337,604) (602,326)
Deferred data accumulation costs -- (132,620)
----------- -----------
Net cash used by investing activities (337,604) (734,946)
Cash flows from financing activities:
Repayment of debt/net (214,575) (1,509,464)
Payment under capital lease obligations, net -- --
Proceeds from issuance of common stock 15,313 59,060
----------- -----------
Net cash provided by (used in) financing
activities (199,262) (1,450,404)
Net increase (decrease) in cash and cash
equivalents 1,078,863 2,943,517
Cash and cash equivalents at beginning
of period 678,350 4,201
----------- -----------
Cash and cash equivalents at end of period $ 1,757,213 $2,947,718
=========== ===========
</TABLE>
(See notes to the consolidated financial statements)
<PAGE> 5
TOTAL RESEARCH CORPORATION
Notes to Financial Statements
March 31, 1998 and 1997
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 nine months ended March 31, 1998 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 March 31, 1998 and March 31, 1997. The following summarizes information on
TR-Europe's Statement of Income, converted to U.S. Dollars using a weighted
average exchange rate of $1.65 and $1.60, for the nine month periods ended March
31, 1998 and 1997, respectively and a weighted average exchange rate of $1.65
and $1.60 for the three month periods ended March 31, 1998 and 1997,
respectively.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- -----------------------
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $2,423,558 $2,203,325 $8,007,968 $6,013,471
Direct Costs 1,179,410 1,119,979 3,994,764 2,922,765
---------- ---------- ---------- ----------
Gross Profit 1,244,148 1,083,346 4,013,204 3,090,706
Operating Expenses 1,133,331 929,002 3,551,642 2,809,777
---------- ---------- ---------- ----------
Income from Operations 110,817 154,344 461,562 280,929
Income Taxes 39,894 67,200 168,529 117,834
---------- ---------- ---------- ----------
Net Income $ 70,923 $ 87,144 $ 293,033 $ 163,095
</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 - Third Quarter Fiscal 1998 as Compared to Third Quarter
Fiscal 1997.
Statement of Income Data:
(Expressed as a percentage of revenues)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
March 31, March 31,
1998 1997
------ ------
<S> <C> <C>
Revenues 100.0% 100.0%
Direct costs 50.4% 50.6%
------ ------
Gross profit 49.6% 49.4%
Operating expenses 42.8% 44.2%
------ ------
Income from operations 6.8% 5.2%
Interest expense 0% (.5%)
Other income (expense), net 0% 0%
------ ------
Income before income taxes 6.8% 4.7%
Provision for income taxes 2.6% 1.8%
------ ------
Net income 4.2% 2.9%
</TABLE>
<PAGE> 7
Result of Operations - Third Quarter Fiscal 1998 as Compared to Third Quarter
Fiscal 1997-continued
Revenues for the third quarter of fiscal 1998 increased 7.5% or $562,111 versus
the same quarter in the prior year, to $8,033,068. The Company's Strategic
Marketing Services and Regional Offices divisions grew significantly during the
period. The Company's Global Health Care and Customer Loyalty divisions had
reduced revenues due to delays in the start-up of certain large quantitative
projects.
The Company defines backlog as the unearned portions of its existing contracts
at each balance sheet date. The Company's backlog at March 31, 1998 was
approximately $13,300,000 as compared to a backlog of approximately $12,000,000
at June 30, 1997 and approximately $13,200,000 at March 31, 1997. 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 third quarter of fiscal 1998 totaled $4,045,681, an
increase of 7.0% or $263,311 versus the prior year's total of $3,782,370. As
such, they were 50.4% of revenues, as compared to 50.6% of revenues in the prior
year. Direct costs as a percentage of revenues remained consistent with last
year. The Company's business mix during the quarter was predominately
quantitative and international business, which is typically completed by
subcontracting the data collection phase of the project, and, therefore,
generates low gross margins.
Operating expenses for the third quarter of fiscal 1998 totaled $3,440,816, an
increase of 4.4% or $141,519 over the same quarter in the prior year. As such,
they were 42.8% of revenues, as compared to 44.2% of revenues in the prior year.
The decrease in operating costs as a percentage of revenue is the result of the
Company's continuing efforts to keep its administrative costs down as it
improves its revenues. Expressed as a percentage of gross profit, operating
expenses decreased to 86.3% of gross profit in the third quarter of fiscal 1998,
versus 89.4% in the third quarter of fiscal 1997.
Income from operations increased $157,281 to $546,571 during the third quarter
of fiscal 1998, as compared to $389,290 during the third quarter of fiscal 1997,
for all the reasons set forth herein.
The Company earned interest income of $4,332 in the third quarter of fiscal 1998
versus interest expense of $34,423 in the third quarter of fiscal 1997.
Other expense totaled $5,911 for the third quarter of fiscal 1998, an increase
of $5,613 versus expense of $298 during the third quarter of fiscal 1997. The
normal fluctuations of the business accounted for the difference from period to
period.
Income before taxes totaled $544,992 for the third quarter of fiscal 1998 versus
$354,569 in the third quarter of fiscal 1997 for the reasons set forth above.
The income tax provision for the third quarter of fiscal 1998 was $207,097,
versus $134,736 for the third quarter of fiscal 1997 due to the increased
earnings of the Company.
Net income for the third quarter of fiscal 1998 was $337,894, or $.03 diluted
earnings per share, versus earnings of $219,833, or $.02 diluted earnings per
share for the third quarter of fiscal 1997.
<PAGE> 8
Result of Operations - Nine Months Year to Date Fiscal 1998 as compared to Nine
Months Year to Date Fiscal 1997
Statement of Income Data:
(Expressed as a percentage of revenues)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------
March 31, March 31,
1998 1997
------ ------
<S> <C> <C>
Revenues 100.0% 100.0%
Direct costs 49.2% 50.4%
------ ------
Gross profit 50.8% 49.6%
Operating expenses 43.8% 46.3%
------ ------
Income from operations 7.0% 3.3%
Interest expense 0% (.9%)
Other income (expense), net .1% .1%
------ ------
Income before income taxes 7.1% 2.5%
Provision for income taxes 2.7% .9%
------ ------
Net income 4.4% 1.6%
</TABLE>
Revenues for the first nine months of fiscal 1997 increased 20.3% or $4,226,664
versus the same nine months in the prior year, to $25,024,179. The Company
experienced significant increases in its revenues from its Strategic Marketing
Services and Regional Offices divisions in fiscal 1998 versus the same period in
fiscal 1997. Its Global Health Care division revenues were consistent with last
year's totals while its Customer Loyalty Management division generated revenues
less than the amount recognized for the same period for fiscal 1997. These two
divisions experienced delays in large projects, which greatly impacted their
revenue production for the period. These projects should be completed in the
near future.
The Company defines backlog as the unearned portions of its existing contracts
at each balance sheet date. The Company's backlog at March 31, 1998 was
approximately $13,300,000 as compared to a backlog of approximately $12,000,000
at June 30, 1997 and approximately $13,200,000 at March 31, 1997. 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 17.6% or $1,838,773 for the first nine months of fiscal
1998 to $12,314,021 versus the prior year's nine-month total of $10,475,248. As
such, they were 49.2% of revenues, as compared to 50.4% of revenues in the prior
year. The Company's business mix during the nine months was predominately
quantitative and international business, which is typically completed by
subcontracting the data collection phase of the project, and, therefore,
generates low gross margins.
<PAGE> 9
Result of Operations - Nine Months Year to Date Fiscal 1998 as compared to Nine
Months Year to Date Fiscal 1997-continued
Operating expenses for the first nine months of fiscal 1998 totaled $10,968,815,
an increase of 13.9% or $1,340,756 over the first nine months of fiscal 1997.
Expressed as a percent of revenue, operating expenses decreased to 43.8% of
revenue in the first nine months of fiscal 1998, versus 46.3% in the first nine
months of fiscal 1997. The decrease in operating costs as a percentage of
revenue is mainly the result of prudent controls over additional administrative
spending. The additional $1.34 million in operating expenses is mostly the
personnel costs associated with completing the additional work during the
period. In addition, training, marketing and building the sales infrastructure
contributed to the increase. Expressed as a percentage of gross profit,
operating expenses were 86.3% for the first nine months of fiscal 1997 and 93.3%
for the first nine months of fiscal 1996.
Income from operations increased $1,047,136 to $1,741,343 during the first nine
months of fiscal 1998, as compared to $694,207 during the first nine months of
fiscal 1997, for all the reasons set forth herein.
The Company's interest expense decreased $201,457 in the first nine months of
fiscal 1998 to $481, as compared to $201,938 in the first nine months of fiscal
1997, as a result of the debt-free status of the Company.
Other income totaled $ 30,000 for the first nine months of fiscal 1998, an
increase of $4,949 versus income of $25,051 during the first nine months 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 increased to $1,770,862 for the first nine months of fiscal
1998 versus $517,320 in the first nine months of fiscal 1997 for the reason set
forth above.
The income tax provision for the first nine months of fiscal 1998 was $672,927,
versus $197,180 for the first nine months of fiscal 1997 due to the increased
earnings of the Company.
Net income for the first nine months of fiscal 1998 was $1,097,934, or $.10 per
fully diluted share, versus earnings of $320,140 or $.02 per fully diluted share
for the first nine months of fiscal 1997.
Liquidity and Capital Resources
At March 31, 1998 the Company's working capital increased $1,549,874 to $399,152
from a deficiency of ($1,150,722) at June 30, 1997, and the current ratio
increased to 1.04 from .87. The increase in working capital and the
corresponding increase in current ratio are attributable to the improving
financial performance of the Company.
For the nine-months ending March 31, 1998, the Company generated cash from
operations of approximately $1,615,000. Employee exercised stock options added
approximately $15,000, for a total of $1,630,000 of cash available during the
nine-month period. The major uses of this cash were the following:
o Increase cash balances by approximately $1,078,000.
o Purchase of computer equipment and office furnishings of approximately
$337,000.
o Paid off UK bank debt of approximately $215,000.
<PAGE> 10
Liquidity and Capital Resources - continued
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:
o A one year $2.5 million revolving line of credit at a variable
interest rate based on certain financial ratios. As of March 31,
1998, the rate is prime plus one-half percent. As of March 31, 1998,
the Company was in compliance with all of the financial ratios and
has not borrowed against this line.
o A three-year $500,000 term line, secured by equipment, furniture and
fixtures at an interest rate based on certain financial ratios. As
of March 31, 1998, the rate is prime plus one-half percent. As of
March 31, 1998, the Company has not borrowed against this line.
The Company also has a bank overdraft facility of (pound)300,000 with Coutts &
Company in London, UK. The borrowings are charged at a rate of 3 percent above
the UK Base Rate (7.25%). At March 31, 1998 the Company had not borrowed against
this line of credit. This represents the first quarter that the UK subsidiary
had completely paid off this revolving line of credit. This is further
indication of the Company's strength in the US and the UK. 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 $6,228,009 at March 31, 1998, compared to
$5,101,596 at the prior year-end, for a net increase of $1,126,413. 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 $1,547,643 at March 31, 1998, compared to $1,240,852 at the prior
year-end, for a net increase of $306,791. 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 March 31,
1998 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 $142,030 as of March 31, 1998 from $2,316,630 at June 30, 1997 to $2,174,600.
For the foreseeable future, the Company believes that it will not make
significant fixed assets purchases.
Capitalized Market Research Products decreased by $60,000 to $164,449, versus
$224,449 at June 30, 1997. During the first nine months of fiscal 1998 the
Company did not invest any significant money in any new products.
Deferred Data Accumulation Costs decreased by $60,000 from $267,436 at June 30,
1997 to $207,436 at March 31, 1998. This decline is the result of a reduction in
the annual investment the Company makes for its EquiTrend product.
<PAGE> 11
Liquidity and Capital Resources - continued
Accounts payable and accrued expenses totaled $4,883,036, an increase of
$130,251 during the first nine 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 $4,360,137, an increase of $472,765
during the first nine 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 $660,555, an increase of $494,081 during the first
nine 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 nine months of fiscal 1998.
<PAGE> 12
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
Item 5. Other information
None.
Item 6. Exhibits and Reports on Form 8-K:
A. None.
B. 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/ AL ANGRISANI
---------------------------------
BY: AL ANGRISANI,
PRESIDENT, CHIEF EXECUTIVE
OFFICER
/s/ ERIC ZISSMAN
---------------------------------
BY: ERIC ZISSMAN,
CHIEF FINANCIAL OFFICER
Dated: May 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,757,213
<SECURITIES> 0
<RECEIVABLES> 6,338,009
<ALLOWANCES> 110,000
<INVENTORY> 0
<CURRENT-ASSETS> 10,302,880
<PP&E> 5,988,791
<DEPRECIATION> 3,814,191
<TOTAL-ASSETS> 15,043,377
<CURRENT-LIABILITIES> 9,903,728
<BONDS> 0
0
0
<COMMON> 10,131
<OTHER-SE> 4,760,674
<TOTAL-LIABILITY-AND-EQUITY> 15,043,377
<SALES> 25,024,179
<TOTAL-REVENUES> 25,024,179
<CGS> 12,314,021
<TOTAL-COSTS> 12,314,021
<OTHER-EXPENSES> 10,938,815
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 481
<INCOME-PRETAX> 1,770,682
<INCOME-TAX> 672,928
<INCOME-CONTINUING> 1,097,934
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,097,934
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.10
</TABLE>
