SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[X] Annual Report Under Section 13 or 15 (d) of the Securities Exchange Act of
1934.
For the Fiscal Year Ended June 30, 1998
[ ] Transition Period Under 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 or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
Princeton Corporate Center
5 Independence Way
Princeton, New Jersey 08543-5305
(Address of Principal Executive Offices)
Issuer's Telephone Number, Including Area Code: (609) 520-9100
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title of Class)
Check whether the issuer (1) 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 |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
<PAGE>
The issuer's revenues for the fiscal year ended June 30, 1998 were $34,057,084.
The aggregate market value of the voting and non-voting stock common equity of
the registrant held by non-affiliates as of September 18, 1998 was approximately
$21,000,000, based on the average bid and asked prices for such common equity as
reported on the Nasdaq SmallCap Market.
The number of shares of Common Stock outstanding as of September 18, 1998 was
11,406,299.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the 1998 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Report.
<PAGE>
PART I
Information contained or incorporated by reference in this report contains
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), which represent the expectations
or beliefs of Total Research Corporation (the "Company"), including, but not
limited to, statements concerning industry performance, the Company's
operations, performance, financial condition, growth and acquisition strategies,
margins and growth in sales of the Company's products. For this purpose, any
statements contained in this Annual Report that are not statements of historical
fact may be deemed to be forward-looking statements. Such statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should" or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy. See, e.g., "Management's Discussion and Analysis of Financial
Condition and Results of Operations." No assurance can be given that the future
results covered by the forward-looking statements will be achieved. These
statements by their nature involve substantial risks and uncertainties, certain
of which are beyond the Company's control. The following matters constitute
cautionary statements identifying important factors with respect to such
forward-looking statements, including certain risks and uncertainties that could
cause actual results to vary materially from the future results covered in such
forward-looking statements. Other factors could also cause actual results to
vary materially from the future results covered in such forward-looking
statements.
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW OF THE BUSINESS
The Company is a leading full-service consultative marketing research
organization that provides marketing research and information to assist its
clients with the pricing and positioning of new or existing products, customer
loyalty measurements, brand equity issues, organizational structure and other
marketing concerns. The Company provides services for its clients by using
proprietary market research technologies developed by the Company as well as
other standard market research techniques.
The Company's clients consist principally of Fortune 100 corporations operating
in a wide array of industries, including automotive, chemicals, consumer
products, financial services, government, health care, information technologies,
manufacturing, telecommunications, travel and utilities. The Company's
professional staff has business experience in each industry for which it
conducts market research.
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<PAGE>
The Company services its clients through four research divisions (Strategic
Marketing Services, Global Health Care, Customer Loyalty Management and US
Regional), each of which has specific industry and/or product expertise. The
Company's divisions are located in several cities in the United States and in
London, England. The Company also maintains relationships with market research
organizations in South America and Asia to conduct market research
internationally on behalf of the Company.
The Company operates telephone data collection centers in Tampa, Florida and
London, England to assist in collecting data for clients. Each of the facilities
has 80 fully computerized interviewing stations. The Company's phone centers
conduct interviews utilizing computer programmed questionnaires that are
immediately uploaded to the Company's central data-processing center, thereby
enabling research to be collected and analyzed more efficiently and effectively.
The Company has complete in-house data processing operations, which provide for
rapid, thorough and secure on-site data management and analysis. The Company
supports many platforms and file types both to exchange data and to provide
extensive database design and management capabilities. The Company also provides
its clients with sample management and survey data results using a variety of
software applications. It also has a large and continually expanding array of
proprietary software developed internally to reduce research labor, assist with
survey data analysis and generate client reports. The Company's software
research and development team is continually engaged in efforts to develop,
evaluate, and adapt new technologies to improve and expand the Company's
processes, services and products.
The Company also maintains a state-of-the-art Optical Character Recognition
system for scanning hardcopy sample and surveys. This scanner technology enters
data directly from thousands of hardcopy questionnaires each day, eliminating
the need for labor-intensive manual data entry and minimizing the risk of
data-entry error.
The Company was incorporated under the laws of the State of New Jersey in 1975
and was reincorporated under the laws of the state of Delaware in 1986. The
Company maintains its principal executive offices at 5 Independence Way,
Princeton, New Jersey 08543, and its telephone number is (609) 520-9100.
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CLIENTS
In fiscal 1998, approximately 73 percent of the Company's revenues were earned
from among the 100 largest commercial and financial companies in the world. The
Company currently serves approximately 225 commercial clients and government
agencies. During fiscal 1998, approximately 71 percent of the revenues earned by
the Company were from clients who were previously retained by the Company. For
the fiscal years ended June 30, 1998, 1997 and 1996, no single client accounted
for greater than 10% of the Company's annual revenues. The following chart sets
forth certain information regarding the Company's annual revenues during the
past three fiscal years:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
Industry 1998 1997 1996 Representative Clients
-------- ---- ---- ---- ----------------------
<S> <C> <C> <C> <C>
Health Care/ Bristol-Myers Squibb, Amgen, Hoffman-
AgriBusiness 25.3% 32.0% 28.6% LaRoche, Pfizer, Eli Lilly, John Deere
Telecommunications/
Information Systems 28.1 24.5 28.9 AT&T, IBM, Hewlett Packard, DEC, Bell
Atlantic, US West, Microsoft
Manufacturing/Industrial 14.1 11.1 7.2 Monsanto, Dow Chemical, Dow Corning,
DuPont, FMC
Consumer Products 9.3 10.9 10.4 Bausch & Lomb, 3M, Chiquita ,Black &
Decker, Michelin, Eastman Kodak
Financial Services 6.8 7.4 13.8 Merrill Lynch, Prudential,
Fidelity Investments, Nations Bank,
First USA
Other 16.4 14.1 11.1 Ford, Mobil, BP Oil, Ryder
---- ---- ----
Totals 100.0% 100.0% 100.0%
----- ----- -----
</TABLE>
<PAGE>
PRODUCTS
The Company believes it enjoys advantages over competitors due to its ability to
conduct predictive marketing research studies, which attempt to project
consumer, business, or physician behavior in various alternative scenarios. The
Company believes this is superior to more traditional market research, which is
diagnostic in nature. The Company's principal proprietary predictive
technologies include the following:
o PRICE ELASTICITY MEASUREMENT SYSTEM (PEMS(R)) 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.
o COMPONENT ASSESSMENT (COMPASS(R)) 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.
COMPASS(R) is commonly used by clients for developmental stage products and
to understand the key drivers of product choice.
o PREDICTIVE SEGMENTATION(R) 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. Clients utilize Predictive
Segmentation to combine demographic and usage/attitude factors to determine
the optimal segmentation for their products.
o TOTAL RESEARCH BIAS CORRECTION (TRBC(R)) 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. TRBC(R) is especially valuable in multi-national studies.
o EQUITREND(R) measures the perceived quality of a brand or product based
upon consumer experiences with, and perceptions of, the brand. This product
is funded by the Company and is sold to a number of clients.
GEOGRAPHIC LOCATIONS
The Company's headquarters is located in Princeton, New Jersey. The Company has
domestic offices in Minneapolis, Chicago, Poughkeepsie, Tampa, and one
international office in London, England.
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The Company has an agreement with Paradigma S.A. ("Paradigma") to license the
Company's products and the name "Total Research Argentina". Paradigma represents
the Company in Argentina and markets the Company's proprietary research
techniques. In consideration for the use of the name "Total Research Argentina"
and the Company's products, Paradigma pays royalties based on the revenues it
generates from such products.
The Company has an alliance with Asia Marketing Intelligence, ("AMI"), the
largest independent data collection services firm in Asia, which enables the
Company to offer full, comprehensive service for the Asian component of global
studies.
INTERNATIONAL OPERATIONS
Almost approximately 40% of the Company's revenues are attributable to projects
that the Company conducts for its clients involving market research on a global
basis. The Company has conducted research projects in Europe, South America,
Canada, Africa, China, Japan, Australia, and India. To engage in its
international market research activities, the Company has developed a network of
relationships (such as those with Paradigma and AMI) with market research
organizations in essential locations around the world. These alliances enable
the Company to maintain the quality and reliability of its data collection
activities.
ORGANIZATIONAL STRUCTURE
The Company currently operates four separate research divisions.
The Strategic Marketing Services ("SMS") division operates from both the
Princeton and London offices. The SMS division conducts market research on a
global basis in the consumer products/consumer packaging goods, information
technology, telecommunications, manufacturing industries. This division is
responsible for the Company's EquiTrend(R) product. SMS accounted for
approximately 40% of the revenues earned by the Company in fiscal 1998.
The Global Health Care ("GHC") division is also international in nature, with
staff in both the Princeton and London offices. The division conducts global
market research primarily in the pharmaceutical, health care industry and
biotechnology but also performs market research in the over-the-counter market
and agricultural industries. GHC accounted for approximately 23% of the revenues
generated by the Company in fiscal 1998.
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<PAGE>
The Customer Loyalty Management division is located in Princeton. This division
provides clients with an organized, controlled means of improving their
operating results and marketplace performance through the effective use of
information from customers and employees. Clients are primarily from the
telecommunications, travel, and banking industries. The Customer Loyalty
Division accounts for approximately 21% of the revenues earned this fiscal year.
The Company's U.S. Regional Offices are located in Minneapolis, MN; Chicago, IL;
and Poughkeepsie, NY. The Minneapolis office performs market research for
clients primarily in the hospitality and automotive industry. Many of these
clients are referred to the Company by the Carlson Marketing Group. The Chicago
office conducts research in consumer package goods and information services
while Poughkeepsie conducts research solely in the information services
industry. Taken together, the U.S. Regional Offices account for approximately
16% of the revenues earned during fiscal 1998.
FEE ARRANGEMENTS
The Company generally obtains full-service and advanced level research
assignments through competitive bidding. Most contracts are awarded on a
fixed-fee basis, subject to adjustment under certain circumstances.
The Company also designs and implements multi-client studies, such as
EquiTrend(R), to address informational needs shared by multiple existing and
potential clients. The Company usually develops the initial focus and study
design of a multi-client study at its own expense prior to obtaining client
commitments. The Company then sells the completed study to existing and
potential clients on a non-exclusive basis.
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. Management believes that it is
currently one of the leading providers of market research and analysis services
using advanced statistical techniques. In 1997, the Company was listed as the
26th largest company, measured by revenues, 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.
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<PAGE>
The Company believes that the principal competitive factors for traditional
market research are the quality and validity of data collection, as well as the
ability to efficiently design, execute and prepare reports on marketing
research. The Company believes that the principal competitive factors for market
research using advanced statistical techniques are the quality of its personnel
and the Company's experience in developing and executing statistical market
research. During economic downturns, the Company may experience increased
competition for research budgets, which are often vulnerable to global corporate
overhead reduction.
EMPLOYEES
As of June 30, 1998, the Company employed 229 full-time employees. The Company
uses approximately 350 part-time, hourly employees for data gathering and
processing purposes. All employees are non-union. The Company believes that its
relationship with its labor force is good.
TRADEMARKS
The Company owns 17 trademarks registered with the United States Patent and
Trademark Office and/or similar regulatory authorities in other countries.
Federally registered trademarks have perpetual life, provided they are renewed
on a timely basis and used properly as trademarks, subject to the rights of
third parties to seek cancellation of the marks. The Company regards its
trademarks and other proprietary rights as valuable assets and believes that
they have significant value in the marketing of its products. The Company
vigorously protects its trademarks against infringement.
ITEM 2.DESCRIPTION OF PROPERTY
The Company's headquarters and principal United States operating facility is
located in Princeton, New Jersey. As of June 30, 1998, the Company leased
approximately 51,000 square feet of office space for its Princeton operations;
the lease expires June 30, 2006. The Company is currently sub-leasing
approximately 20,000 square feet of this space to third parties.
The Company leases 6,083 square feet for a sales office in Minneapolis,
Minnesota. The lease expires on April 30, 2001.The Company leases 1,926 square
feet for its sales office in Chicago, Illinois. The lease expires on December
31, 1998. The Company leases 2,400 square feet for a sales office in
Poughkeepsie, New York. The lease expires on June 30, 2000. The Company leases
7,559 square feet for a telephone data-collection facility in Tampa, Florida.
The lease expires on June 30, 2001.
In the United Kingdom, 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 telephone data-collection and data-processing facility.
The lease expires on March 31, 1999.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
As of June 30, 1998 there were no material legal actions or proceedings pending
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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 1998, no matters were submitted to a vote of
security holders of the Company.
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<PAGE>
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The high-and low-bid prices of the Company's Common Stock, as reported by NASDAQ
Small Cap Market, for the Company's quarters from fiscal 1997 to date, were as
follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
----------------- ----------------- ----------------- -----------------
High Low High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal 1997 $1.44 $0.88 $1.00 $0.63 $1.25 $0.81 $1.28 $0.81
Fiscal 1998 $2.03 $1.03 $2.00 $1.34 $2.10 $1.50 $4.25 $2.00
</TABLE>
The high and low bid prices of the Company's Common Stock from July 1, to
September 18, 1998 were $3.87 and $2.50, 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 18, 1998, the Company had 498 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.
In July of 1998, the Company entered into an agreement with a number of
investors pursuant to which the Company sold 1,000,000 shares of common stock at
$2.25 per share and issued options to purchase an aggregate of 250,000 options
of common stock at an exercise price of $2.25 per option (exercisable for 5
years).
<PAGE>
SELECTED FINANCIAL DATA FOR YEARS ENDED JUNE 30, 1998, 1997, 1996,
1995 AND 1994
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 1998 1997 1996 1995 1994
(000): ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 34,057 $ 29,443 $ 23,715 $ 19,250 $ 13,688
Direct Costs 16,641 14,942 11,001 7,905 6,070
-------- -------- -------- -------- --------
Gross Profit 17,416 14,501 12,714 11,345 7, 618
Operating Expenses 14,868 13,221 13,683 9,785 6,842
Unusual Charges 723 - 1,101 - -
-------- -------- -------- -------- --------
Income (Loss)from Operations 1,825 1,280 (2,070) 1,560 776
Interest Income (Expense) 20 (202) (342) (307) (38)
Other Income (Expense),net 40 50 87 59 (52)
-------- -------- -------- -------- --------
Income (Loss) Before Income Taxes 1,885 1,128 (2,325) 1,312 686
Provision (Benefit) for Income Taxes 760 490 (842) 552 291
-------- -------- -------- -------- --------
Income (Loss) Before Accounting Change $ 1,125 $ 638 (1,483) 760 395
-------- -------- -------- -------- --------
FAS 109 Accounting Change - - - - 65
-------- -------- -------- -------- --------
Net Income (Loss) $ 1,125 $ 638 $ (1,483) $ 760 $ 460
======== ======== ======== ======== ========
Net Income (Loss)Per Diluted Share $ .10 $ .06 $ (0.15) $ .08 $ .05
======== ======== ======== ======== ========
Year Ended June 30,
---------------------------------------------------------------------------
Balance Sheet Data (000): 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Working Capital (Deficiency) $ 840 $ (1,151) $ (163) $ 210 $ 1,573
Total Assets 15,469 12,527 13,155 11,743 7,440
Capital Lease Obligations And Notes 19 215 2,142 1,406 604
Payable
Stockholders' Equity $ 5,077 $ 3,648 $ 2,821 $ 4,323 $ 3,419
</TABLE>
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Historical Financial Data" and the audited Consolidated Financial
Statements of the Company and the notes thereto included elsewhere in this
Annual Report.
RESULTS OF OPERATIONS
The Company is a full-service consultative marketing research corporation that
provides marketing research and information to assist its clients with the
pricing and positioning of new or existing products, customer loyalty
measurements, brand equity issues and other marketing concerns. It is organized
into four divisions - Strategic Marketing Services, Global Health Care, Customer
Loyalty Management, and U.S. Regional Offices.
The following table sets forth, for the periods indicated, certain historical
income statement and other data for the Company and also sets forth certain of
such data as a percentage of gross revenues.
<TABLE>
<CAPTION>
Year Ended June 30,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues 34,057 100.0% 29,443 100.0% 23,715 100.0%
Direct costs 16,641 48.9 14,942 50.8 11,001 46.4
------ ------ ------ ------ ------ ------
Gross profit 17,416 51.1% 14,501 49.2% 12,714 53.6
Operating expenses 14,868 44.1 13,221 44.9 13,683 57.7
Unusual Costs 723 2.1 -- -- 1,102 4.6
------ ------- ------ ------ ------ ------
Income (loss) from operations 1,825 4.9% 1,280 4.3% (2,070) (8.7)
Interest income (expense) 20 0.1 (202) (0.7) (342) (1.4)
Other income (expense), net 40 0.1 50 0.2 87 0.4
------ ------- ------ ------ ------ ------
Income (loss) before income taxes 1,885 5.1% 1,128 3.8% (2,325) (9.8)
Provision for (benefit) from income taxes 760 1.8 490 1.6% (842) (3.6)
------ ------- ------ ------ ------ ------
Net income(loss). 1,125 3.3% 638 2.2% (1.483) (6.2%)
====== ======= ====== ======= ======= =======
</TABLE>
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FISCAL YEAR ENDED JUNE 30, 1998 AS COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997
Revenues increased approximately 15.7% from fiscal 1997 to fiscal 1998. This
growth is the result of increased activity in three of the Company's four
divisions. The Customer Loyalty Division experienced flat sales from year to
year due to increased competition.
The gross profit of the Company improved from 49.2% of revenues in fiscal 1997
to 51.1% of revenues in fiscal 1998, primarily due to improved operating
efficiencies. This improvement reflects one of management's goals which was to
lower the costs of performing research without impairing the quality of the
Company's products.
Operating costs remained flat from year to year as a percentage of revenues. The
Company realized an unusual cost associated with the Employment Transitional
Agreement with the former Chairman and Chief Executive Officer.
Income from operations increased as a percentage of revenues from 4.3% to 4.9%
in fiscal 1998 or approximately $545,000. On a pro forma basis, excluding the
unusual cost, income from operations increased approximately 2.7% from fiscal
1997 to fiscal 1998, which reflects the impact of the cost and expense
reductions discussed by management.
Interest income (expense) changed from (0.7%) in fiscal 1997 to 0.1% in fiscal
1998. This primarily reflects the elimination of bank debt in the United Kingdom
as well as better cash management in the United States.
The provision for income taxes increased due to increased income in fiscal 1998.
Overall, the Company increased its net income as a percentage of sales from 2.2%
in fiscal 1997 to 3.3% in fiscal 1998 or approximately $447,000, including the
unusual cost in fiscal 1998.
The Company defines backlog as the unearned portions of its existing contracts
at each balance sheet date. At June 30, 1998, backlog was approximately
$12,300,000 as compared to a backlog of approximately $12,000,000 at June 30,
1997. The amount of backlog at any time may not be indicative of intermediate or
long-term trends in the Company's operations.
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FISCAL YEAR ENDED JUNE 30, 1997 AS COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996
Revenues increased approximately 24.2% from fiscal 1996 to fiscal 1997, due to
growth in the core business for all divisions as well as the impact of a full
year of the Minneapolis office, which was acquired in 1995.
The increase in direct costs from 46.4% of revenues in fiscal 1996 to 50.8% of
revenues in fiscal 1997, approximately $3,940,000, was attributed to a change in
the type of research conducted by the Company as well as to an increase in
international studies. The Company's research activities shifted from
qualitative to quantitative studies, which resulted in substantial out-of-pocket
costs for data collection. International studies also typically incur more
expense from data collection costs. This shift contributed to a decrease in the
Gross Profit.
Operating expenses declined as a percentage of sales, from 57.7% in fiscal 1996
to 44.9% in fiscal 1997 due to a corporate expense reduction initiative begun in
late fiscal 1996. The impact of the program along with no unusual items resulted
in an increase of income from operations of $1,280 from a loss of ($2,070)
during fiscal 1996.
The Company defines backlog as the unearned portions of its existing contracts
at each balance sheet date. At June 30, 1997, backlog was approximately
$12,000,000 as compared to a backlog of approximately $9,600,000 at June 30,
1996. 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
In fiscal 1997, the Company was able to reduce its bank debt from approximately
$3.7 million to just over $200,000 while building cash balances of approximately
$700,000. In fiscal 1998, the Company's goal was to continue to build cash as
the Company strengthened its balance sheet. During fiscal 1998, the Company was
able to pay off the remaining part of the bank debt in the UK (approximately
$215,000) and built its cash reserves to approximately $2.1 million dollars.
At June 30, 1998 the Company's working capital increased $1,951,770 to $801,048
from a deficiency of ($1,150,722) at June 30, 1997, and the current ratio
increased to 1.08 from 0.87.
For the twelve-month period ended June 30, 1998, the Company generated cash from
operations of approximately $1,710,000. Employee exercised stock options added
approximately $309,000, for a total of $2,021,000 of cash available during the
year. The
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<PAGE>
major uses of this cash were to increase cash balances by approximately
$1,419,000 purchased computer equipment and office furnishings of approximately
$385,000, and re-paid the balance of the UK bank debt (approximately $215,000).
While the Company currently has no bank debt, it does have operating lines of
credit in the United States and the United Kingdom. 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.
The Company has a loan agreement with Summit Bank, located in Princeton, NJ. The
loan agreement contains the following:
o A one year $2.5 million revolving line of credit at a variable
interest rate based on certain financial ratios. As of June 30,
1998, the rate is the prime rate plus one-half percent (the prime
rate at June 30, 1998 was 8.5%). As of June 30, 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 June 30, 1998, the rate is the prime rate plus
one-half percent. As of June 30, 1998, the Company has not
borrowed against this line.
In addition, the Company 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 June 30, 1998 the Company had not
borrowed against this line of credit.
The Company is currently in negotiations with Summit Bank for a ten
million-dollar acquisition line of credit. This facility, once finalized, will
be used to help fund the Company's growth strategy.
In July of 1998, the Company entered into an agreement with a number of
investors pursuant to which the Company sold 1,000,000 shares of common stock at
4.25 per share and issued options to purchase an aggregate of 250,000 shares of
common stock at an exercise price of $2.25 per share (exercisable for 5 years).
The Agreement also provides that the investors will, under certain
circumstances, to provide or arrange for others to provide up to $25,000,000 in
debt or equity financing to complete acquisitions and/or projects approved by
the Board of Directors.
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Recent Trends
In the first quarter of fiscal 1999, the Customer Loyalty Division was awarded
the largest contract in the history of the Company from Microsoft Corporation.
The Global Health Care Division has expanded its scope to include
over-the-counter medications and agri-business markets while the Strategic
Marketing Service Division is focused on providing new products to meet the
needs of the business-to-business marketplace. The United States Regional
Offices are embarked on an aggressive expansion effort; an office was opened in
Detroit, Michigan with two additional offices planned by year-end.
Impact of Inflation
Inflation had no material effect on the financial performance of the Company
during fiscal 1998.
YEAR 2000
The Company recognizes the importance of ensuring that neither its customers nor
its business operations are disrupted as a result of Year 2000 software
failures. At the present time, the Company believes that its systems are or will
b e substantially Year 2000 compliant and does not expect Year 2000 issues to
materially affect its services competitive position or financial position.
However, there can be no assurance that this will be the case
ITEM 7. FINANCIAL STATEMENTS
See annexed financial statements.
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<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Information required under Items 9, 10, 11 and 12 is incorporated herein by
reference to the Company's definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days after the year covered by
this Form 10-KSB with respect to its Annual Meeting of Stockholders to be held
on November 18, 1998.
ITEM 13. EXHIBITS
(A) The following documents are filed as part of this Form 10-KSB at the page
indicated.
Page
----
(a)(1) Consolidated Financial Statements - Report of
Independent Auditors......................................... F-1
Consolidated Balance Sheets - June 30, 1997 and 1997......... F-2
Consolidated Statements of Operations - Years ended
June 30, 1997 and 1996....................................... F-4
Consolidated Statements of Stockholder's Equity - Years
ended June 30, 1997 and 1996................................. F-5
Consolidated Statements of Cash Flows - Years ended
June 30, 1997 and 1996....................................... F-6
Notes to Consolidated Financial Statements................... F-8
(a)(2) Exhibits
Exhibit No. Description
----------- -----------
3.1 Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-18, as amended,
Registration No. 33-9078-NY; the "Form S-18");
3.2 By-laws of the Company (incorporated by reference to
Exhibit 3.2 to the Form S-18);
10.1 Lease, dated as of December 12, 1985, between the
Company and Bellemeade Development Corporation
(incorporated by reference to Exhibit 10.2 to the
Form S-18);
10.2 Total Research Corporation Savings & Retirement Plan
(incorporated by reference to Exhibit 10.3 to the
Form S-18);
10.3* 1995 Stock Incentive Plan;
10.4 Employment Agreement, dated January 2, 1997, between
the Company and Patti Hoffman (incorporated by
reference to Exhibit 1 of the Company's Annual Report
on Form 10-K, dated June 30, 1997, (the "1997
Form 10-K");
10.5 Employment Agreement, dated January 2, 1997, between
the Company and Eric Zissman (incorporated by reference
to Exhibit 1 of the 1997 Form 10-K);
10.6 Employment Agreement, dated January 2, 1997, between
the Company and Mark Nissenfeld (incorporated by
reference to Exhibit 1 of the 1997 Form 10-K);
10.7 Employment Agreement, dated January 2, 1997, between
the Company and Roger Thomas (incorporated by reference
to Exhibit 1 of the 1997 Form 10-K);
10.8 Employment Agreement, dated January 2, 1997, between
the Company and Terri Flanagan (incorporated by
reference to Exhibit 1 of the 1997 Form 10-K);
10.9** Sublease, dated July 17, 1997, between the Company and
Hexaware Technologies;
27** Financial Data Schedule.
- ------------
* To be filed by amendment.
** Filed herewith.
18
<PAGE>
(b) Reports on Form 8-K:
-------------------
Form 8-K, dated April 21, 1998, (announcement of the signing of the Stock
Purchase Agreement);
Form 8-K, dated July 10, 1998, (announcement of the closing of the transactions
contemplated by the Stock Purchase Agreement);
Form 8-K, dated August 11, 1998, (announcement of the 1998 Annual Meeting of
Stockholders).
19
<PAGE>
TOTAL RESEARCH CORPORATION
AND SUBSIDIARY
For the Years Ended
June 30, 1998 and 1997
Independent Auditors Reports F-1
Consolidated Balance Sheets as of June 30, 1998 and 1997 F-2
Consolidated Statements of Operations for the Years
Ended June 30, 1998 and 1997 F-3
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 1998, 1997, and 1996 F-4
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1998 and 1997 F-5
Notes to the Consolidated Financial Statements F-6
20
<PAGE>
(Letterhead of Amper, Politziner & Mattia P.A.)
To the Board of Directors and
Stockholders of Total Research
Corporation and Subsidiary
We have audited the accompanying consolidated balance sheets of Total Research
Corporation and Subsidiary as of June 30, 1998 and 1997, and the related
consolidated statements of operations, shareholder' equity and cash flows for
the years 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 audits provide 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, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/AMPER, POLITZINER & MATTIA
September 21, 1998
Edison, New Jersey
F-1
<PAGE>
<TABLE>
<CAPTION>
TOTAL RESEARCH CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 1998
1998 1997
---- ----
<S> <C> <C>
Current assets
Cash and cash equivalents $ 2,097,347 $ 678,350
Accounts receivable, less allowance for 6,451,545 5,101,596
doubtful accounts of $110,000 at June 30, 1998
and June 30, 1997
Cost and estimated earnings in excess of 1,201,265 1,240,852
billings on uncompleted contracts
Deferred taxes 243,000 281,900
Other current assets 715,376 567,786
------- -------
10,708,533 7,870,484
Fixed assets, less accumulated depreciation of $3,923,493 and 2,110,914 2,316,630
$3,334,556, respectively
Goodwill, net of accumulated amortization of $301,337 and $223,493, 1,722,540 1,800,384
respectively
Deferred Taxes 361,100 228,880
Other assets 566,071 731,916
------- -------
15,469,158 12,948,294
---------- ----------
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
TOTAL RESEARCH CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets - (continued)
June 30, 1998
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities
Current portion of notes payable $ $ 214,575
Accounts payable 3,385,709 2,106,555
Accrued expenses and other current liabilities 2,834,060 2,646,230
Billings in excess of costs and estimated earnings 3,394,545 3,887,372
Income taxes payable 293,171 166,474
---------- ---------
9,907,485 9,021,206
Long-term liabilities 484,208
Other long-term liabilities 484,209 279,020
---------- ---------
10,391,693 9,300,226
---------- ---------
Commitments and contingencies (Note 6)
Stockholders' equity
Common stock authorized 20,000,000 shares
.001 par value, 10,476,108 shares issued and
Outstanding at June 30, 1998 and 10,044,108
Shares issued and outstanding at June 30, 1997 10,476 10,044
Additional paid-in capital 4,172,904 3,576,545
Cumulative translation adjustment 22,602 27,095
Retained earnings 1,159,201 34,384
--------- ---------
5,365,183 3,648,068
Less: Treasury Stock (287,717) -
--------- ---------
Total Stockholders equity 5,077,465 3,648,068
--------- ---------
Total liabilities and shareholders' equity $ 15,469,158 $ 12,948,294
========== ==========
</TABLE>
F-3
<PAGE>
TOTAL RESEARCH CORPORATION
Consolidated Statements of Operations
For the Years Ended June 30,
1998 1997
---- ----
Revenues $ 34,057,084 $ 29,443,302
Direct costs 16,641,169 14,941,632
------------ ------------
Gross profit 17,415,915 14,501,670
Operating expenses 14,868,072 13,221,437
Unusual charge 723,000 --
------------ ------------
Income from operations 1,824,843 1,280,233
Interest (expense) income 20,424 (202,133)
Other income, net 40,000 50,050
------------ ------------
Income before provision
for income taxes and effect
of accounting change 1,885,267 1,128,150
Provision for income taxes 760,450 489,955
------------ ------------
Net Income 1,124,817 638,195
Net income 1,124,817 $ 638,195
============ ============
Earnings per share
Basic 0.11 $ 0.06
Diluted 0.10 $ 0.06
Earnings (loss) per share 0.10 $ 0.06
============ ============
Weighted average common shares
Outstanding - Basic 10,118,908 9,978,351
- Diluted 11,704,804 10,357,073
F-4
<PAGE>
<TABLE>
<CAPTION>
TOTAL RESEARCH CORPORATION
Consolidated Statements of Stockholders' Equity
Common Stock
--------------------------------
Cumulative
Shares Additional Translation
Issued Amount Paid-In Capital Adjustment
----------------- -------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Balance - June, 1996 9,882,108 $ 9,882 $ 3,505,835 $ (90,685)
Exercise of options 162,000 162 70,710 -
Translation adjustment - - - 117,780
Net Income - 1997 - - - -
---------------- ------------- ------------------- -----------------
Balance - June 30, 1997 10,044,108 10,044 3,576,545 27,095
Exercise of Options 432,000 432 172,359 -
Tax Benefit - Exercise of
Options 424,000
Translation adjustment - - - (4,493)
Net Income - 1998 - - - -
----------------- ------------- ------------------- -----------------
Balance-June 30, 1998 10,476,108 $ 10,476 $ 4,172,904 $ 22,602
========== ======== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Retained Treasury Stock
Earnings
(Accumulated
Deficit) Sharbi
------------------- ----------------- ----------------
<S> <C> <C> <C>
Balance - June, 1996 $ (603,811)
Exercise of options -
Translation adjustment -
Net Income - 1997 638,195 - -
------- -------- -------
Balance - June 30, 1997 34,384 -
Exercise of Options - 92,930 287,717
Tax Benefit - Exercise of
Options
Translation adjustment -
Net Income - 1998 1,124,817 - -
--------- --------- --------
Balance-June 30, 1998 $ 1,159,201 $92,930 $287,717
=========== ======= ========
</TABLE>
<PAGE>
TOTAL RESEARCH CORPORATION
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1998 and 1997
1998 1997
---- ----
Cash flows from operating activities
Net income $ 1,124,817 $ 638,195
------------ -----------
Adjustments to reconcile net income
to cash provided by operating activities
Depreciation 588,937 634,903
Amortization 237,844 237,844
Accretion of warrants - 8,000
Deferred tax benefit (93,320) 262,015
(Increase) decrease
Accounts receivable (1,349,949) (935,110)
Cost and estimated earnings in excess of billing
on uncompleted contracts 39,587 496,882
Other current assets (147,591) 136,047
Other assets (5,845) 13,251
Income tax refund receivable - 841,495
Increase (decrease) in liabilities
Accounts payable 1,279,154 158,151
Accrued expenses and other current liabilities 187,830 942,376
Accrued restructuring costs - (425,500)
Billings in excess of costs and estimated
earnings (492,827) 1,772,230
Income taxes payable 126,697 80,171
Other long-term liabilities 205,189 40,957
------- ------
Net cash provided by operating activities 1,712,213 4,934,094
--------- ---------
Cash flows from investing activities
Purchases of equipment (383,221) (721,328)
---------------------------
(383,221) (721,328)
--------- ---------
F-6
<PAGE>
TOTAL RESEARCH CORPORATION
Consolidated Statements of Cash Flows - (continued)
For the Years Ended June 30,
1998 1997
---- ----
Cash flows from financing activities
Repayment of debt (214,575) (3,512,217)
Payment under capital lease
obligations, net - (97,272)
Proceeds from issuance of common stock 309,073 70,872
-------- ----------
Net cash provides by (used in) financing
Activities 94,498 (3,538,617)
- -------- ----------
Effect of exchange rate changes on cash (4,493) 32,187
-------- ----------
Net increase (decrease) in cash and cash
equivalents 1,418,997 674,149
Cash and cash equivalents - beginning 678,350 4,201
--------- ---------
Cash and cash equivalents - ending $ 2,097,347 $ 678,350
============= ===========
Supplemental disclosures
Income taxes paid $ 54,750 $ 90,149
Interest paid $ 17,759 191,370
Non-cash financing activity (treasury stock)
Exchange of common stock as payment for
exercised stock options $ 287,717 $ -
F-7
<PAGE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
Note 1 - The Company
The Company was formed in 1975. The Company performs marketing research for
various Fortune 1000 companies in a broad spectrum of industries.
The Company services these clients through its U.S. locations in Princeton, NJ;
Poughkeepsie, NY; Minneapolis, MN; Chicago, IL; Detroit, MI; Tampa, FL; and its
overseas location, London, UK.
Note 2 - 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
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. Where billing exceed work completed with
the amounts is carried on the Company's balance sheet as a current liability and
is 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, Total Research Limited, 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 amount 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.
Cash and Cash Equivalents
- -------------------------
For the purpose of the statement of cash flows, cash equivalents include the
deposits, certificates of deposit and all highly liquid debt instruments with
original maturities of three months or less.
F-8
<PAGE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies (cont'd)
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.
Capitalized Market Research Products
- ------------------------------------
Market Research products are standardized packages comprised of certain computer
software and proven methodologies which are used to process and analyze data for
single-client or multi-client studies.
Such costs are capitalized on establishment of technological feasibility and are
amortized on the straight line method over five years or the estimated period of
future economic benefit, whichever is shorter. This assessment of recoverability
requires management judgement relating to analytical future gross revenues,
estimated economic life and changes in technology, on a product by product
basis. Related amortization expense is $80,000 for 1998 and 1997.
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 amortization expense for deferred data
accumulation costs was approximately, $80,000 for the years ended June 30, 1998
and 1997, respectively.
F-9
<PAGE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies (cont'd)
Deferred Rent
- -------------
The excess of lease payments on a straight-line basis over the actual monthly
payments is recorded as deferred rent which will reverse in future periods.
Included in other long-term liabilities is deferred rent of approximately
$309,000 and $148,000 as of June 30, 1998 and 1997 respectively.
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 25 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. Investment adjustments will be 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.
Earnings Per Common Share
- -------------------------
Effective for the Company's financial statements for the year ended June 30,
1998, the Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share," (SFAS 128). SFAS128 replaces the presentation of primary
earnings per share ("EPS") and fully diluted EPS with a presentation of basic
EPS and diluted EPS, respectively. Basic EPS excludes dilution and is computed
by dividing earnings available to common stockholders by the weighted-average
number of common shares outstanding during the period. Diluted EPS assumes
conversion of dilutive options and warrants, and the issuance of common stock
for all other potentially dilutive equivalent shares outstanding.
All EPS data for prior periods has been restated. The adoption of SFAS 128 did
not have a material effect on the Company's reported EPS amounts.
Foreign Operations
- ------------------
The assets and liabilities of Total Research Limited operations are translated
at current exchange rates, and income statement accounts are translated at the
weighted average rates during the period. The related translation adjustments
are recorded as a separate component of shareholders equity.
F-10
<PAGE>
Note 3 - Concentration of Cash Balance
At June 30, 1998, a cash balance of $1,300,573 was maintained in a bank account
insured by the Federal Deposit Insurance Corporation (FDIC). This balance
exceeds the insured amount of $100,000.
Note 4 - Fixed Assets
Fixed assets consist of the following:
June 30,
1998 1997
---- ----
Office Equipment & Fixtures $ 5,729,984 $ 5,346,602
Leasehold Improvements 304,423 304,584
-------------- --------------
6,034,407 5,651,186
Less: Accumulated depreciation
and amortization 3,923,493 3,334,556
-------------- --------------
$ 2,110,914 $ 2,316,630
============== ==============
Depreciation and amortization expense for the years ended June 30, 1998 and 1997
was approximately $589,000 and $635,000, respectively.
Note 5 - Notes Payable
The Company currently has no bank debt but does have available operating lines
of credit in both the United States and the United Kingdom.
The Company has the following agreement in the United States
A one year $2.5 million revolving line of credit at a variable interest rate
based on certain financial ratios. As of June 30, 1998, the rate is prime (8.5%
at June 30, 1998)
F-11
<PAGE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
plus one-half percent. As of June 30, 1998, the Company complied 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 June 30,
1998, the rate is the prime plus one-half percent. As of June 30, 1998, the
Company complied with all of the financial ratios and has not borrowed against
this line.
In addition, the Company has a bank overdraft facility of (pound)300,000 with
Coutts and Company in London, United Kingdom. The borrowings are charged at a
rate of 3 percent above the UK base Rate (at 7.25% on June 30, 1998.). At June
30, 1998, the Company had not borrowed against this line of credit.
Note 6 - Commitments and Contingencies
Operating Leases
The Company is committed under various leases for office space. In addition, the
Company subleases a portion of its office premises. Approximate future minimum
rental payments and sublease rentals under non-cancelable leases are as follows:
For the Years Ending
June 30,
Rental Sublease
Payments Rentals Net
-------- ------- ---
1999 $ 1,032,500 355,782 676,718
2000 1,182,500 355,782 826,718
2001 1,162,500 355,782 806,718
2002 1,072,500 355,782 716,718
2003 1,028,750 355,782 672,968
2004 1,070,000 - 1,070,000
2005 1,070,000 - 1,070,000
2006 1,070,000 - 1,070,000
----------- ---------- ----------
Total minimum
payments required $ 8,688,750 $ 1,778,910 $ 6,909,840
============ =========== ===========
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 $1,128,058 and
$1,572,000 for the fiscal years ended June 30, 1998 and 1997, respectively.
F-12
<PAGE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
Employment Agreements
The Company entered into employment agreements with key management personnel in
January 1997 that extend through June 30, 1999. The agreements contain
provisions for base salaries for the period July 1, 1997 to June 30, 1999 that
total $1,190,000. There is also a bonus arrangement for up to 20% of the base
salary if certain goals are met. If they exceed the goals by more than $20,000,
they will receive an additional 4% of the excess over the goal.
The Company has agreed to enter into a consulting agreement with a member of the
Board of directors through June 30, 1999. The agreement contains provisions for
a base salary of $175,000 and $200,000 for the years ended June 30, 1998 and
1999. The consultant will receive a bonus based upon corporate financial goals.
If the goals are exceeded by more than $20,000, an additional 2% of the excess
will be paid to the consultant.
F-13
<PAGE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
Note 7 - Income taxes
Deferred tax attributes resulting from differences between financial accounting
amounts and tax basis of assets and liabilities at June 30 are as follows:
Current assets and liabilities 1998 1997
---- ----
Allowance for doubtful accounts 44,000 44,000
Accrued vacation 64,000 79,200
Retirement plans 54,000 83,200
Accrued royalties 39,000 39,100
Accrued restructuring costs 42,000 36,400
Accrued expenses (42,000) -
------- -
Total current deferred tax asset 190,100 281,900
------- -------
Non-current assets and liabilities
Depreciation (220,000) (214,320)
Deferred rental obligation 124,000 62,000
Capitalized market research products 119,100 178,800
State net operating loss carryforward 84,000 121,000
Severance plan 254,000 -
Other 4,000 81,400
-------- -------
Total non-current deferred tax asset 361,100 228,880
-------- -------
The Company has recorded deferred tax assets of $604,100 as of June 30, 1998.
The Company has a history of operating earnings, although recognition is not
assumed 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. No valuation allowance has been provided for either years.
As of June 30, 1998 the Company has available a New Jersey net operating loss
carry forward for tax purposes of approximately $1,260,000 that begins to expire
in 2003.
F-14
<PAGE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
The sources of income before income taxes for the year ended June 30 is as
follows:
1998 1997
---- ----
United States 1,444,775 808,217
United Kingdom 740,492 319,933
--------- ---------
Total 1,885,267 1,128,150
The components of the provision for income taxes for the years ended June 30 are
as follows:
1998 1997
---- ----
Current expense:
Federal $601,320 $99,600
State - -
United Kingdom 252,450 128,340
------- -------
853,770 227,940
Deferred expense (benefit) (93,320) 262,015
-------- -------
760,450 489,955
-------- -------
Reconciliation of the U.S. statutory tax rate to the effective tax rate for the
year ended June 30 is as follows:
1998 1997
---- ----
Computed provision at the $641,000 $383,571
statutory rate
Permanent differences 33,000 42,904
International rate differences 450 17,118
State income tax, net 69,000 48,493
Alternative minimum tax - (40,000)
Other 17,000 37,869
------- -------
Income tax provision 760,450 489,955
------- -------
F-15
<PAGE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
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% to 15% of their compensation.
The Company has, in the past, made a matching contribution in an amount equal to
50% of each participating employee's elective contribution up to 6% of the
participating employee's compensation. Company contributions charged to
operating expense were approximately $193,610 and $213,000 for fiscal years
ended June 30, 1998 and 1997, respectively.
Note 9 - Major Clients
In the years ended June 30, 1998 and 1997, the Company did not derive a
significant portion of revenues (more than 10%) from any one client
Note 10 - Stock Option Plans
The Company has elected to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options as permitted under Financial
Accounting Standards Statement No. 123, "Accounting for Stock-Based
Compensation, "(SFAS 123) the fair value alternative method. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. Under SFAS 128, the Company will provide pro forma net
income and pro forma earnings per share.
The Company's 1986 Stock Option Plan has authorized the grant of options to
personnel for up to 1,800,000 shares of the Company's common stock. Under the
Plan, options may be granted at not less than fair market value on the date of
grant (85% 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). On April 16, 1996 the Company adopted the 1995 Stock Incentive Plan
and the 1995 Stock Incentive Plan for Total Research, Ltd. and froze the 1986
Stock Option Plan.
The 1995 Stock Incentive Plan has the authority to issue 1,750,000 options to
existing and future Officers, Directors, Employees and Consultants of the
Company. Incentive Stock Options or Non-Statutory Stock Options become
exercisable immediately and 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% of the fair market
value of the Company's common stock at the date of grant. In addition, any
non-employee director and/or advisory board director 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% for
each twelve months of continuous service until fully vested.
F-16
<PAGE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
The 1995 Stock Incentive Plan for Total Research, Ltd. has the authority to
issue 245,000 options. This plan has similar terms and conditions to the 1995
Stock Incentive Plan. Pro forma information regarding net income and earnings
per share is required by SFAS 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for all options was estimated at the date of grant
using the Black-Scholes option "pricing model with the following
weighted-average assumptions for June 30, 1998 and 1997 respectively: risk-free
interest rates of 5.72% and 6.50%; dividend yields of 0% and 0%; volatility
factors of the expected market price of the Company's common stock of .75 and
.76; and a weighted average expected life of the option of 5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is recorded in expense in the year issued. In accordance with provisions in
certain employment and consulting agreements, 1,500,000 options were issued in
the year ended June 30, 1997 that do not vest until June 30, 1999 (the
termination date of the agreements). Since we expect these options to fully vest
at that date, the compensation expense arising from those stock options have
been reflected in the 1997 pro forma amounts. The Company's pro forma
information follows:
June 30,
1998 1997
---- ----
Pro forma net income $ 817,563 $ 70,437
Pro forma income per share
Basic 0.08 0.01
Diluted 0.07 0.01
Pro forma compensation expense arising from stock options was $512,090 and
$946,264 for the years ended June 30, 1998 and 1997, respectively. However, no
compensation expense was recorded for the years ended June 30, 1998 and 1997.
F-17
<PAGE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
A summary of the Company's stock option activity, and related information for
the years ended June 30, follows:
<TABLE>
<CAPTION>
1998 1997
Weighted - Average Weighted - Average
Options (000) Exercise Price Options (000) Exercise Price
<S> <C> <C> <C> <C>
Outstanding -
Beginning of Year
2,832 $ 0.78 1,526 $0.71
Granted 330 2.38 1,726 0.83
Exercised (431) (0.43) (162) (0.44)
Forfeited (21) (0.86) (258) (0.87)
----- ------ ----- ------
Outstanding -
end of year 2,709 $1.04 2,832 $0.78
===== ===== ===== ======
Exercisable -
end of year 1,209 $1.32 1,332 $0.75
Weighted-average fair
value of options granted
during the year:
Where exercise price
equals stock price $1.55 $0.55
</TABLE>
Following is a summary of the status of stock options outstanding at June 30,
1998:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
------------------- ------------------ ------------------ ----------------------
Weighted
Average Remaining Weighted Average Weighted Average
Exercise Price Range Number Contractual Life Exercise Price Number Exercise Price
<S> <C> <C> <C> <C> <C>
- --------------------- ----------------- ------------------- ------------------ ------------------ ----------------------
$ .00 - $ .99 1,996,000 3.2 years $0.79 496,000 $0.74
$1.00 - $1.99 533,000 3.1 years $1.10 533,000 $1.10
$2.00 - $2.99 10,000 1.8 years $2.13 10,000 $2.13
$3.00 - $3.99 170,000 5.0 years $3.63 170,000 $3.63
</TABLE>
The Company received 92,300 shares of its own Common Stock with a fair market
value of $288,000 in connection with the exercise of certain stock options
during 1998.
F-18
<PAGE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
Note 11 - Segment Information
The Company operates in one principal industry segment: marketing research
services. Geographic financial information for the year ended June 30 (in 000's)
is as follows:
1998 1997
---- ----
Revenue
- United States $ 23,319 $ 20,781
- Europe 10,738 8,662
---------- ---------
Totals $ 34,057 $ 29,443
========== =========
Operating income
- United States $ 980 $ 912
- Europe 844 368
---------
Totals $ 1,824 $ 1,280
========== =========
Identifiable Assets
- United States $ 9,718 $ 7,837
- Europe 5,751 5,111
--------
Totals $ 15,469 $ 12,948
========== =========
Note 12 - Subsequent Event
On July 1, 1998, the Company closed an agreement with a number of
investors (the "Investor Group"), pursuant to which among other things, the
Investors purchased an aggregate of 1,000,000 shares of the Company's Common
Stock at a price of $2.25 per share, and the Company issued to the Investors
options, exercisable at any time within five(5) years from the issuance thereof,
to purchase an aggregate of 250,000 shares of the Company's Common Stock at an
exercise price of $2.25 per share.
The terms of the Purchase Agreement include an undertaking by the
Investors, under certain circumstances, to assist the Company in obtaining the
$25,000,000 in debt or equity financing for acquisitions or other projects
approved by the Board of Directors of the Company.
Note 13 - Unusual Item
The Corporation has entered into an employment transition agreement with Lorin
Zissman; Mr. Zissman, the former Chairman of the Board and Chief Executive
Officer, now hold the position of Chairman Ermitus and retains a seat on the
Corporation's Board of Directors. The Agreement ends on June 30, 2001 and sets
forth the total compensation to Mr. Zissman, which amounts to $723,000.
F-19
<PAGE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
Note 14 - Year 2000
The Company has a Year 2000 Compliance team comprised of essential managers and
staff. They have performed an audit of the Company's systems, which included
software, hardware, operating systems, data bases and processes utilized and/or
created by the Company, including those used for non-information purposes, such
as the building security system. The scope of the audit included all domestic
and international offices. Therefore these efforts, the Company believes it will
be fully protected from any risk resulting from Year 2000 situations.
As of June 30, 1998, approximately 10% of Year 2000 solutions have been
implemented. By year-end 1998, the Company estimates that 70% of the solutions
will be implemented for all of the Company's critical functions. The majority of
the solutions involve relatively simple operating system/applications software
upgrades of currently used systems.
The Company expects to spend about $150,000 incrementally during Fiscal 1999 to
ensure all risks associated with the Year 2000 situation are mitigated.
Note 15 - New Accounting Standards
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income." SFAS 130 establishes standards for the reporting and presentation of
comprehensive income, its components and accumulated balances. Comprehensive
income, as defined, includes all changes to equity except those resulting from
investments by or distributions to owners. Among other disclosures, SFAS 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company will adopt SFAS 130 in the fiscal year ending
June 30, 1999. Adoption of this statement will have no impact on the Company's
financial position or results of operations.
Segment Disclosure
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information." SFAS 131 establishes standards for
the disclosure of certain information about the operating segments of a
business. It also requires the disclosure of information about the products and
services of the business, the geographic areas in which it operates, and its
major customers. The Company will adopt SFAS 131 in the fiscal year ending June
30, 1999. Adoption of this Statement will have no impact on the Company's
financial position or results of operations.
F-20
<PAGE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 (SOP "98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 establishes standards
for recording the costs of software for internal use. SOP 98-1 indicated that
certain costs incurred in the development or purchase of software designated for
internal use should be capitalized. All other associated costs should be
expensed. The Company will adopt SOP 98-1 in the fiscal year ending June 30,
2000. Adoption of this statement is not anticipated to have a material effect on
the Company's financial position or results of operations.
Reporting on the Costs of Start-Up
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP "98-5"), "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires the costs of start-up activities and organization
costs to be expensed as incurred. It defines start-up activities as one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, initiating a new process in an existing facility, or
commencing some new operation. The Company will adopt SOP 98-5 in the fiscal
year ending June 30, 1999. Adoption of this statement is not anticipated to have
a material effect on the Company's financial position or results of operations.
F-21
<PAGE>
Signatures
In accordance with Section 13 or 15 (d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TOTAL RESEARCH CORPORATION
Dated: September 28, 1998 By: /s/ ALBERT ANGRISANI
------------------------------------------
ALBERT ANGRISANI, Chief Executive Officer
In accordance with Section 13 or 15 (d) of the Exchange Act, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
TOTAL RESEARCH CORPORATION
Dated: September 28, 1998 By: /s/ DAVID BRODSKY
------------------------------------------
DAVID BRODSKY, Chairman of the Board of
Directors
Dated: September 28, 1998 By: /s/ ALBERT ANGRISANI
------------------------------------------
ALBERT ANGRISANI, Chief Executive Officer
(principal executive officer), Director
Dated: September 28, 1998 By: /s/ ERIC C. ZISSMAN
------------------------------------------
ERIC C. ZISSMAN, Chief Financial Officer
(principal financial and accounting
officer)
Dated: September 28, 1998 By: /s/HOWARD SHECTER
------------------------------------------
HOWARD SHECTER, Esq., Director
Dated: September 28, 1998 By: /s/ GEORGE LINDEMANN
------------------------------------------
GEORGE LINDEMANN, Director
Dated: September 28, 1998 By: /s/ ANTHONY GALLI
------------------------------------------
ANTHONY GALLI, Director
Dated: September 28, 1998 By: /s/ ROGER THOMAS
------------------------------------------
ROGER THOMAS, Director
SUBLEASE
STATE OF NEW JERSEY; COUNTY OF MERCER: ss.:
THIS SUBLEASE, and the consent of Lessor, is entered into between TOTAL RESEARCH
CORPORATION, a New Jersey corporation, whose business address is 5 Independence
Way, CN 5305, Princeton, New jersey 08543, sublessor, and HEXAWARE TECHNOLOGIES,
whose business address is 13B Roszel Road, Princeton, New Jersey 08540,
sublessee.
Section I
Demise and Use
Sublessor leases to sublessee and sublessee leases from sublessor the
space described in Section II of this agreement.
Section II
Description of Space
The premises subject to this sublease consist of 10,085 square feet of
space located on the second floor of an office building known as Five
Independence Way, Plainsboro, New Jersey, as shown on Exhibit A attached hereto.
Section III
Building and Lease
Sublessor represents that it holds a lease from Bellemead Development
Corporation, referred to below as lessor, with terms and conditions as set forth
in the Lease dated December 2, 1985, a certain letter agreement dated July 31,
1986, the First Amendment dated January 5, 1987, the Second Amendment dated
November 27, 1990, the Third Amendment dated December 27, 1995, and the Fourth
Amendment dated December 12, 1996 (hereinafter collectively referred to as the
"Master Lease Documents"). A copy of the Master Lease Documents is attached as
Exhibit B.
Section IV
Quiet Enjoyment
If sublessee performs the terms of this sublease, sublessor warrants
that sublessee will have quiet enjoyment and peaceful possession of the space
leased, and that it will defend sublessee in quiet enjoyment and peaceful
possession during the term of this sublease without interruption by sublessor or
owner, or of any person rightfully claiming under either of them.
Section V
Sublessor Obligations, Indemnification, Etc.
Sublessor agrees to pay the rent reserved in the Master Lease Documents
and to perform and observe the lessee's covenants, conditions and stipulations
contained there insofar as they ought to be performed and observed by it.
Sublessor also agrees that it will not enter into any agreement with the owner
relinquishing any rights that may effect sublessee's rights under this Sublease.
Sublessor agrees to indemnify sublessee and hold sublessee harmless from and
against any and all loss, cost and expense and from all claims, demands, suits,
judgments and liabilities, including reasonable attorneys' fees, incurred by
sublessee arising out of the failure of sublessor to perform any covenant, term
or condition contained in the Master Lease Documents or in this sublease.
<PAGE>
Section VI
Term of Sublease
The term of this sublease shall be for a period of approximately five
and one-half (5-1/2 years), commencing on the fifth (5th) day after the issuance
of the certificate of occupancy and expiring on the last day of sixty-sixth
(66th) month thereafter.
Section VII
Renewal
Sublessor agrees to conditionally permit sublessee to renew this
sublease for a period to coincide with the period of sublessor's existing term
as set forth in the Master Lease Documents (June 30, 2006). Should sublessee
desire to renew in accordance with the above term, it must give written notice
to sublessor, no later than April 30, 2001 of sublessee's desire to enter into a
sixty (60) day period commencing May 1, 2001, during which sublessor and
sublessee shall attempt to negotiate the rental rate for the renewal period. If
the parties can agree to a rental rate, then the renewal will be exercised by
sublessee and honored by sublessor. Should the parties fail to reach agreement
during the sixty (60) day period, then, should sublessee elect to renew, it must
give written notice of said election to sublessor no later than July 1, 2001.
Said notice shall be given by certified mail, return receipt requested,
addressed to the Chief Financial Officer of sublessor. Upon receipt of said
notice, sublessor shall, within thirty (30) days, notify sublessee whether or
not sublessor intends to retake the space set forth on Exhibit "A" attached
hereto and to therefore refuse and deny sublessee's conditional option to renew.
Should sublessor not elect to retake the space, then sublessor and sublessee
shall mutually determine the market rate for space in such building and shall
thereafter agree upon such rate. Should sublessor and sublessee not be able to
agree upon the market rate, then each party shall appoint a commercial real
estate broker and those two (2) brokers shall appoint a third real estate
broker, and the decision of the three (3) real estate brokers as to the market
rate shall be made and shall be binding upon sublessor and sublessee. All of the
terms of this sublease and the Master Lease Documents shall otherwise remain in
full force and effect.
Section VIII
Sublease Rent
A. Sublessee agrees to pay to sublessor as rent for the premises
in accordance with Schedule A attached hereto, payable monthly
in advance on the first day of each calendar month of the term
of this sublease. If payment has not been received by the
tenth (10th) day of the month, sublessor can elect to apply
funds from the security deposit pursuant to Section XXXII or
to declare sublessee in default.
B. In addition to the above rental payments, Sublessee agrees to
pay its pro rata share of any increase in operating expenses
assessed against Sublessor in accordance with the terms of the
Master Lease Documents. Such pass through by Sublessor to
Sublessee shall be based upon any escalation over the Base
year 1997 and shall be assessed to Sublessee on a pro rat
basis, taking into account the number of square feet taken by
Sublessee versus the number of square feet charged by
Sublessor under the Master Lease Documents by the Master
Lessor. Payment of any escalation in such operating expenses
shall be made to Sublessor in accordance with the provisions
of the Master Lease Documents.
Section IX
Holdover
Any holdover at the expiration of this sublease with sublessor's
consent shall be on a month-to-month basis, which tenancy may then be terminated
as provided by the laws of the State of New Jersey. During such a holdover
tenancy, sublessee agrees to pay monthly to sublessor the same rate of rental as
in effect at the time of such termination and agrees to be bound by the terms of
this sublease if they are applicable. Any holdover by sublessee without
sublessor's express written consent will be at the monthly rate of two (2) times
the previous month's rent.
<PAGE>
Section X
Sublessee to Comply with Lease Terms; Indemnity to Lessor
Except for the covenant for the payment of rent reserved in the Master
Lease Documents, sublessee agrees to perform and observe the covenants,
conditions and terms of the Master Lease Documents to be performed and observed
by the lessee with regard to the premises described in Section II, so far as
they ought to be performed and observed by sublessee, and to indemnify sublessor
against all claims, damages and expenses arising out of the nonperformance or
nonobservance of such covenants, conditions and terms.
Section XI
Services and Utilities
Sublessee shall pay all electric and air conditioning charges relating
to the subleased space required to be paid by the Master Lease Documents.
Sublessee is advised that there is an after-hours additional charge for
air-conditioning set forth in the Master Lease Documents.
Section XII
Use for Business Purposes
The premises and space subleased are to be used for office business purposes.
Section XIII
No Waste, Nuisance or Illegal Use
Sublessee shall not commit waste on the demised premises, nor maintain,
commit or permit the maintenance or commission of a nuisance, or use the
premises for an unlawful purpose. Sublessee shall conform to all applicable laws
and ordinances respecting the use and occupancy of the space sublet here
relating to matters not covered elsewhere in this agreement, provided that it
shall not be required to make alterations, additions or improvements to such
premises in order to conform with such laws and ordinances.
Section XIV
Alterations, Additions and Improvements
Sublessee shall not make alterations, additions or improvements on the
premises without first obtaining the written consent of sublessor. All
alterations, additions and improvements that shall be made shall be a
sublessee's expense, shall become sublessor's property and shall remain on and
be surrendered with the premises as a part of the premises at the termination of
this sublease without disturbance, molestation or injury. Sublessee's consent
shall not be unreasonably withheld nor unduly delayed. Nothing contained in this
paragraph shall prevent sublessee from removing all office machines and
equipment and trade fixtures customarily used in its business. Sublessor agrees
that the Desired work as set forth on Schedule B and the Workletter credit are
acceptable. Sublessor agrees to perform the work described in Schedule B at no
cost to sublessee.
Schedule XV
Liens
Sublessee shall keep the leased premises free and clear of liens
arising out of any work performed, materials furnished or obligations incurred
by sublessee, including mechanics' liens.
Section XVI
Signs
Sublessee covenants and agrees that no signs or symbols shall be placed
in the windows or doors of the premises, or on any exterior part of the building
without the sublessor's prior written approval. Any signs placed on the premises
shall be placed subject to the agreement that sublessee will remove them at the
termination of its tenancy, and will repair any damage or injury to the premises
caused by such signs. If the signs are not so removed by sublessee, sublessor
may have them removed at sublessee's expense.
<PAGE>
Section XVII
Access for Inspection and Repairs
Upon reasonable notice by sublessor, sublessee shall allow lessor and
sublessor, and their agents, free access at all reasonable times to the premises
sublet for the purpose of inspecting or of making repairs, additions or
alterations to the premises or any property owned by or under the control of
lessor or sublessor.
Section XVIII
Repairs and Maintenance
Subject to the lessor's obligations under the Master Lease Documents, sublessee,
unless specified to the contrary in this agreement, shall maintain the premises
subleased in good repair and tenantable condition during the continuance of this
sublease, except in case of damage arising from the act or negligence of lessor,
sublessor or their agents.
Section XIX
Public Liability Insurance
sublessee agrees to carry liability insurance insuring both sublessee
and sublessor against all claims for personal injury or property damage caused
by conditions or activities on the premises leased pursuant o the Master Lease
Documents, except that the policy shall be cancellable upon thirty (30) days'
written notice to sublessor.
Section XX
Damage or Destruction By Fire, War or Acts of God
In the event that the subleased premises are rendered untenantable in whole or
in substantial part as a result of destruction or damage by fire, acts of war or
acts of God, this lease shall be governed by the provisions of Article 9 of the
Master Lease Documents.
Section XXI
Eminent Domain Proceedings (Condemnation)
If the premises or any part are condemned for public or semi-public use
by eminent domain proceedings, or if by reason of law, ordinance, regulation or
court judgment, sublessee's use of the premises subleased for any of the
specific purposes referred to in this agreement shall be prohibited, sublessee
shall have the right to terminate this lease on written notice to sublessor, and
rental shall be paid only to the time when sublessee surrenders possession of
the premises. In the event of condemnation of only part of the premises
subleased, sublessee may elect to continue in possession of that part of the
premises not so appropriated or condemned under the same terms and conditions of
this sublease, except that in such case sublessee shall be entitled to an
equitable reduction of the rental payment hereunder. Any rental paid in advance
beyond such time shall be returned by sublessor to sublessee on demand.
Sublessee does not waive any right it may have to recover from the condemnation
authority for such damage as it may suffer by reason of such condemnation.
Section XXII
Waiver of One Breach Not Waiver of Others
Waiver of one breach of a term, condition or covenant of this sublease
by either party to this sublease shall be limited to the particular instance and
shall not be construed as a waiver of past or future breaches of the same or
other terms, conditions or covenants.
<PAGE>
Section XXIII
Default by Lessor or Sublessor
If the owner fails and neglects to perform the lease, sublessee shall give
written notice to sublessor of such failure and sublessee shall have such rights
sublessor has under the Master Lease Documents. Sublessor agrees to take such
acts as will enable sublessee to have standing to proceed against owner.
Section XXIV
Termination and Re-Entry by Sublessor on Sublessee's Default
If sublessee fails and neglects to perform under this Sublease or is
dispossessed for cause by sublessor before the termination of this sublease, or
any renewal of this sublease, sublessor may elect to enforce whatever rights
accrue to the Master Lessor under the Master Lease Documents. This Sublease may
be forfeited and the sublessor may then make reasonable efforts to relet the
premises. Sublessee shall be liable to sublessor for all damages suffered by
reason of such forfeiture. Such damages shall include, but shall not be limited
to, the following: (1) all actual damages suffered by sublessor until the
property is relet, including reasonable expenses incurred in attempting to
relet; (2) the difference between the rent received when the property is relet
and the rent reserved under this lease.
Until the premises have been relet, sublessee agrees to pay to
sublessor, on the same days as the rental payments are due under this lease, the
actual damages suffered by sublessor since the last payment, either rent or
damages, was made. After the premises have been relet, sublessee agrees to pay
to sublessor, on the last day of each rental period, the difference between the
rent received for the period from reletting and the rent reserved under this
lease for that period.
Section XXV
Applicable Law
New Jersey law shall be used in interpreting this lease and in
determining the rights of the parties under it.
Section XXVI
Surrender of Premises and Keys at Termination
Sublessee agrees that at the expiration of this sublease, it will quit
and surrender the subleased premises without notice and will deliver to
sublessor all keys belonging to the premises
Section XXVII
Disposition of Fixtures and Personal Property at Termination of Lease
All alterations, additions and improvements made by sublessee in
accordance with Section XIV of this sublease, affixed to the premises, shall
become sublessor's property as provided in that section, and shall be
surrendered with the premises as a part of the premises as provided in that
section. Sublessee may remove all personal property, trade fixtures and office
equipment, whether attached to the premises or not, provided that such may be
removed without series damage to the building or premises. All holes or damage
to the building or premises caused by removal of such items shall be repaired
and restored by sublessee promptly after removal of the property. Sublessee
shall be entitled to remove any electrical service connections installed by it
which were designed specifically for the operation of electronic computing
equipment.
Section XXVIII
Notices
Except where otherwise required by statute, all notices given pursuant
to the provisions of this sublease shall be in writing, addressed to the party
to whom the notice is given, and sent by registered or certified mail to the
last known mailing address of the party. Notices to sublessee shall be sent to
13B Rozsel Road, Princeton, New Jersey 08540 or to such other address as
sublessee may designate by giving notice hereunder.
<PAGE>
Section XXIX
Binding Effect on Heirs, Successors and Assigns
The terms, conditions and covenants of this sublease shall inure to and
be binding on the heirs, successors, administrators, executors and assigns of
the parties to this sublease, except as otherwise provided in this agreement.
Section XXX
No Assignment or Second Sublease Without Consent
Sublessee shall not sell or assign this sublease or any part of this
lease, or any interest, or re-sublet the subleased premises in whole or in part
without first obtaining the written consent of sublessor and lessor in
accordance with the Master Lease Documents. This sublease shall not be assigned
by operation of law. If sublessor and lessor once give consent to assignment of
this sublease or of any interest, they shall not be barred from subsequently
refusing to consent to any further assignment. Any attempt to well, assign or
re-sublease without written consent of sublessor and lessor shall be deemed
sufficient grounds for dispossession and shall entitle sublessor to proceed
pursuant to Section XXIV of this lease is it so elects. Sublessee shall be
permitted to assign the Sublease to any entity into which it is merged or by
which it is acquired, subject to the provisions of the Master Lease Documents.
Section XXXI
Arbitration of Disputes
The parties agree that the disputes under this sublease shall be
arbitrated in accordance with the arbitration laws of the State of New Jersey,
as supplemented by the rules then obtaining of the American Arbitration
Association. Judgment on the aware rendered may be entered in any court having
jurisdiction of the parties.
Section XXXII
Security Deposit
Sublessor acknowledges that it has received the sum of Thirty Thousand
Three Hundred Eight-Nine and 46/100 ($30,389.46) Dollars from sublessee as
security for sublessee's faithful performance of its obligations under this
sublease. Sublessor has the right to use the security deposit towards any
rentals that are more than ten (10) days late and to notice, in writing,
sublessee that it needs to replenish the security deposit so that a full two (2)
months' (at the then current rental rate) security deposit is being held by
sublessor. Failure of the sublessee to so fund the security deposit shall be an
event of default. Sublessor shall return the security deposit to sublessee
within thirty (30) days of the termination of this Sublease, assuming the
sublessee is not in default of any of the Lease provisions.
Section XXXIII
Miscellaneous
By signing this sublease, sublessee approves of the Master Lease
Documents.
Sublessee shall be entitled to receive all the services provided by
owner as set forth in the Master Lease Documents and to the use of the common
areas of the building and parking spaces in accordance with the provisions of
the Master Lease Documents. To the extent such usage is determined by the number
of square feet leased by sublessee, such usage of the common area and parking
spaces shall be pro rata, pursuant to the Master Lease Documents.
Anything to the contrary notwithstanding, sublessor waives its right to
require the sublessee to remove fixtures, panelling, partitions, railings and
like installations placed on the premises.
Except for Sections 48.5(b) and 48.5(c) of the Master , the terms set
forth in the Master Lease Documents, Section 48.5, are deemed included in this
Sublease.
<PAGE>
ATTEST: TOTAL RESEARCH CORPORATION
/s/ Richard G. Morrow, Jr. By /s/ Eric C. Zissman
- -------------------------- ---------------------
Richard G. Morrow, Jr. Eric C. Zissman
VP, Controller Vice President
Dated: 7/17/97
ATTEST: HEXAWARE TECHNOLOGIES
/s/ Stephen M. Simon By /s/Avinash M. Lele
- -------------------- --------------------
Print Name: Avinash M. Lele
Title: President & Chief Operating Officer
Dated: June 5, 1997
<PAGE>
STATE OF NEW JERSEY, COUNTY OF MERCER: SS.:
I CERTIFY that on July 17, 1997,
personally came before me and this person acknowledged under oath, to my
satisfaction, that:
(a) this person is the secretary of TOTAL RESEARCH CORPORATION, the
corporation named in this instrument;
(b) this person is the attesting witness to the signing of this
instrument by the proper corporate officer who is Eric C. Zissman,
the Vice President of the corporation;
(c) this instrument was signed and delivered by the corporation as its
voluntary act duly authorized by a proper resolution of its Board of
Directors;
(d) this person knows the proper seal of the corporation which was
affixed to this instrument; and
(e) this person signed this proof to attest to the truth of these facts.
Signed and sworn to before me on
July 17, 1997.
/s/ Jane B. Giles /s/ Richard G. Morrow, Jr.
- ----------------- --------------------------
Richard G. Morrow, Jr.
(Print name of attesting witness below signature)
STATE OF NEW JERSEY, COUNTY OF MERCER: SS.:
I CERTIFY that on June 6, 1997,
personally came before me and this person acknowledged under oath, to my
satisfaction, that:
(f) this person is the secretary of HEXAWARE TECHNOLOGIES, the
corporation named in this instrument;
(g) this person is the attesting witness to the signing of this
instrument by the proper corporate officer who is Avi Lele,
the President of the corporation;
(h) this instrument was signed and delivered by the corporation as
its voluntary act duly authorized by a proper resolution of
its Board of Directors;
(i) this person knows the proper seal of the corporation which was
affixed to this instrument; and
(j) this person signed this proof to attest to the truth of these
facts.
Signed and sworn to before me on
July 22, 1997.
/s/ Tina Marie Luis /s/ Stephen M. Simon
- ------------------- --------------------
Stephen M. Simon
(Print name of attesting witness below signature)
<PAGE>
SCHEDULE "A"
Term: Five (5) years and six months from occupancy
Rate: Months 1-12: $13.82/SF
(months 1-6: $11.39/SF)
(months 7-12: $16.25/SF)
Months 13-24: $17.25/SF
Months 25-36: $18.25/SF
Months 37-48: $19.25/SF
Months 49-60: $20.25/SF
Months 61-66: $21.25/SF
Rental rate is computed based on six months at
$16.25/SF for 6,800 SF. Average over the term is $18.08/SF, based on the above
stated sizes.
Base Year: 1997. Any escalation in base year operating expenses
shall be assessed on a pro-rata basis.
<PAGE>
SCHEDULE "B"
[Work description attached]
The sublessor agrees to obtain all approvals from the appropriate municipal
bodies and the landlord and to complete the work within ninety (90) days after
receipt of building permits for said approvals.
The sublessee agrees to grant sublessor reasonable extensions for any delays
that are not incurred as a result of sublessor's negligence.
Sublessee and sublessor agree that the certificate of occupancy that is granted
by the municipality may be a temporary certificate of occupancy and there may be
some items on the work letter that are not completely done, and sublessor and
sublessee agree that sublessee shall be entitled to a punch list to be delivered
no later than thirty (30) days after the issuance of the certificate of
occupancy. Sublessor agrees to promptly correct any condition set forth on the
punch list.
Sublessor agrees that sublessee shall have reasonable access to the construction
site in order to allow sublessee's agents to install telephone lines, computer
lines, etc. However, sublessee shall not interfere in any way with sublessor's
work described above.
<PAGE>
[LETTER OF COMMERCIAL PROPERTY NETWORK, INC.]
May 19, 1997
Avinash Lele
Hexaware Technologies, Inc.
13 Roszel Road, Suite B110
Princeton, New Jersey 08540
Re: Workletter Allowance
5 Independence Way
Dear Avi:
This letter shall serve as a confirmation of construction funds to be allocated
by Total Research (hereinafter "Tenant") for Hexaware's (hereinafter
"Subtenant") proposed "tenant improvements" at 5 Independence Way. Construction
Drawings reflecting all work to be performed within the demised premises will be
completed in early June.
The following shall be specifically referenced to the Mancini & Duffy space plan
- - sheet 1 of 1 - agreed & accepted by Hexaware on May 7, 1997. Tenant, at
Tenant's sole cost and expense, shall provide the following tenant improvements
for Subtenant:
General Expenses,
Architectural Services: Including Construction Drawings and Building Permits.
Debris & Demolition: Removal of carpet in reception area. Removal of all
debris associated with construction.
New Construction: Demising walls, walls for office construction, new
doors and required hardware, relocation of old doors
and closing off of relocated doorways.
Carpet: New carpet to be installed in the reception area,
recruiting room and conference room.
Cove Base: Cove base to be installed for all new wall
construction.
Paint: The entire space shall be painted 2 coats flat paint.
Ceiling Tiles: Any stained and/or damaged ceiling tiles shall be
replaced.
Sprinkler & HVAC: All sprinkler and HVAC shall be provided.
<PAGE>
[LETTER OF COMMERCIAL PROPERTY NETWORK, INC.]
(cont'd)
Electric: Tenant to provide the following electric:
A. 50 new duplex wall receptacles
B. 15-110 volt dedicated direct home run lines
C. 13 wall mounted light switches where required
Lighting: Tenant to provide the following:
A. Relocate & rewire maximum of 50 2' X 4' light
fixtures. B. Furnish & install maximum 10 new 2' X 4'
light fixtures.
Battery Backup &
Emergency Lighting: Tenant to provide the following:
A. Relocate & rewire 2 existing battery backup systems.
B. Furnish & install 2 new battery backup systems.
Workstations: Tenant to provide a maximum of $1,000 for relocation of
existing electrical wiring, presently located in the floor
for workstation layout.
Please note that the above summary is designed to provide you with a "turn key"
installation based on the plan, with no cost to you. This will be done by using
standard finishes similar to those which currently exist in the space.
Subtenant, at Subtenant's sole cost and expense shall be financially responsible
for any and all required tenant improvement work above and beyond the above
stated allowances. To the extent that you require additional fitout, more
electric or other changes, any additional costs shall be payable by Subtenant,
to Tenant, 50% at commencement of work and 50% upon "commencement date" of the
initial sublease term. In addition, Subtenant is fully responsible for all
internal wiring for workstations, data/communications lines, and any additional
work not included in the space plan, that Subtenant desires, subject to the
approval of Tenant and Lessor.
please sign off below, indicating acceptance of the above. I will submit to
Total Research for counter signature and forward a fully executed copy for your
files.
Very truly yours,
/s/ Paul E. Goldman
- -------------------
Paul E. Goldman
Vice President
Agreed & Accepted:
Hexaware: _________________________________ Date: ___________________
Total Research: _________________________________ Date: ___________________
<PAGE>
CONSENT TO LEASE
This CONSENT TO SUBLEASE ("Consent") dated as of the 31st day of
August, 1997 is being entered among 5 INDEPENDENCE ASSOCIATES LIMITED
PARTNERSHIP, New Jersey limited partnership, having an office c/o Bellemead
management Co., Inc. at 280 Corporate Center, 4 Becker Farm Road, Third floor,
Roseland, New jersey 07068-3788 ("Landlord"), TOTAL RESEARCH CORPORATION, a New
Jersey corporation, having an office at 5 Independence Way, Princeton, New
Jersey ("Tenant") and HEXAWARE TECHNOLOGIES, a New Jersey corporation, having an
office at 13B Roszel Road, Princeton, New Jersey 08540 ("Subtenant").
W I T N E S S E T H:
WHEREAS, Bellemead Development Corporation, predecessor-in-interest to
Landlord, and Tenant entered into a certain lease dated December 2, 1985 (said
lease as the same was or may hereafter be amended is hereinafter called the
"Lease") for a portion ("Premises") of the building ("Building") known as and
located at 5 Independence Way, Princeton, New Jersey; and
WHEREAS, Subtenant Desires to sublet from Tenant a portion ("Sublet
Space") of the Premises in accordance with that certain sublease ("Sublease")
between Tenant, as sublessor and Subtenant, as sublessee, a copy of which is
attached hereto as Exhibit A;
NOW, THEREFORE, for good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, it is mutually covenanted
and agreed as follows:
A. Unless otherwise defined, all terms contained in this Consent
shall, for the purposes hereof, have the same meaning ascribed
to them in the Lease.
B. Landlord consents to the subletting of the Sublet Space by
Tenant to Subtenant upon and expressly subject to the
following terms and conditions, to each of which Tenant and
Subtenant expressly agree:
1. Nothing herein contained shall be construed to modify, waive, impair
of affect any of the covenants, agreements, terms, provisions, or conditions
contained in the Lease (except as herein expressly provided), or to waive any
breach thereof, or any rights of Landlord against any person, firm, association
or corporation liable or responsible for the performance thereof, or to enlarge
or increase Landlord's obligations or decrease Landlord's rights under the
Lease, and all covenants, agreements, terms, provisions and conditions of the
Lease are hereby mutually declared to be in full force and effect.
2. Unless and except as otherwise specifically provided in the Lease or
this Consent, the provisions of Articles 11and 48 of the Lease shall apply to
any further subletting or assignment of all or any part of the Premises. In such
event, Landlord shall retain its rights under Articles 11 and 48 of the Lease.
3. Tenant shall be and remain liable and responsible for the due
keeping, performance and observance of all the covenants, agreements, terms,
provisions and conditions set forth in the Lease on the part of Tenant to be
kept, performed and observed and for the payment of the Minimum Rent, Adjusted
Minimum Rent and additional rent and all other sums now and/or hereafter
becoming payable thereunder, expressly including as such 9but not limited to)
adjustments of rent, and any and all charges for any additional electric energy,
property, material, labor, utility or other similar or dissimilar services or
materials rendered, supplied or furnished by Landlord, in or in connection with,
the Premises or any part thereof, whether for or at the request of Tenant or
Subtenant.
4. The sublease shall be subject and subordinate at all times to the
Lease and to all of the covenants, agreements, terms, provisions and conditions
of the Lease and to this Consent, and neither Tenant or Subtenant shall do or
permit anything to be done in connection with the Subtenant's occupancy of the
Sublet Space which would violate any of said covenants, agreements, terms,
provisions and conditions.
<PAGE>
5. Tenant agrees that Landlord is not responsible for the payment of
any commissions or fees in connection with this transaction and agrees to
indemnify, defend and hold Landlord, its partners, directors or officers and
their affiliates and/or subsidiaries harmless from and against any claims,
liability, losses or expenses, including attorneys' fees, court costs and
disbursements incurred by Landlord during settlement, at trial or on appeal, in
connection with any claims for commission by any broker or agent in connection
with this transaction.
6. Upon the expiration, or any earlier termination of the term of the
Lease, the Sublease and the term and estate thereby granted shall expire and
come to an end as of the effective date of such expiration or termination, and
Subtenant shall vacate the Sublet Space on or before such date. In case of the
failure of Subtenant to so vacate, Landlord shall be entitled to all of the
rights and remedies which are available to a landlord against a tenant holding
over after the expiration of a term and Tenant shall remain primarily liable for
any damages suffered by Landlord. Upon the expiration or any earlier termination
of the term of the Lease, Subtenant shall, at the request of Landlord, attorn to
and accept Landlord as sublandlord under the Sublease for the balance of the
term of the sublease and be bound to perform all of the obligations imposed by
the Sublease upon Subtenant. Such attornment shall be evidenced by an agreement
in form and substance reasonably satisfactory to Landlord and Subtenant which
Subtenant shall execute and deliver within five (5) days after request by
Landlord.
7. Subtenant agrees that if Subtenant, at Landlord's sole discretion,
should become a direct tenant of Landlord for the Premises or any part thereof
upon the expiration or earlier termination of the Lease, Landlord shall not (a)
be liable for any previous act or omission of Tenant under the Sublease, (b) be
subject to any offset or credit which shall theretofore have accrued to
Subtenant against Tenant, (c) have any obligation whatsoever with respect to any
security deposited under the sublease, (d) be bound by any previous prepayment
of rent or any other advance payment of monies due under the sublease, and (e)
be responsible for the payment of any commission or fees in connection with a
direct lease between Landlord and Subtenant.
8. In case of the violation by Tenant or Subtenant of any of the
covenants, agreements, terms, provisions and conditions hereof, Landlord may
give written notice of such violation to Tenant and/or Subtenant (such notice to
be delivered personally or by mail addressed to said parties at the Premises).
If Landlord gives Tenant and/or Subtenant said written notice of such violation
and such violation is not discontinued or corrected within a reasonable time as
specified in such notice, then, Landlord shall have all remedies provided for at
law, in equity, under the Lease and/or pursuant to this consent. Reference in
this consent to any particular remedy shall not preclude Landlord from any other
remedy in law or in equity.
9. No alterations, additions (electrical or otherwise), or physical
changes shall be made in the Premises, or any part thereof, except pursuant to
the covenants, agreements, provisions, terms and conditions of the Lease.
10. Tenant and Subtenant agree that (i) a true, correct and complete
copy of the Sublease is attached to this consent; (ii) Landlord is not a party
to the sublease and is not bound by the provisions thereof; and (iii)
notwithstanding the foregoing, the Sublease will not be modified or amended in
any way without the prior written consent of Landlord.
11. Tenant and Subtenant jointly and severally represent and agree that
Subtenant is financially responsible, of good reputation, and engaged in a
business which is in keeping with the standards of Landlord in those respects
for the Building and its occupancy.
12. Tenant agrees to pay over to Landlord from time to time upon
Landlord's request fifty percent (50%) of all consideration payable by Subtenant
to Tenant pursuant to Section 48.2 of the Lease. Tenant and Subtenant represent
and warrant to Landlord that no compensation of any kind other than as set
<PAGE>
forth in the Sublease has been or will be paid by Subtenant to Tenant in
connection with the Sublease. Tenant and Subtenant agree to provide sworn
statements to Landlord within five (5) days after Landlord's request therefor
showing the rent actually charged by Tenant to Subtenant and in connection
therewith Landlord shall be authorized to examine, copy and audit all pertinent
books and records of Tenant and Subtenant which Tenant and Subtenant agree to
produce at the request of Landlord. If Landlord' [s review of any of said books
or records discloses that compensation other than as set forth in the Sublease
has been paid by Subtenant to Tenant, Tenant shall promptly pay fifty percent
(50%) thereof to Landlord together with interest at the highest rate allowed
under law and the cost of Landlord's review.
13. Tenant agrees that it is solely responsible for obtaining all
permits and approvals required by any governmental or quasi-governmental agency
for any work or otherwise required in connection with the Sublease. Upon
execution of the Consent, Tenant shall pay to Landlord, as additional rent, all
costs, including legal fees, incurred by Landlord in reviewing the Sublease and
any permits, approvals and applications for the construction of the Sublet
Space.
14. If Tenant breaches any of the terms and provisions of the Lease,
Landlord may elect, under N.J.S.A. 2A:42-4, as same may be amended to receive
directly from Subtenant all sums due or payable to Tenant by Subtenant pursuant
to the Sublease, and upon receipt of Landlord's notice, Subtenant shall
thereafter pay to Landlord any and all sums becoming due or payable under the
Sublease and Tenant shall receive from Landlord a corresponding credit for such
sums against any payments then due or thereafter becoming due from Tenant.
15. Tenant and Subtenant agree that if Subtenant breaches any term of
the sublease, Landlord may, at its option and for its own sole benefit, exercise
against Subtenant all or any of the rights and remedies that Tenant has against
Subtenant at law, in equity or under the Sublease. Tenant acknowledges that the
exercise by Landlord of all or any of the foregoing rights and remedies against
Subtenant shall not preclude Landlord from pursuing any right or remedy against
Tenant. The exercise by Landlord against Subtenant of any or all of Tenant's
rights and remedies shall neither cause Landlord to assume any of Tenant's
duties, obligations and/or liabilities under the Sublease nor impose upon
Landlord the duty or obligation to honor the Sublease nor subsequently to accept
Subtenant's attornment pursuant to Sections 6 and7 hereof.
16. Tenant agrees to hold any and all payments due under the Sublease
as a trust fund to be applied first to the satisfaction of all of Tenant's
obligations under the Lease and hereunder before using any part thereof for any
other purpose.
17. This Consent may not be changed orally, but only by an agreement in
writing signed by the party against whom enforcement of any change is sought.
18. This Consent shall not be binding upon Landlord unless and until it
is signed by Landlord.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Consent to be
duly executed as of the _____ day of August, 1997.
LANDLORD:
WITNESSED BY: 5 INDEPENCE ASSOCIATES
LIMITED PARTNERSHIP
/s/ Patricia E. Boyko By:/s/ Edward M. Schotz
- --------------------- -----------------------
Name: Patricia E. Boyko Edward M. Schotz
(Please Print) General Partner
TENANT:
ATTESTED BY: TOTAL RESEARCH CORPORATION
/s/ Richard G. Morrow, Jr. By:/s/ Eric Zissman
- -------------------------- -------------------
Name: Richard G. Morrow, Jr. Name: Eric Zissman
(Please Print) (Please Print)
Title: Corporate Secretary Title: Chief Financial Officer
SUBTENANT:
ATTESTED BY: HEXAWARE TECHNOLOGIES
/s/ Stephen M. Simon By:/s/ Avinash M. Lele
- -------------------- ----------------------
Name: Stephen M. Simon Name: Avinash M. Lele
(Please Print) (Please Print)
Title: Corporate Secretary Title: President
APPLY CORPORATE SEAL HERE
<PAGE>
EXHIBIT A
Sublease
<PAGE>
FIRST ADDENDUM TO SUBLEASE
STATE OF NEW JERSEY; COUNTY OF MERCER: ss.:
THIS FIRST ADDENDUM TO SUBLEASE is entered into between TOTAL RESEARCH
CORPORATION, a New Jersey corporation, whose business address is 5 Independence
Way, CN 5305, Princeton, New Jersey 08543, sublessor, and HEXAWARE TECHNOLOGIES,
whose business address is 13B Roszel Road, Princeton, New Jersey 08540,
sublessee.
WHEREAS, HEXAWARE signed a Sublease Agreement dated June 9, 1997
(hereinafter the "Sublease"); and
WHEREAS, the parties wish to clarify the charges relating to the
electric, utilities and to confirm the commencement date;
NOW, THEREFORE, the parties agree as follows:
3. Section XI of the Sublease is hereby deleted and in its place is
inserted the following:
"Sublessee shall pay all electric and utility charges relating
to the subleased space at the then current rate charged by
owner (currently $1.25 per square foot per annum), which
charges shall be payable monthly in advance to sublessor at
the same time as the base rent is paid. Sublessor acknowledges
that head and air-conditioning are included in the base rent.
Sublessee is advised that there is an after-hours additional
charge for air-conditioning set forth in the Master Lease
Documents, which shall be passed along to sublessee."
4. In all other respects, the parties hereby ratify and confirm the
provisions of the Sublease.
ATTEST: TOTAL RESEARCH CORPORATION
/s/ Richard G. Morrow, Jr. By /s/ Eric C. Zissman
- -------------------------- -------------------
Richard G. Morrow, Jr. Eric C. Zissman
VP, Controller Vice President
Dated: 7/17/97
ATTEST: HEXAWARE TECHNOLOGIES
/s/ Stephen M. Simon By:/s/ Avinash M. Lele
- -------------------- ----------------------
Print Name Avinash Lele
Title COO
Dated: 7/14/97
STATE OF NEW JERSEY, COUNTY OF MERCER: SS.:
I CERTIFY that on July 17, 1997,
personally came before me and this person acknowledged under oath, to my
satisfaction, that:
(a) this person is the secretary of TOTAL RESEARCH
CORPORATION, the corporation named in this instrument;
(b) this person is the attesting witness to the signing of
this instrument by the proper corporate officer who is
Eric C. Zissman, the Vice President of the corporation;
<PAGE>
(c) this instrument was signed and delivered by the
corporation as its voluntary act duly authorized by a
proper resolution of its Board of Directors;
(d) this person knows the proper seal of the corporation
which was affixed to this instrument; and
(e) this person signed this proof to attest to the truth of
these facts. Signed and sworn to before me on July 17,
1997.
- ------------------------- ------------------------------------------------
(Print name of attesting witness below signature)
STATE OF NEW JERSEY, COUNTY OF MERCER: SS.:
I CERTIFY that on July 22, 1997,
personally came before me and this person acknowledged under oath, to my
satisfaction, that:
(f) this person is the secretary of HEXAWARE TECHNOLOGIES,
the corporation named in this instrument;
(g) this person is the attesting witness to the signing of
this instrument by the proper corporate officer who is
Avi Lele, the President of the corporation;
(h) this instrument was signed and delivered by the
corporation as its voluntary act duly authorized by a
proper resolution of its Board of Directors;
(i) this person knows the proper seal of the corporation
which was affixed to this instrument; and
(j) this person signed this proof to attest to the truth of
these facts.
Signed and sworn to before me on July 22, 1997.
/s/ Tina Marie Luis /s/ Stephen M. Simon
- ------------------- --------------------
(Print name of attesting witness below signature)
Stephen M. Simon
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,097,347
<SECURITIES> 0
<RECEIVABLES> 6,561,545
<ALLOWANCES> 110,000
<INVENTORY> 0
<CURRENT-ASSETS> 15,469,158
<PP&E> 6,034,407
<DEPRECIATION> 3,923,493
<TOTAL-ASSETS> 15,469,158
<CURRENT-LIABILITIES> 9,907,485
<BONDS> 0
0
0
<COMMON> 10,476
<OTHER-SE> 5,066,989
<TOTAL-LIABILITY-AND-EQUITY> 15,469,158
<SALES> 0
<TOTAL-REVENUES> 34,057,084
<CGS> 0
<TOTAL-COSTS> 16,641,169
<OTHER-EXPENSES> 15,591,072
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,885,267
<INCOME-TAX> 760,450
<INCOME-CONTINUING> 1,124,817
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,124,817
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.10
</TABLE>
