FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998.
Commission File Number: 0-15692
TOTAL RESEARCH CORPORATION
--------------------------
(Exact name of Registrant as specified in its Charter)
DELAWARE 22-2072212
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(State of Incorporation) (IRS Employer Identification No.)
Princeton Corporate Center, 5 Independence Way
Princeton, New Jersey 08543-5305
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(Address of principal executive offices) (Zip Code)
(609) 520-9100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months or such shorter period that the registrant was required
to file such reports, and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
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At November 4, 1998, the Registrant had 11,476,108 shares of Common Stock,
outstanding.
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
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TOTAL RESEARCH CORPORATION
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CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
SEPTEMBER 30, JUNE 30,
1998 1998
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Current assets
Cash and cash equivalent...................................................... $ 4,004,153 $ 2,097,347
Accounts receivable, less allowance for doubtful accounts
of $110,000 at September 30, 1998 and at June 30, 1998...................... 6,821,271 6,451,545
Costs and estimated earnings in excess of billings on
uncompleted contracts....................................................... 2,571,593 1,201,265
Deferred taxes................................................................ 243,000 243,000
Other current assets.......................................................... 904,080 715,377
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14,544,097 10,708,534
Fixed assets, less accumulated depreciation..................................... 2,196,843 2,110,914
Goodwill........................................................................ 1,703,079 1,722,540
Deferred taxes.................................................................. 361,100 361,100
Other assets.................................................................... 545,279 566,071
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$19,350,398 $15,469,159
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable - bank.......................................................... $ 323,682 $ --
Accounts payable.............................................................. 3,769,634 3,385,709
Accrued expenses and other current liabilities................................ 2,924,587 2,834,060
Billings in excess of earnings................................................ 3,567,087 3,394,545
Income taxes payable.......................................................... 540,368 293,171
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11,125,358 9,907,485
Long-term liabilities
Other liabilities............................................................. 538,099 484,207
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Total liabilities.......................................................... 11,663,457 10,391,692
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Commitments and contingencies
Shareholders' equity
Common stock-authorized 20,000,000 shares $.001 par value, per share,
11,476,108 issued at September 30, 1998 and
at June 30, 1998............................................................ 11,476 10,476
Foreign current translation................................................... 63,052 22,602
Additional paid-in capital.................................................... 6,219,996 4,172,904
Retained earnings............................................................. 1,680,134 1,159,201
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7,974,658 5,365,183
Less: Treasury stock......................................................... (287,717) (287,717)
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Total shareholders' equity................................................. 7,686,941 5,077,466
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Total liabilities and shareholders' equity...................................... $19,350,398 $15,469,158
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(See notes to the consolidated financial statements)
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TOTAL RESEARCH CORPORATION
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CONSOLIDATED STATEMENTS OF INCOME
Unaudited Unaudited
September 30, September 30,
1998 1997
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Revenues............................ $ 10,069,446 $ 8,242,025
Direct costs........................ 4,952,999 4,063,724
Gross profit........................ 5,116,447 4,178,301
Operating expenses.................. 4,301,494 3,592,637
Income from operations.............. 814,953 585,663
Interest income (expense)........... 32,093 (2,909)
Other income, net................... -- 10,000
Income before taxes................. 847,046 592,754
Provision for income taxes.......... 326,113 240,239
Net income..........................$ 520,933 $ 352,515
Earnings per share
Basic...........................$ 0.05 $ 0.03
Diluted.........................$ 0.04 $ 0.03
Weighted average common shares
Outstanding - Basic............. 11,448,888 10,044,108
- Diluted........... 12,437,184 11,326,366
(See notes to the consolidated financial statements)
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<CAPTION>
TOTAL RESEARCH CORPORATION
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CONSOLIDATED STATEMENTS OF CASH FLOWS
September 30, September 30,
1998 1997
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Net cash provided by operating activities....................................... (234,664) 510,488
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Cash flows from investing activities:
Purchases of equipment........................................................ (270,754) (78,336)
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Cash flows from financing activities
Proceeds from long-term debt.................................................... 323,682 101,133
Proceeds from issuance of common stock.......................................... 2,048,092 4,376
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Net cash provided by (used in) financing activities............................ 2,371,774 105,509
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Effect of exchange rate changes on cash......................................... 40,450 (27,069)
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Net increase (decrease) in cash and cash equivalents............................ 1,906,806 510,592
Cash and cash equivalents at beginning of period................................ 2,097,347 678,350
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Cash and cash equivalents at end of period...................................... $ 4,004,153 $ 1,188,942
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(See notes to the consolidated financial statements)
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TOTAL RESEARCH CORPORATION
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NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
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SEPTEMBER 30, 1998 AND 1997
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NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended September 30, 1998 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 1999.
NOTE 2 - PRESENTATION OF EUROPEAN SUBSIDIARY
The Company operates in one principal industry segment: research
services. Geographic financial information for the years ended June 30 (in
000's) is as follows:
1998 1997
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Revenues
--- United States.............. $ 7,140 $ 5,435
--- Europe..................... 2,929 2,807
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Totals ............................ $10,069 $ 8,242
Operating Income........................
--- United States.............. 629 424
--- Europe..................... 186 162
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Totals ............................ $ 815 $ 586
Identifiable Assets.....................
--- United States.............. $13,902 $ 9,360
--- Europe..................... 5,448 4,633
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Totals.................................. $19,350 $13,993
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ITEM II MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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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 data as a percentage of gross revenues.
STATEMENT OF INCOME DATA:
(Expressed as a percentage of revenues)
September 30,
-------------
1998 1997
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Revenues 100.0% 100.0%
Direct costs 49.2% 49.3%
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Gross profit 50.8% 50.7%
Operating expenses 42.7% 43.6%
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Income from operations 8.1% 7.1%
Interest expense 0.3% 0.0%
Other income (expense), net 0.0% 0.1%
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Income before income taxes 8.4% 7.2%
Provision for income taxes 3.2% 2.9%
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Net income 5.2% 4.3%
RESULT OF OPERATIONS - FIRST QUARTER FISCAL 1999 AS COMPARED TO FIRST QUARTER
FISCAL 1998.
- - --------------------------------------------------------------------------------
Revenues increased approximately 22.2 percent from the first quarter
of fiscal 1998 to the first quarter of fiscal 1999. This growth is the result of
increased revenues in all four of the Company's research divisions. The Customer
Loyalty, Strategic Marketing and the Regional Offices Divisions experienced
growth of over 20 percent in the first quarter of fiscal 1999 versus the first
quarter of fiscal 1998. The Global Health Care Division revenues increased by
over 8 percent during this period.
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RESULT OF OPERATIONS - FIRST QUARTER FISCAL 1999 AS COMPARED TO FIRST QUARTER
FISCAL 1998.
- - --------------------------------------------------------------------------------
(CONT'D)
The gross profit of the Company improved slightly from 50.7 percent of
revenues in fiscal 1998 to 50.8 percent of revenues in the first quarter of
fiscal 1999. The Company continues to generate higher gross profits on the
majority of its research projects. However, the gross profit as a percentage of
revenues for the period was reduced by a large project for one client that
included a large amount of data collection costs, which significantly reduced
the Company's overall gross profit percentage.
Operating costs also improved slightly from 43.6 percent of revenues in
the first quarter of fiscal 1998 to 42.7 percent of revenues in the first
quarter of fiscal 1999.
Income from operations increased as a percentage of revenues from 7.1
percent in the first quarter of fiscal 1998 to 8.1 percent in fiscal 1999 or
approximately $229,000.
The provision for income taxes increased due to the increased income in
the first quarter of fiscal 1999. Overall, the Company increased its net income
as a percentage of revenues from 4.3 percent in the first quarter of fiscal 1998
to 5.2 percent in fiscal 1999 or approximately $168,000.
The Company defines backlog as the unearned portions of its existing
contracts at each balance sheet date. At September 30, 1998, backlog was
approximately $13,000,000 as compared to a backlog of approximately $12,100,000
at September 30, 1997. The amount of backlog at any time may not be indicative
of intermediate or long-term trends in the Company's operations.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998 the Company's working capital increased
$2,617,691 to $3,418,739 from $801,048 at June 30, 1998, and the current ratio
increased to 1.31 from 1.08. The Company's cash balances increased $1,906,807 to
$4,004,153 from $2,097,347 at June 30, 1998.
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 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, 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. The transaction netted the Company approximately
$2,050,000 after offsetting associated costs.
For the three-month period ended September 30, 1998, the Company used
cash in operations of approximately ($235,000). This was the result of the
timing issues relating to delayed billing terms for a several million-dollar
contract that the Company is currently conducting. The effect of this contract
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has been to significantly increase the amount of unbilled work performed by the
Company (described as "Costs and estimated earnings in excess of billings on
uncompleted contracts" on the balance sheet). The effect of this delayed billing
will reverse upon completion of the project in the third quarter of fiscal 1999.
In addition, the Company purchased approximately $270,000 of computer equipment
during the period to enhance productivity and borrowed approximately $324,000
from its credit line in the UK for the expansion of its UK operations.
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 September 30,
1998, the rate is the prime rate plus one-quarter percent (prime
rate at September 30, 1998 was 8.25%). As of September 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 September 30, 1998, the rate is the prime rate plus one-quarter
percent. As of September 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 September 30, 1998 the
Company had borrowed approximately (pound)190,400 (approximately $324,000)
against this overdraft facility.
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 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.
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.
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IMPACT OF INFLATION
Inflation had no material effect on the financial performance of the
Company during the first quarter of fiscal 1999.
YEAR 2000
In 1998, the Company established an oversight committee to review all
of the Company's computer systems and programs. The Company, through its
oversight committee, currently is upgrading its management information systems
which it expects to complete during the fourth quarter of fiscal 1999, to ensure
proper processing of transactions relating to Year 2000 and beyond. The Company
continues to evaluate appropriate courses of corrective actions, including
replacement of certain systems.
The Company has queried its significant suppliers and subcontractors
that do not share information systems with the Company (external agents). To
date, the Company is not aware of any external agent with a Year 2000 issue that
would materially impact the Company's results of operations, liquidity, or
capital resources. However, the Company has no means of ensuring that external
agents will be Year 2000 ready. The inability of external agents to complete
their Year 2000 resolution process in a timely fashion could materially impact
the Company. The effect of non-compliance by external agents is not
determinable.
The Company has incurred approximately $xxx,xxx of expenses for Year
2000 remediation costs in the three months ended September 30, 1998 and
estimates future additional expenditures for Year 2000 remediation of
approximately $xxx,xxx. All costs associated with Year 2000 compliance are being
funded with cash flow generated from operations. The Company has not yet
developed a contingency plan with respect to Year 2000 issues should they arise.
Although the Company does not expect the costs associated with ensuring
Year 2000 compliance to have a material affect on its financial position or
results of operations, if the computer systems used by the Company, or any of
its suppliers or vendors fail or experience significant difficulties related to
the Year 2000, the Company could experience delays that could materially
adversely affect the Company's financial position or its results of operations.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal actions, proceedings or litigations pending or
threatened to the knowledge of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits
27.1 Financial Data Schedule for the period ended September 30, 1998.
B. Reports on Form 8-K.
None.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the undersigned has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOTAL RESEARCH CORPORATION
(Registrant)
/s/ Albert Angrisani
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BY: Albert Angrisani
Chief Executive Officer
/s/ Eric Zissman
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BY: Eric Zissman
Chief Financial Officer
Dated: November 12, 1998
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<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000803058
<NAME> TOTAL RESEARCH CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 4,004,153
<SECURITIES> 0
<RECEIVABLES> 6,931,271
<ALLOWANCES> 110,000
<INVENTORY> 0
<CURRENT-ASSETS> 14,544,097
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,350,398
<CURRENT-LIABILITIES> 11,125,358
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0
0
<COMMON> 11,476
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<CGS> 4,952,999
<TOTAL-COSTS> 4,952,999
<OTHER-EXPENSES> 04,301,494
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (32,093)
<INCOME-PRETAX> 847,046
<INCOME-TAX> 326,113
<INCOME-CONTINUING> 520,933
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 520,933
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.04
</TABLE>
