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, 1999.
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
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(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
--- ---
As of November 12, 1999, the Registrant had 11,901,068 shares of Common Stock,
outstanding.
<PAGE>
INDEX
REGISTRANT COMPANY AND SUBSIDIARIES
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - June 30, 1999 and
September 30, 1999
Condensed consolidated statements of income - Three
months ended September 30, 1999 and 1998
Condensed consolidated statements of cash flows - Three
months ended September 30, 1999 and 1998
Notes to condensed consolidated financial statements -
September 30, 1999
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other information
Item 6. Exhibits and Reports on Form 8-K
Signatures
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PART I. Financial Statements.
Item 1. Consolidated Financial Statements
TOTAL RESEARCH CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
(Unaudited) (Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents..................................................... $5,167,976 $ 5,203,383
Accounts receivable, less allowance for doubtful accounts
of $110,000 at September 30, 1999 and at June 30, 1999...................... 8,024,753 7,068,199
Cost and estimated earnings in excess of billings on
uncompleted contracts....................................................... 3,759,241 3,248,270
Deferred taxes................................................................ 330,000 330,000
Prepaid expenses and other current assets..................................... 814,221 585,262
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Total current assets 18,096,191 16,435,114
Fixed assets, less accumulated depreciation of $4,700,646 and
$4,553,729, respectively...................................................... 2,681,769 2,609,152
Goodwill, net of accumulated amortization of $398,642 and
$379,181, respectively....................................................... 1,625,235 1,644,696
Deferred taxes.................................................................. 264,000 264,000
Other assets.................................................................... 853,693 763,767
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$23,520,888 $21,716,729
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Revolving line of credit...................................................... $ 287,541 $ 282,027
Accounts payable.............................................................. 5,139,835 4,038,566
Accrued expenses and other current liabilities................................ 3,458,387 3,512,938
Billings in excess of costs and estimated earnings............................ 3,341,615 3,373,665
Income taxes payable.......................................................... 776,539 714,059
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Total current liabilities 13,003,917 11,921,255
Other long-term liabilities................................................... 753,622 716,605
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13,757,539 12,637,860
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Commitments and contingencies
Stockholders' equity
Common stock-authorized 20,000,000 shares $.001 par value, per share,
11,906,123 issued at September 30, 1999 and 11,761,608
at June 30, 1999............................................................ 11,906 11,762
Additional paid-in capital.................................................... 6,636,819 6,627,782
Retained earnings............................................................. 3,759,576 3,134,938
Accumulated other comprehensive income........................................ 14,736 (35,925)
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10,423,037 9,738,557
Less: Treasury stock, at cost................................................ (659,688) (659,688)
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Total stockholders' equity................................................. 9,763,349 9,078,869
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Total liabilities and stockholders' equity...................................... $23,520,888 $21,716,729
============ ===========
(See notes to the consolidated financial statements)
</TABLE>
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<TABLE>
TOTAL RESEARCH CORPORATION
Consolidated (Unaudited) Statements of Income
September 30, September 30,
1999 1998
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<S> <C> <C>
Revenues............................................ $13,790,950 $10,069,446
Direct costs......................................... 6,930,847 4,952,999
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Gross profit......................................... 6,860,103 5,116,447
Operating expenses................................... 5,899,716 4,301,494
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Income from operations............................... 960,387 814,953
Interest income...................................... 46,877 32,093
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Income before taxes.................................. 1,007,264 847,046
Provision for income taxes........................... 382,626 326,113
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Net income...........................................$ 624,638 $ 520,933
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Earnings per share
Basic............................................$ 0.05 $ 0.05
Diluted..........................................$ 0.05 $ 0.04
Weighted average common shares
Outstanding - Basic.............................. 11,918,399 11,448,888
- Diluted...................... 13,190,519 12,437,184
(See notes to the consolidated financial statements)
</TABLE>
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<TABLE>
TOTAL RESEARCH CORPORATION
Consolidated (Unaudited) Statements of Cash Flows
September 30, September 30,
1999 1998
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<S> <C> <C>
Net cash provided by (used in) operating activities............................. $ 118,771 $(234,664)
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Cash flows from investing activities:
Purchases of equipment........................................................ (219,534) (270,753)
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Cash flows from financing activities
Proceeds from long-term debt.................................................... 5,514 323,682
Proceeds from issuance of common stock.......................................... 197,376 2,048,092
Stock repurchase................................................................ (188,195) -
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Net cash provided by financing activities....................................... 14,695 2,371,774
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Effect of exchange rate changes on cash......................................... 50,661 40,450
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Net (decrease) increase in cash and cash equivalents............................ (35,407) 1,906,806
Cash and cash equivalents at beginning of period................................ 5,203,383 2,097,347
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Cash and cash equivalents at end of period...................................... $5,167,976 $ 4,004,153
========== ===========
(See notes to the consolidated financial statements)
</TABLE>
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TOTAL RESEARCH CORPORATION
Notes to Consolidated Unaudited Financial Statements
September 30, 1999 and 1998
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 Article 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, 1999
are not necessarily indicative of the results that may be expected for the year
ended June 30, 2000.
The Consolidated Balance Sheet at June 30, 1999 has been derived from the
audited Financial Statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete Financial Statements.
For further information, refer to the Consolidated Financial Statements and
Footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended June 30, 1999.
Note 2 - Segment Information
The Company operates in one principal industry segment: marketing research
services. Geographic financial information for the quarters ended September 30
(in 000's) is as follows:
1999 1998
---------------------------------
Revenues
--- United States..................... $ 10,010 $ 7,140
--- Europe............................ 3,781 2,929
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Totals $ 13,791 $ 10,069
Operating Income.........................
--- United States..................... 850 629
--- Europe............................ 110 186
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Totals $ 960 $ 815
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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
Total Research Corporation ("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. The Company operates as one business segment. It services
its clients through its five divisions (Customer Loyalty Management, Global Life
Sciences, Strategic Marketing Services-Domestic, Strategic Marketing
Services-International, and its newly established wholly-owned Internet
subsidiary, Blinke(TM)), each of which has specific industry and/or product
expertise.
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,
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1999 1998
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Revenues 100.0% 100.0%
Direct costs 50.2% 49.2%
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Gross profit 49.8% 50.8%
Operating expenses 42.8% 42.7%
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Income from operations 7.0% 8.1%
Interest income 0.3% 0.3%
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Income before income taxes 7.3% 8.4%
Provision for income taxes 2.8% 3.2%
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Net income 4.5% 5.2%
RESULT OF OPERATIONS - FIRST QUARTER FISCAL 2000 AS COMPARED TO FIRST QUARTER
FISCAL 1999.
- --------------------------------------------------------------------------------
Revenues increased approximately 37 percent from the first quarter of
fiscal 1999 to the first quarter of fiscal 2000. The Customer Loyalty and
Strategic Marketing Services - Domestic Divisions experienced growth of over 50
percent in the first quarter of fiscal 1999 versus the first quarter of fiscal
1998 due to a single large contract in each division. The Strategic Marketing
<PAGE>
RESULT OF OPERATIONS - FIRST QUARTER FISCAL 2000 AS COMPARED TO FIRST QUARTER
FISCAL 1999.
- --------------------------------------------------------------------------------
(CONT'D)
Services - International Division experienced growth of approximately 15 percent
while the Global Life Sciences Division revenues remained consistent with the
previous period.
Gross profit increased from approximately $5,116,000 in the first
quarter of fiscal 1999 to $6,860,000 in the first quarter of fiscal 2000, an
increase of approximately $1,944,000. However, as a percentage of revenues,
gross profit of the Company decreased from 50.8 percent of revenues in the first
quarter of fiscal 1999 to 49.8 percent of revenues in the first quarter of
fiscal 1999. The gross profit as a percentage of revenues for the period was
reduced as a result of two large projects for one client that included a large
amount of data collection costs, which significantly reduced the Company's
overall gross profit percentage.
Operating costs increased from approximately $4,302,000 in the first
quarter of fiscal 1999 to $5,900,000 in the first quarter of fiscal 2000, an
increase of approximately $1,598,000. The Company continues to invest money to
build its operating infrastructure to support its growth. The Company is in the
process of increasing the capacity of its two phone centers. It has also
increased the staffing levels to service the growth of business as well as to
develop and sell new products and services. In addition, the Company has
commenced a marketing campaign to increase awareness of the Company among
potential clients. Operating costs remained consistent from period to period at
42.7 percent of revenues.
Income from operations increased from approximately $815,000 in the
first quarter of fiscal 1999 to approximately $960,000 in the first quarter of
fiscal 2000, an increase of approximately $145,000. However, income from
operations decreased as a percentage of revenues from 8.1 percent in the first
quarter of fiscal 1999 to 7.0 percent in the first quarter of fiscal 2000 for
the reasons set forth above.
The provision for income taxes increased due to the increased income in
the first quarter of fiscal 2000. Overall, the Company increased its net income
from approximately $521,000 in the first quarter of fiscal 1999 to approximately
$625,000 in the first quarter of fiscal 2000, an increase of approximately
$104,000. As a percentage of revenues, net income decreased from 5.2 percent in
the first quarter of fiscal 1999 to 4.5 percent in the first quarter of fiscal
2000 for the reasons set forth above.
The Company defines backlog as the unearned portions of its existing
contracts at each balance sheet date. At September 30, 2000, backlog was
approximately $14,500,000 as compared to a backlog of approximately $13,000,000
at September 30, 1999. The amount of backlog at any time may not be indicative
of intermediate or long-term trends in the Company's operations.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999 the Company's working capital increased
approximately $580,000 to approximately $5,093,000 from approximately $4,513,000
at June 30, 1999, and the current ratio increased to 1.39 from 1.38.
The Company's cash balances decreased slightly to approximately
$5,170,000 at September 30, 1999 from approximately $5,200,000 at June 30, 1999.
The decrease can be attributed to the billing schedule for two large projects
currently being conducted by the Company. These two projects are billed in equal
monthly installments during the life of the project instead of the Company's
normal billing practice of billing a significant part of the overall contract
value in advance of the project start date.
For the three-month period ended September 30, 1999, the Company
generated cash from operations of approximately $119,000. During the first
quarter of fiscal 2000 the Company purchased approximately $220,000 of office
furnishings and equipment mainly to support the build out of its two phone
centers. In addition the Company repurchased and retired approximately 50,000
shares of Total Research Corporation common stock for approximately $188,000 as
part of its announced stock repurchase program.
The Company has a loan agreement with Summit Bank, located in
Princeton, NJ. The loan agreement contains the following:
o A $2.5 million revolving line of credit at a variable interest rate
based on certain financial ratios. As of September 30, 1999, the
rate is the prime rate less one-half percent (prime rate at
September 30, 1999 was 8.25%). As of September 30, 1999, the Company
was in compliance with all of the financial ratios and has not
borrowed against this line.
o A $500,000 term line secured by equipment, furniture and fixtures at
an interest rate based on certain financial ratios. As of September
30, 1999, the rate is the prime rate less one-half percent. As of
September 30, 1999, the Company has not borrowed against this line.
Both of these lines of credit have recently been renewed through
November 30, 2000.
In addition, the Company has a bank overdraft facility of
(pound)300,000 (approximately U.S. $475,000) with Barclays Bank, a London bank.
The borrowings are charged at a rate of 3 percent above the UK Base Rate (the
base rate at September 30, 1999 was 5.0%). At September 30, 1999 the Company had
borrowed approximately (pound)174,712 (approximately U.S. $288,000) 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
<PAGE>
RECENT TRENDS
The Company has begun a transition from a full-service market research
company to a full-service marketing services company. Several initiatives have
been announced during the past few months to implement this transition.
In June of 1999, the Company established Blinke(TM), a wholly owned
subsidiary, that integrates the Company's advanced marketing research
capabilities with innovative Internet strategies in business-to-business and
retail e-commerce applications including proactive strategy development and
advanced web site implementation.
In July of 1999, the Company introduced Total e-Survey(TM), a
web-survey product that will combine its advanced market research technologies
and international expertise with web survey capabilities. The online surveys
will be offered as part of its complete, integrated data collection and analysis
systems. The Company anticipates using Total e-Survey(TM) for strategically
designed surveys on topics of current interest as well as for client-specific
programs.
IMPACT OF INFLATION
Inflation had no material effect on the financial performance of the
Company during the first quarter of fiscal 2000.
YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define a specific year. Absent corrective
actions, a computer program that has date sensitive software may recognize a
date using "00" as the year 1900 instead of the year 2000. This could result in
system failures or miscalculations causing disruptions to various activities and
operations.
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. The Company has surveyed, and continues to communicate with,
customers, suppliers, financial institutions and other vendors with which it
does business to coordinate Year 2000 conversion efforts. Based on the results
of this ongoing information exchange, the Company believes that any risks are
minimal and that its systems are Year 2000 compliant. Management has initiated a
Company-wide program that has made it Year 2000 compliant. The Company incurred
internal staff costs and other expenses necessary during the course of such
compliance efforts and the Company has replaced some systems and upgraded
others. The total cost of this effort has been approximately $150,000 and was
funded by cash flows from operations. The Company does not expect Year 2000
issues to materially affect its products, services, competitive position or
financial performance. However, there can be no assurance that this will be the
case. The ability of third parties with which the Company transacts business to
adequately address their internal Year 2000 issues is outside the Company's
control.
<PAGE>
YEAR 2000 (CONT'D)
There can be no assurance that the failure of such third parties to adequately
address their respective Year 2000 issues will not have a material adverse
effect on the Company's business, financial condition, cash flows and results of
operations.
ITEM III. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
- --------- ------------------------------------------------------
The Company has one foreign subsidiary whose financial statements are
translated using the accounting policies described in Note 1 of the Notes to the
Consolidated Unaudited Financial Statements. The Company is subject to exposure
from the risk of currency fluctuations as the value of the foreign currency
fluctuates against the dollar. The Company does not believe that it is exposed
to material foreign exchange risk.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal actions, proceedings or litigation 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, 1999.
B. Reports on Form 8-K.
None.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
undersigned has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOTAL RESEARCH CORPORATION
(Registrant)
_________________________________
BY: Albert Angrisani
Chief Executive Officer
_________________________________
BY: Eric Zissman
Chief Financial Officer
Dated: November 15, 1999
<TABLE> <S> <C>
<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-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 5,167,976
<SECURITIES> 0
<RECEIVABLES> 8,134,753
<ALLOWANCES> 110,000
<INVENTORY> 0
<CURRENT-ASSETS> 18,096,191
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,520,888
<CURRENT-LIABILITIES> 13,003,917
<BONDS> 0
0
0
<COMMON> 11,906
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<CGS> 6,930,847
<TOTAL-COSTS> 6,930,847
<OTHER-EXPENSES> 5,899,716
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (46,877)
<INCOME-PRETAX> 1,007,264
<INCOME-TAX> 382,626
<INCOME-CONTINUING> 624,638
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<NET-INCOME> 624,638
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<EPS-DILUTED> 0.05
</TABLE>
