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 MARCH 31, 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
--- ---
At May 13, 1999, the Registrant had 11,567,514 shares of Common Stock,
outstanding.
<PAGE>
PART I. FINANCIAL STATEMENTS.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
TOTAL RESEARCH CORPORATION
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CONSOLIDATED BALANCE SHEETS
<CAPTION>
UNAUDITED AUDITED
MARCH 31, JUNE 30,
1999 1998
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<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $4,937,787 $ 2,097,347
Accounts receivable, less allowance for doubtful accounts
of $110,000 at March 31, 1999 and June 30, 1998 6,601,251 6,451,545
Costs and estimated earnings in excess of billings on
uncompleted contracts 2,883,429 1,201,265
Deferred taxes 243,000 243,000
Other current assets 968,118 715,376
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Total current assets 15,633,585 10,708,533
Fixed assets, less accumulated depreciation 2,702,317 2,110,914
Goodwill, net of accumulated amortization 1,664,157 1,722,540
Deferred taxes 361,100 361,100
Other assets 646,208 566,071
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Total assets $21,007,367 $15,469,158
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving line of credit $ 280,060 $ -
Notes payable - bank 197,732 -
Accounts payable 3,696,814 3,385,709
Accrued expenses and other current liabilities 2,017,291 2,834,060
Billings in excess of earnings 4,513,168 3,394,545
Income taxes payable 1,013,804 293,171
----------- ------------
Total current liabilities 11,718,869 9,907,485
Long-term liabilities
Other long-term liabilities 635,980 484,207
----------- -----------
Total liabilities $12,354,849 $10,391,692
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Stockholders' equity
Common stock-authorized 20,000,000 shares $.001 par value, 11,542,104 shares
issued and outstanding at March 31, 1999 and
10,476,108 shares issued and outstanding at June 30, 1998 11,542 10,476
Additional paid-in capital 6,255,391 4,172,904
Cumulative translation adjustment (57,788) 22,602
Retained earnings 2,731,090 1,159,201
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8,940,235 5,365,183
Treasury stock (287,717) (287,717)
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Total stockholders' equity 8,652,518 5,077,466
Total liabilities and stockholders' equity $21,007,367 $15,469,158
============= ===========
(See notes to the consolidated financial statements)
</TABLE>
<PAGE>
<TABLE>
TOTAL RESEARCH CORPORATION
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CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
UNAUDITED UNAUDITED
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues........................... $9,968,696 $8,033,068 $29,663,767 $25,024,179
Direct costs....................... 4,810,694 4,045,682 14,676,764 12,314,021
---------- ------------ ------------ ------------
Gross profit....................... 5,158,002 3,987,386 14,987,003 12,710,158
Operating expenses................. 4,412,960 3,440,816 12,562,732 10,968,815
----------- ------------ ------------ ------------
Income from operations............. 745,042 546,570 2,424,271 1,741,343
Interest income (expense).......... 41,154 4,332 111,034 (481)
Other income, net ................ - (5,911) - 30,000
----------- ------------ ------------ ------------
Income before income
taxes............................. 786,196 544,991 2,535,305 1,770,862
Income taxes....................... 274,726 207,097 963,416 672,928
----------- ------------ ------------ ------------
Net income......................... $ 511,470 $ 337,894 $ 1,571,889 $ 1,097,934
----------- ------------ ------------ ------------
Earnings per share
Basic........................... $ .04 $ .04 $ .14 $ .11
Diluted......................... $ .04 $ .03 $ .13 $ .09
Weighted average common shares
Outstanding - Basic............. 11,543,754 10,131,134 11,510,350 10,097,973
- Diluted........... 12,579,815 11,670,543 12,546,411 11,557,312
(See notes to the consolidated financial statements)
</TABLE>
<PAGE>
<TABLE>
TOTAL RESEARCH CORPORATION
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CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
UNAUDITED UNAUDITED
MARCH 31, MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 1,423,419 $ 1,606,239
Cash flows from investing activities:
Purchase of equipment (1,063,934) (337,604)
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Net cash used for investing activities (1,063,934) (337,604)
Cash flows from financing activities:
(Repayment) proceeds from long-term debt 477,792 (214,575)
Proceeds from issuance of common stock 2,083,553 15,313
--------- ------------
Net cash provided by (used in) financing activities 2,561,345 (199,262)
Effect of exchange rate changes on cash (80,390) 9,490
Net increase (decrease) in cash and cash equivalents 2,840,440 1,078,863
Cash and cash equivalents at beginning of period 2,097,347 678,350
------------ ------------
Cash and cash equivalents at end of period $ 4,937,787 $ 1,757,213
============ ============
(See notes to the consolidated financial statements)
</TABLE>
<PAGE>
TOTAL RESEARCH CORPORATION
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NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
----------------------------------------------------
MARCH 31, 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 Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
June 30, 1999.
NOTE 2 - SEGMENT INFORMATION
The Company operates in one principal industry segment: marketing
research services. Geographic financial information for the three-month and
nine-month periods ended March 31, 1999 and 1998 (in 000's) is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Mar. 31, Mar. 31, Mar. 31, Mar. 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues
United States................... $7,194 $5,643 $20,859 $17,016
Europe.......................... 2,775 2,390 8,805 8,008
------- ------- -------- -------
Totals................................... $9,969 $8,033 $29,664 $25,024
======= ======= ======== =======
Operating Income.........................
United States................... $ 753 $ 453 $2,191 $1,312
Europe.......................... 33 92 344 459
------ ------ -------- -------
Totals................................... $ 786 $ 545 $2,535 $1,771
====== ====== ======== =======
</TABLE>
NOTE 3 - MEASUREMENT OF GOODWILL
Goodwill has been recorded in relation to the excess of the purchase
price over the fair values of the identified assets acquired. The Company
amortizes goodwill over twenty-five years. The carrying value of goodwill is
evaluated periodically in relation to the operating performance and future
undiscounted net cash flows of the underlying business. Adjustments are recorded
if the sum of the expected future net cash flows is less than the book value of
the goodwill.
<PAGE>
ITEM II MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
----------------------------------------------------------------------
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.
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)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------- ---------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Direct costs 48.2% 50.4% 49.5% 49.2%
----- ----- ------ ------
Gross profit 51.8% 49.6% 50.5% 50.8%
Operating expenses 44.3% 42.8% 42.3% 43.8%
----- ----- ------ ------
Income from operations 7.5% 6.8% 8.2% 7.0%
Interest income 0.4% 0.1% 0.3% 0.0%
Other income (expense), net 0.0% (0.1%) 0.0% 0.1%
----- ----- ------ ------
Income before income taxes 7.9% 6.8% 8.5% 7.1%
Provision for income taxes 2.8% 2.6% 3.2% 2.7%
----- ----- ------ ------
Net income 5.1% 4.2% 5.3% 4.4%
===== ===== ====== ======
</TABLE>
RESULT OF OPERATIONS - THIRD QUARTER FISCAL 1999 AS COMPARED TO THIRD QUARTER
FISCAL 1998.
- --------------------------------------------------------------------------------
The Company's revenues increased approximately 24 percent from the
third quarter of fiscal 1998 to the third quarter of fiscal 1999. All four of
the Company's divisions experienced a growth in revenues during the third
quarter of fiscal 1999 versus the third quarter of fiscal 1998. The Customer
Loyalty and Strategic Marketing Services divisions experienced growth of over 25
percent while the Global Life Sciences and US Regional Offices divisions
experienced growth of over 10 percent. The growth for all four divisions
resulted from the increased sales efforts of the Company.
The gross profit of the Company increased from 49.6 percent to 51.8
percent of revenues in the third quarter of fiscal 1999 versus the third quarter
of fiscal 1998. This increase in gross profit as a percentage of revenues is
mainly the result of the change in the mix of work conducted by the Company
during the third quarter, as the Company conducted a greater percentage of
qualitative research for its clients, which typically generates a higher gross
margin.
<PAGE>
RESULT OF OPERATIONS - THIRD QUARTER FISCAL 1999 AS COMPARED TO THIRD QUARTER
FISCAL 1998 (CONT'D).
- --------------------------------------------------------------------------------
Operating costs increased to 44.3 percent of revenues in the third
quarter of fiscal 1999 from 42.8 percent of revenues in the third quarter of
fiscal 1998. The increase of operating costs as a percentage of revenues is the
result of increases in the infrastructure of the Company to support increasing
revenues, including increasing its sales and research staff, the costs of
additional space in its UK office as well as additional sales and presentation
training costs.
Income from operations increased as a percentage of revenues from 6.8
percent in the third quarter of fiscal 1999 to 7.5 percent in the third quarter
of fiscal 1999 or approximately $199,000.
The Company's interest income increased to approximately $41,000 in the
third quarter of fiscal 1999 from approximately $4,000 as a result of the
interest earned on its cash reserves.
Income before taxes increased as a percentage of revenues from 6.8
percent in the third quarter of fiscal 1998 to 7.9 percent in the third quarter
of fiscal 1999 or approximately $241,000.
The provision for income taxes increased due to the increased income in
the third quarter of fiscal 1999. Overall, the Company increased its net income
as a percentage of revenues from 4.2 percent in the third quarter of fiscal 1998
to 5.1 percent in the third quarter of fiscal 1999, or approximately $174,000.
RESULTS OF OPERATIONS - NINE MONTHS YEAR TO DATE FISCAL 1999 AS COMPARED TO NINE
MONTHS YEAR TO DATE FISCAL 1998
- --------------------------------------------------------------------------------
Revenues increased approximately 19 percent for the first nine months
of fiscal 1999 compared to the first nine months of fiscal 1998. The Customer
Loyalty and Strategic Marketing Services divisions experienced growth of over 20
percent, while the Global Life Sciences and US Regional Offices divisions
experienced growth of over 10 percent for the nine month period.
The gross profit of the Company decreased from 50.8 percent for the
nine-month period in fiscal 1998 to 50.5 percent for the nine-month period in
fiscal 1999. Gross profit for the nine-month period was reduced by a large
project for one client that included a large amount of data collection and data
processing costs that significantly negatively affected the overall gross
profit.
Operating costs improved from 43.8 percent of revenues in the first
nine months of fiscal 1998 to 42.3 percent of revenues in the first nine months
of fiscal 1999. The reduction of the percentage of operating expenses to
revenues is mainly the result of the Company continuing to control its
non-project related expenses as it continues to expand.
Income from operations increased as a percentage of revenues from 7.0
percent in the first nine months of fiscal 1998 to 8.2 percent in the first nine
months of fiscal 1999 or approximately $683,000.
Interest income increased from 0.0 percent in the first nine months of
fiscal 1998 to 0.4 percent in the first nine months of fiscal 1999, or
approximately $111,000 as a result of the Company's interest earned on its cash
reserves.
The provision for income taxes increased due to the increased income in
the first nine months of fiscal 1999. Overall, the Company increased its net
income as a percentage of revenues from 4.4 percent in the first nine months of
fiscal 1998 to 5.3 percent in fiscal 1999 or approximately $474,000.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999 the Company's working capital increased $3,113,668 to
$3,914,716 from $801,048 at June 30, 1998, and the current ratio increased to
1.33 from 1.08. The Company's cash balances increased $2,840,440 to $4,937,787
from $2,097,347 at June 30, 1998.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONT'D)
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 $2,048,092 after
offsetting associated costs.
For the nine-month period ended March 31, 1999, the Company generated
positive cash from operations of approximately $1,423,000. The Company used its
cash to purchase approximately $474,000 of computer equipment and office
furnishings to support its increased business as well as to position the Company
to become Y2K compliant.
In addition, the Company moved to new offices in the United Kingdom
during the period to support its growth strategy. To that end, the Company spent
approximately $590,000 for leasehold improvements. In order to fund this
expansion, the Company borrowed, on a short-term basis, approximately $415,000
from its UK based bank (Barclays Bank). This loan is required to be repaid by
June 30, 1999.
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 March 31,
1999, the rate is the prime rate plus one-quarter percent (prime
rate at March 31, 1999 was 7.75%). As of March 31, 1999, the
Company was in compliance with all of the financial ratios and has
not borrowed against this line.
o A three-year $500,000 term line secured by equipment, furniture
and fixtures at an interest rate based on certain financial
ratios. As of March 31, 1999, the rate is the prime rate plus
one-quarter percent (prime rate at March 31, 1999 was 7.75%). As
of March 31, 1999, the Company was in compliance with all of the
financial ratios and has not borrowed against this line.
o In addition, the Company has a bank overdraft facility of
(pound)300,000 with Barclays Bank in London, UK. The borrowings
are charged at a rate of 3 percent above the UK Base Rate (x.xx%).
At March 31, 1999 the Company had borrowed approximately
(pound)122,815 (approximately $280,000) against this overdraft
facility.
The Company defines backlog as the unearned portions of its existing
contracts or orders at each balance sheet date. The Company's backlog at March
31, 1999 was approximately $18,000,000 as compared to a backlog of approximately
$13,300,000 at March 31, 1998. The backlog figure for March 31, 1999 includes
the recent receipt of an order for approximately $5,000,000, which is scheduled
to be completed over the next twelve months. The amount of backlog at any time
may not be indicative of intermediate or long-term trends in the Company's
operations.
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.
RECENT TRENDS
In the first nine months of fiscal 1999, the Customer Loyalty division
was awarded and completed the largest contract in the history of the Company.
The Company has recently received an order for the renewal of that contract for
approximately $5,000,000.
<PAGE>
RECENT TRENDS (CON'TD)
The Global Health Care division has expanded its scope to include
over-the-counter medications and agri-business markets and, as a result, has
changed its name to the Global Life Sciences division.
The Strategic Marketing Services division has recently expanded its
facility in the United Kingdom to accommodate current and expected future
growth.
The US Regional Offices division has recently entered into a contract
that has increased the amount of annual business it conducts with its largest
client. The contract provides for approximately three million dollars of
research to be conducted annually.
IMPACT OF INFLATION
Inflation had no material effect on the financial performance of the
Company during the third 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
the proper processing of transactions related 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 result 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 incurred approximately $125,000 of expenses for Year 2000
remediation costs in the nine months ended March 31, 1999 and estimates future
additional expenditures for Year 2000 remediation of approximately $75,000. 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.
[SIGNATURE PAGE FOLLOWS.]
<PAGE>
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 March 31, 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)
/s/ Albert Angrisani
----------------------------------
BY: Albert Angrisani
Chief Executive Officer
/s/ Eric Zissman
----------------------------------
BY: Eric Zissman
Chief Financial Officer
Dated: May 13, 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-30-1999
<PERIOD-START> DEC-31-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 4,937,837
<SECURITIES> 0
<RECEIVABLES> 6,711,251
<ALLOWANCES> 110,000
<INVENTORY> 0
<CURRENT-ASSETS> 15,633,585
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,007,367
<CURRENT-LIABILITIES> 11,718,869
<BONDS> 0
0
0
<COMMON> 11,542
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 21,007,367
<SALES> 0
<TOTAL-REVENUES> 9,968,696
<CGS> 4,810,964
<TOTAL-COSTS> 4,810,964
<OTHER-EXPENSES> 4,412,960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (41,154)
<INCOME-PRETAX> 786,196
<INCOME-TAX> 274,726
<INCOME-CONTINUING> 511,470
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 511,470
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
