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, 2000.
Commission File Number: 0-15692
TOTAL RESEARCH CORPORATION
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(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
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At November 13, 2000, the Registrant had 12,747,753 shares of Common Stock,
outstanding.
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INDEX
TOTAL RESEARCH CORPORATION
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets- June 30, 2000 and
September 30, 2000
Condensed Consolidated Statements of Income- Three months
ended September 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows - Three
months ended September 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements -
September 30, 2000
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
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CONSOLIDATED BALANCE SHEETS
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<CAPTION>
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SEPTEMBER 30, JUNE 30,
2000 2000
(UNAUDITED) (AUDITED)
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Current assets
Cash and cash equivalents..................................................... $6,842,566 $ 6,711,882
Accounts receivable, less allowance for doubtful accounts
of $173,000 at September 30, 2000 and $182,000 at June 30, 2000............. 9,536,163 10,373,705
Cost and estimated earnings in excess of billings on
uncompleted contracts....................................................... 3,196,910 3,170,375
Deferred taxes................................................................ 244,412 250,960
Prepaid expenses and other current assets..................................... 2,398,015 2,582,053
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Total current assets 22,218,066 23,088,975
Fixed assets, less accumulated depreciation of $5,797,068 and
$5,575,904, respectively...................................................... 4,212,149 4,258,360
Goodwill, net of accumulated amortization of $664,859 and
$586,964, respectively....................................................... 7,030,063 7,142,414
Other assets.................................................................... 610,549 629,438
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$34,070,827 $35,119,187
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt.......................................... $3,541,642 $ 3,438,318
Accounts payable.............................................................. 4,473,622 4,594,780
Accrued expenses and other current liabilities................................ 4,480,197 4,315,844
Billings in excess of costs and estimated earnings............................ 4,492,506 6,200,373
Income taxes payable.......................................................... 333,942 474,586
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Total current liabilities 17,321,909 19,023,901
Deferred taxes................................................................ 104,148 52,396
Minority interest............................................................. 69,729 65,558
Other long-term liabilities................................................... 331,419 369,376
Debt, less current maturities................................................. 3,490,976 3,702,493
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21,318,181 23,213,724
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Stockholders' equity
Common stock-authorized 20,000,000 shares $.001 par value, per share,
12,955,553 issued at September 30, 2000 and 12,614,609
at June 30, 2000............................................................ 12,956 12,615
Additional paid-in capital.................................................... 8,330,757 7,644,929
Retained earnings............................................................. 5,555,754 5,051,566
Accumulated other comprehensive income........................................ (293,242) (128,146)
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13,606,225 12,580,964
Less: Treasury stock, at cost................................................ (853,579) (675,501)
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Total stockholders' equity................................................. 12,752,646 11,905,463
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Total liabilities and stockholders' equity...................................... $34,070,827 $35,119,187
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</TABLE>
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TOTAL RESEARCH CORPORATION
CONSOLIDATED (UNAUDITED) STATEMENTS OF INCOME
Three Months Ended
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September 30, September 30,
2000 1999
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Revenues............................ $14,029,774 $13,790,950
Direct costs......................... 7,068,821 6,930,847
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Gross profit......................... 6,960,953 6,860,103
Operating expenses................... 6,097,446 5,899,716
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Income from operations............... 863,507 960,387
Interest income, net................. 6,912 46,877
Minority interest.................... (40,470) 0
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Income before taxes.................. 829,949 1,007,264
Provision for income taxes........... 325,761 382,626
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Net income...........................$ 504,188 $ 624,638
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Earnings per share
Basic............................$ 0.04 $ 0.05
Diluted..........................$ 0.04 $ 0.05
Weighted average common shares
Outstanding - Basic.............. 12,596,591 11,918,399
- Diluted............ 13,405,157 13,190,519
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TOTAL RESEARCH CORPORATION
CONSOLIDATED (UNAUDITED) STATEMENTS OF CASH FLOWS
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<CAPTION>
Three Months Ended
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September 30, September 30,
2000 1999
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Net cash provided by operating activities................. $ 171,841 $118,771
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Cash flows from investing activities:
Purchases of equipment.................................. (142,450) (219,534)
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Cash flows from financing activities:
Payments on bank borrowings............................... (175,000) -
Payments on capital leases................................ (70,873) -
Proceeds from bank borrowings............................. - 5,514
Proceeds from issuance of common stock.................... 512,262 197,376
Purchase of treasury stock................................ - (188,195)
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Net cash provided by financing activities................. 266,389 14,695
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Effect of exchange rate changes on cash................... (165,096) 50,661
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Net increase (decrease) in cash and cash equivalents...... 130,684 (35,407)
Cash and cash equivalents at beginning of period.......... 6,711,882 5,203,383
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Cash and cash equivalents at end of period................ $6,842,566 $ 5,167,976
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Supplemental disclosures of cash flow information:
Interest Paid........................................ $ 100,171 $ -
</TABLE>
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TOTAL RESEARCH CORPORATION
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NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
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SEPTEMBER 30, 2000
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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 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, 2000
are not necessarily indicative of the results that may be expected for the year
ending June 30, 2001.
The Consolidated Balance Sheet at June 30, 2000 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, 2000.
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:
2000 1999
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Revenues
--- United States............... $ 8,324 $10,010
--- Europe...................... 5,706 3,781
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Totals ............................ $14,030 $13,791
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Operating Income...................
--- United States............... 597 850
--- Europe...................... 267 110
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Totals ........................... $ 864 $ 960
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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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. The
Company operates as one business segment. It services its clients through its
five divisions (Customer Loyalty Management, Global Life Sciences, Strategic
Brand Research, Strategic Marketing Services-International, and Total/Romtec),
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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2000 1999
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Revenues 100.0% 100.0%
Direct costs 50.4% 50.2%
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Gross profit 49.6% 49.8%
Operating expenses 43.4% 42.8%
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Income from operations 6.2% 7.0%
Interest income 0% 0.3%
Minority interest (0.3)% 0%
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Income before income taxes 5.9% 7.3%
Provision for income taxes 2.3% 2.8%
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Net income 3.6% 4.5%
RESULT OF OPERATIONS - FIRST QUARTER FISCAL 2001 AS COMPARED TO FIRST QUARTER
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FISCAL 2000.
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Revenues increased approximately two percent from the first quarter of fiscal
2000 to the first quarter of fiscal 2001. Revenues from UK operations (Strategic
Marketing Services - International and Total/Romtec) increased approximately 50
percent over the same period last year. The increase
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RESULT OF OPERATIONS - FIRST QUARTER FISCAL 2001 AS COMPARED TO FIRST QUARTER
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FISCAL 2000.
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(CONT'D)
was mainly attributable to the May 2000 acquisition of Romtec. Revenues from the
Strategic Brand Research division increased approximately 13 percent, as the
division conducted more work for new clients. The Global Life Sciences division
revenues decreased approximately 21 percent as less work was performed for
existing clients. The Customer Loyalty Management division revenues decreased
approximately 28 percent in light of a previously announced contract reduction
by one client.
Gross profit increased from approximately $6,860,000 in the first quarter of
fiscal 2000 to approximately $6,961,000 in the first quarter of fiscal 2001, an
increase of approximately $101,000. As a percentage of revenues, gross profit of
the Company decreased slightly from 49.8 percent of revenues in the first
quarter of fiscal 2000 to 49.6 percent of revenues in the first quarter of
fiscal 2001, as a result of changes in the Company's product mix.
Operating costs increased from approximately $5,900,000 in the first quarter of
fiscal 2000 to approximately $6,097,000 in the first quarter of fiscal 2001, an
increase of approximately $197,000. Comparative quarterly cost increases
resulted from the acquisition of Romtec, salary increases, and increased
depreciation and amortization expenses, which relate to fiscal 2000 investments
in calling centers, IT hardware and software development. Cost savings were
effected in employee training, marketing costs, long distance telephone charges
and maintenance and supplies. Operating costs as a percentage of revenues
increased from 42.8 percent in the first quarter of fiscal 2000 to 43.4 percent
in fiscal 2001.
Income from operations decreased from approximately $960,000 in the first
quarter of fiscal 2000 to approximately $864,000 in the first quarter of fiscal
2001, a decrease of approximately $96,000. As a result and for reasons explained
above, income from operations decreased as a percentage of revenues from 7.0
percent in the first quarter of fiscal 2000 to 6.2 percent in the first quarter
of fiscal 2001.
Interest income, net of expense, decreased from approximately $47,000 in the
first quarter of fiscal 2000 to approximately $7,000 in the first quarter of
fiscal 2001, a result of the debt service requirements related to the Romtec
acquisition of May 2000.
There were no minority interests related to the Company's operations during the
first quarter of fiscal 2000. During the first quarter of fiscal 2001, a
minority interest in a joint venture of Total/Romtec was credited with
approximately $40,000 as its share of the income of the joint venture.
The provision for income taxes for the first quarter of fiscal 2001 decreased
approximately $57,000, to approximately $326,000, from the first quarter of
fiscal 2000 mainly due the decreased income. Overall, the Company decreased its
net income from approximately $625,000 in the first quarter of fiscal 2000 to
approximately $504,000 in the first quarter of fiscal 2001. As a percentage of
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RESULT OF OPERATIONS - FIRST QUARTER FISCAL 2001 AS COMPARED TO FIRST QUARTER
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FISCAL 2000.
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(CONT'D)
revenues, net income decreased from 4.5 percent in the first quarter of fiscal
2000 to 3.6 percent in the first quarter of fiscal 2001.
The Company defines backlog as the unearned portions of its existing contracts
at each balance sheet date. At September 30, 2000, backlog was approximately
$17,543,000 as compared to a backlog of approximately $14,500,000 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.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000 the Company's working capital increased
approximately $831,000 to approximately $4,896,000 from approximately $4,065,000
at June 30, 2000, and the current ratio increased to 1.28 from 1.21. The
increase in working capital is mainly attributable to lower "billings in excess
of cost and estimated earnings", which is partially offset by lower accounts
receivable balances.
The Company's cash balances increased slightly to approximately
$6,843,000 at September 30, 2000 from approximately $6,712,000 at June 30, 2000.
The increase is attributable to profitability, lower accounts receivable
balances and proceeds from the exercise of stock options. The increase was
partially offset by a reduction in "billings in excess of costs and estimated
earnings".
For the three-month period ended September 30, 2000, the Company
generated cash from operations of approximately $172,000. During the first
quarter of fiscal 2001 the Company purchased approximately $142,000 in capital
assets, reduced its bank borrowings by approximately $175,000 and made capital
lease payments of approximately $71,000. In addition, the Company received
approximately $512,000 in cash in connection with the exercise of stock options.
Exchange rate fluctuations on European balances created an approximate $165,000
negative translation adjustment on the Company's balance sheet.
The Company has a loan agreement with Summit Bank, located in
Princeton, NJ. The loan agreement contains the following:
The credit agreement consists of two facilities with aggregate
borrowing availability of up to $10 million. Facility "A" is a term loan and was
designated for the acquisition of Romtec (acquired May 12, 2000), a wholly owned
subsidiary of the Company, and is capped at $3,500,000. The loan agreement calls
for monthly principal payments, plus interest, of $58,333 through the maturity
date of March 31, 2005, when all unpaid principal and interest are due. Facility
"B" is a line of credit and is designated for working capital purposes, and is
capped at the difference between $10,000,000 less the balance of Facility "A".
The interest rate for the entire credit agreement is prime plus one-half
percent. The prime rate at September 30, 2000 was 9.5 percent. At September 30,
2000, outstanding
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LIQUIDITY AND CAPITAL RESOURCES
(CONT'D)
borrowings on Facility A were $3,208,000 and outstanding borrowings on Facility
B were $700,000. This credit agreement is scheduled to expire on March 31, 2005.
In addition, the Company has a bank overdraft facility of
(pound)400,000 (approximately $586,000 U.S. dollars) with Barclays Bank, its
London bank. The borrowings are charged at a rate of 3 percent above the UK Base
Rate. At September 30, 2000, the Company had no borrowings drawn against this
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
RECENT TRENDS
In May 2000, the Company completed the acquisition of Romtec. This
acquisition is designed to achieve several strategic goals of the Company
including an increased business focus on telecommunications and IT markets and
expanding the Company's capabilities beyond marketing research into the broader
marketing services arena. Romtec's use of e-panels for web surveys and
development of marketers' contact databases also enhance the Company's portfolio
of services.
As the Company's core competencies make increasing use of technology
for surveys, data delivery, and data analysis, the Company continues to invest
in its technology and sales infrastructures. The investments include new web
survey, Internet delivery technology, virtual private networks that provide
clients with on-line data access and analysis, the building of e-panels, a
variety of new IT syndicated products and the upgrading of its two telephone
centers to be compatible with Internet delivery technology.
IMPACT OF INFLATION
Inflation had no material effect on the financial performance of the
Company during the first quarter of fiscal 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The Company has foreign subsidiaries 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.
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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, 2000.
B. Reports on Form 8-K.
Form 8-K, dated May 30, 2000, (announcement of the Romtec acquisition);
Form 8-K/A, dated September 27, 2000, (Romtec acquisition related);
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/Matthew Kirby
--------------------------------
BY:Matthew Kirby
Acting Chief Financial Officer
Dated: November 14, 2000
