UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended June 30, 2000.
[ ]Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the transition period from ___ to ___.
Commission File Number: 0-15692.
TOTAL RESEARCH CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2072212
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5 Independence Way, Princeton, New Jersey 08543-5305
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 520-9100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
None
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Securities pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
-----------------------------
(Title of Class)
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 for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [ ].
The aggregate market value of shares of Common Stock of the registrant held by
non-affiliates of the registrant based on the closing price of the Common Stock
on September 26, 2000 was $34,841,426. As of September 26, 2000, there were
12,729,032 shares of the Company's Common Stock ($.001 par value) outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be held
on December 7, 2000 are incorporated by reference into Part III.
<PAGE>
PART I
Information contained or incorporated by reference in this report contains
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), which represent the expectations
or beliefs of Total Research Corporation (the "Company"), including, but not
limited to, statements concerning industry performance, the Company's
operations, performance, financial condition, growth and acquisition strategies,
margins and growth in sales of the Company's products. For this purpose, any
statements contained in this Annual Report that are not statements of historical
fact may be deemed to be forward-looking statements. Such statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should" or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy. See, e.g., "Management's Discussion and Analysis of Financial
Condition and Results of Operations." No assurance can be given that the future
results covered by the forward-looking statements will be achieved. These
statements by their nature involve substantial risks and uncertainties, certain
of which are beyond the Company's control. The information set forth below
identifies important factors with respect to such forward-looking statements,
including certain risks and uncertainties that could cause actual results to
vary materially from the future results covered in such forward-looking
statements. Other factors could also cause actual results to vary materially
from the future results covered in such forward-looking statements.
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW OF THE BUSINESS
The Company is a leading full-service custom and web-enabled marketing
organization that provides global marketing research and marketing services to
assist its clients with the pricing and positioning of new or existing products,
customer loyalty measurements, brand equity and e-commerce issues,
organizational structure and other marketing concerns. The Company provides
services for its clients by using proprietary market research and other
marketing technologies developed by the Company and distributed throughout
various mediums including the Internet.
The Company's clients consist principally of Fortune 100 corporations
operating in a wide array of industries, including automotive, chemicals,
consumer products, financial services, government, health care, information
technologies, manufacturing, telecommunications, travel and utilities. The
Company's professional staff has business experience in each industry for which
it conducts market research.
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
Company's divisions are located in several cities in the United States and in
London, England. The Company also maintains relationships with market research
organizations in South America and Asia to collect data internationally on
behalf of the Company.
The Company operates telephone data collection centers in Tampa,
Florida and London, England to assist in collecting data for clients. The Tampa
calling center currently has 130 CATI (Computer Assisted Telephone Interviewing)
stations. The London calling center has 150 CATI stations. The Company's phone
centers conduct interviews utilizing computer programmed questionnaires that are
immediately uploaded to the Company's central data-processing center, thereby
enabling research to be collected and analyzed more efficiently and effectively.
The Company also utilizes Total e-Survey (TM), a web-based data collection
methodology that utilizes advanced research techniques to collect data over the
Internet.
The Company has complete in-house data processing operations, which
provide for rapid, thorough and secure on-site data management and analysis. The
Company supports many platforms and file types both to exchange data and to
provide extensive database design and management capabilities. The Company also
provides its clients with sample management services and survey data results
using a variety of software applications. It also has a large and continually
expanding array of proprietary software developed internally to reduce research
labor, enhance service quality, assist with survey data analysis and generate
client reports. This year in particular the Company coordinated significant
internal projects to develop Internet portals and virtual private networks for
its clients to access and analyze data. The Company's newly formed software
research and development team is continually engaged in efforts to develop,
evaluate and adapt new technologies to improve and expand the Company's
processes, services and products.
2
<PAGE>
The Company was incorporated under the laws of the State of New Jersey
in 1975 and was reincorporated under the laws of the State of Delaware in 1986.
The Company maintains its principal executive offices at 5 Independence Way,
Princeton, New Jersey 08543, and its telephone number is (609) 520-9100.
On May 12, 2000, the Company acquired Romtec plc ("Romtec"), a European
Internet research and marketing services company. The acquisition price
consisted of cash and notes amounting to a maximum of $7.2 million, $4.1 million
of which was paid at the closing of the transaction. The remaining $3.1 million
is to be paid out over two years, with $2.1 million guaranteed and $1.0 million
contingent upon Romtec meeting specified operating targets.
The Company is in the process of integrating its Internet subsidiary,
Blinke Inc., into its operations infrastructure. This action will enable the
Company to leverage Blinke's unique web design capabilities as the Company
transitions its core capabilities to the web. The Company's Idea Farm unit is
being dissolved due to adverse economic conditions in the agribusiness market.
CLIENTS
In fiscal 2000, approximately 70 percent of the Company's revenues were
earned from among the 100 largest commercial and financial companies in the
world. The Company currently serves approximately 200 commercial clients and
government agencies. During fiscal 2000, approximately 75 percent of the
revenues earned by the Company were from clients who had previously retained the
Company. In fiscal 2000, one client represented 21% of the revenues earned for
that year. For the fiscal years ended June 30, 1999 and 1998, no single client
accounted for greater than 10% of the Company's annual revenues. The following
chart sets forth certain information regarding the Company's annual revenues
during the past three fiscal years:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
--------------------------
<S> <C> <C> <C> <C>
Industry 2000 1999 1998 Representative Clients
-------- ---- ---- ---- ----------------------
Telecommunications/ Information 48.0% 40.9% 28.1% Hewlett Packard, IBM, Lotus, Lucent
Technology Technologies, Microsoft, US West
Health Care/ Amgen, Bristol-Myers Squibb, Eli
AgriBusiness 17.3 21.7 25.3 Lilly, Pfizer
Consumer Products 10.9 9.0 9.3 Bausch & Lomb, Michelin, Sara Lee
Financial Services 9.0 6.1 6.8 Chase, Fidelity Investments, First USA
Manufacturing/Industrial 7.1 9.0 14.1 Dow Chemical, Dow Corning, DuPont, FMC
Other 7.7 13.3 16.4 Ford, NJ Transit, Walt Disney
----- ------ ------
Totals 100.0% 100.0% 100.0%
----- ----- -----
</TABLE>
3
<PAGE>
PRODUCTS AND SERVICES
The Company believes it enjoys advantages over competitors due to its
ability to conduct predictive marketing research studies, which attempt to
predict consumer, business or physician behavior in various alternative
scenarios. The Company believes this is superior to more traditional market
research, which is diagnostic in nature. The Company's principal proprietary
predictive technologies and associated services include the following:
o TOTAL E-SURVEY(TM) is the Company's web service that combines the firm's
advanced market research technologies and international expertise to
provide a web-based data-collection capability.
o EQUITREND(R) measures the perceived quality of a brand or product based
upon consumer experiences with, and perceptions of, the brand.
o COMPONENT ASSESSMENT (COMPASS(R)) is designed to enable clients to analyze
the structure of a competitive market and to determine the effect that
individual product attributes have on a customer's purchase decision.
COMPASS(R) is commonly used by clients for developmental stage products and
to understand the key drivers of product choice.
o PREDICTIVE SEGMENTATION(R) is a technology that enables marketers to
identify the various segments and or sub-markets of individual products and
to differentiate the demands of each segment. Clients utilize Predictive
Segmentation to combine demographic and usage/attitude factors to determine
the optimal segmentation for their products.
o PRICE ELASTICITY MEASUREMENT SYSTEM (PEMS(R)) permits the evaluation of
pricing strategies for different products and services. PEMS is designed to
enable the client to predict sales of products and services under a broad
range of possible competitive pricing scenarios.
o TOTAL RESEARCH BIAS CORRECTION (TRBC(R)) is a technology that enables
marketers to improve the accuracy and value of any research by reducing
fundamental sources of bias, error and distortion in market research data.
This results in a better understanding of marketing behavior and
substantial improvement of the predictive accuracy and value of market
research. TRBC(R) is especially valuable in multi-national studies.
GEOGRAPHIC LOCATIONS
The Company's headquarters are located in Princeton, New Jersey. The
Company has domestic offices in Minneapolis and Tampa as well as two offices in
London, England.
The Company has an agreement pursuant to which the Company authorizes
Paradigma S.A. ("Paradigma") to use the name "Total Research Argentina".
The Company has an alliance with Asia Marketing Intelligence ("AMI"),
the largest independent data collection services firm in Asia, which enables the
Company to offer full, comprehensive service for the Asian component of global
studies.
INTERNATIONAL OPERATIONS
In fiscal 2000, approximately 32% of the Company's revenues were
attributable to projects that the Company conducts for its clients involving
market research which is performed on a global basis. The Company has conducted
research projects in Europe, South America, Canada, Africa, China, Japan,
Australia and India. To engage in its international market research activities,
the Company has expanded multi-lingual telephone interviewing facilities and
developed a network of relationships (such as those with Paradigma and AMI) with
market research organizations in essential locations around the world. These
alliances enable the Company to maintain the quality and reliability of its data
collection activities.
4
<PAGE>
ORGANIZATIONAL STRUCTURE
The Company currently operates five market research divisions.
The Customer Loyalty Management division operates from offices in
Princeton and Minneapolis. This division provides clients with an organized,
controlled means of improving their operating results and marketplace
performance through the effective use of information from customers and
employees. Clients are primarily from the telecommunications, information
technology, travel, and banking industries. The Customer Loyalty Division
accounted for approximately 32% of the revenues generated by the Company in
fiscal 2000.
The Global Life Sciences ("GLS") division is international in nature,
with staff in both the Princeton and London offices. The division conducts
global market research in the pharmaceutical, health care, biotechnology and
agricultural industries. GLS accounted for approximately 17% of the revenues
generated by the Company in fiscal 2000.
The Strategic Brand Research division operates from the Princeton and
Minneapolis offices. The division conducts market research on a global basis in
the consumer products/consumer packaging goods, information technology,
automotive and telecommunications industries. This division accounted for
approximately 24% of the revenues earned in fiscal 2000.
The Strategic Marketing Services International ("SMS International")
division operates from its London, England office. The SMS International
division conducts market research mainly within Europe and Asia in the consumer
products/consumer packaging goods, financial services, information technology,
manufacturing/industrial and telecommunications industries. SMS International
accounted for approximately 24% of the revenues earned by the Company in fiscal
2000.
On May 12, 2000 the Company announced that it completed its acquisition
of Romtec, a leading European Internet research and marketing services company.
Since then, the Company has begun integrating Romtec's operations and marketing
tactics into the Company's global efforts under the Total/Romtec brand.
Total/Romtec provides marketing research, contact databases, direct marketing
and tracking services for the IT and telecommunications industries. Total/Romtec
also owns a majority share of a joint venture with German-based Gfk, which
produces and markets IT sales tracking data. The acquisition of Total/Romtec
provides the Company with a technology platform to expand its
business-to-business Internet marketing research capabilities to a much larger
global client base. Since the acquisition of Total/Romtec, a Princeton-based
staff has been dedicated to introducing Romtec's services to US-based clients.
Romtec accounted for approximately 3% of the revenues generated by the Company
from the date of acquisition through June 30, 2000.
FEE ARRANGEMENTS
The Company generally obtains full-service and advanced level research
assignments through competitive bidding. Most contracts are awarded on a
fixed-fee basis, subject to adjustment under certain circumstances.
The Company also designs and implements multi-client studies, such as
EquiTrend(R), to address informational needs shared by multiple existing and
potential clients. The Company usually develops the initial focus and study
design of a multi-client study at its own expense prior to obtaining client
commitments. The Company then sells the completed study to existing and
potential clients on a non-exclusive basis.
COMPETITION
The market research industry is highly competitive and is characterized
by a large number of relatively small organizations and a limited number of
large full service organizations, many of which are believed to have financial
resources greater than those of the Company. Management believes that it is
currently one of the leading providers of market research and analysis services
using advanced statistical techniques. In 2000, the Company was listed as the
20th largest US company, measured by revenues, in the marketing research
industry by a leading industry publication. The Company's primary competitors
include: Burke Marketing Services, Inc.; M/A/R/C, Inc.; Maritz, Market Facts,
Inc.; National Analysts; Opinion Research Corporation; and Walker Research
Incorporated.
The Company believes that the principal competitive factors in today's
marketing research marketplace are the quality and validity of data collection,
effective uses of technology as well as the ability to efficiently design,
execute and prepare reports on marketing research. The Company believes that the
principal competitive factors for marketing research using advanced statistical
techniques are the quality of its personnel and the Company's experience in
developing and executing statistical marketing research. During economic
downturns, the Company may experience increased competition for research
budgets, which are often vulnerable to global corporate overhead reduction. The
Company seeks to minimize the risk of revenue losses by serving multiple
industries.
5
<PAGE>
EMPLOYEES
As of June 30, 2000, the Company employed 243 full-time employees. The
Company uses approximately 400 part-time, hourly employees for data gathering
and processing purposes. All employees are non-union. The Company believes that
its relationship with its labor force is good.
TRADEMARKS
The Company owns 17 trademarks registered with the United States Patent
and Trademark Office and/or similar regulatory authorities in other countries.
Federally registered trademarks have perpetual life, provided they are renewed
on a timely basis and used properly as trademarks, subject to the rights of
third parties to seek cancellation of the marks. The Company regards its
trademarks and other proprietary rights as valuable assets and believes that
they have significant value in the marketing of its products. The Company
protects its trademarks against infringement.
ITEM 2.DESCRIPTION OF PROPERTY
The Company's headquarters and principal United States operating
facility is located in Princeton, New Jersey. As of June 30, 2000, the Company
leased approximately 53,500 square feet of office space for its Princeton
operations; the lease expires June 30, 2006. The Company is currently
sub-leasing approximately 20,000 square feet of this space to third parties.
The Company leases 6,083 square feet for a sales office in Minneapolis,
Minnesota. The lease expires on April 30, 2004. The Company leases 13,529 square
feet for a telephone data-collection facility in Tampa, Florida. The lease
expires on December 31, 2004.
In the United Kingdom, the Company leases 21,473 square feet for its
Brentford, London office space. The lease expires October 31, 2010 with a tenant
break clause at October 31, 2004. In addition to the Brentford facility, Romtec
leases approximately 10,000 square feet of office space in Maidenhead, London.
The lease expires in 2005.
ITEM 3. LEGAL PROCEEDINGS
As of June 30, 2000, there were no material legal actions or
proceedings pending or, to the knowledge of the Company, threatened, to which
the property of the Company was subject, or to which the Company was a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 2000, no matters were submitted to
a vote of security holders of the Company.
6
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock trades on the Nasdaq National Market. The quarterly
high and low bid prices of the Company's common stock, as reported by the Nasdaq
National Market, from fiscal 1999 to date, were as follows:
High Low
---- ---
Fiscal 1999
First Quarter $3.84 $2.50
Second Quarter 2.69 1.88
Third Quarter 3.38 2.38
Fourth Quarter 4.06 2.38
Fiscal 2000
First Quarter $4.00 $3.13
Second Quarter 7.94 3.25
Third Quarter 7.63 5.00
Fourth Quarter 6.00 2.38
Fiscal 2001
First Quarter (through September $4.44 $2.69
26,2000)
The above listed quotes reflect inter-dealer prices without retail
mark-up, mark-down or commissions and are not necessarily representative of
actual transactions or of the true value of the Common Stock.
As of September 19, 2000, the Company had 405 shareholders of record of
its Common Stock. The Company has never declared a dividend and does not plan to
do so in the near future.
In July of 1998, the Company entered into an agreement with a number of
investors pursuant to which the Company sold 1,000,000 shares of Common Stock at
$2.25 per share and issued options to purchase an aggregate of 250,000 shares of
common stock at an exercise price of $2.25 per share (exercisable for 5 years).
Such Common Stock was sold in a transaction that was exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended. 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.
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA FOR YEARS ENDED
---------------------------------------
JUNE 30, 2000, 1999, 1998, 1997 AND 1996
----------------------------------------
The selected financial data as of June 30, 2000, 1999, 1998, 1997 and 1996 and
for each of the years then ended has been derived from the audited consolidated
financial statements of the Company. The selected financial data should be read
in conjunction with, and is qualified in its entirety by, the Consolidated
Financial Statements of the Company and the notes thereto and the other
financial information included in Item 14 of the Annual Report.
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Income Data (000): 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Revenues $ 50,756 $ 41,562 $34,057 $ 29,443 $23,715
Direct costs 25,028 20,450 16,641 14,942 11,001
-------------------------------------------------------------------------
Gross profit 25,728 21,112 17,416 14,501 12,714
Operating expenses 22,739 17,802 14,868 13,221 13,683
Unusual charges - 320 723 - 1,101
-------------------------------------------------------------------------
Income(loss) from operations 2,989 2,990 1,825 1,280 (2,070)
Interest income 152 231 20 (202) (342)
Other income, net - - 40 50 87
Minority Interest (35)
-------------------------------------------------------------------------
Income(loss) before income taxes 3,106 3,221 1,885 1,128 (2,325)
Provision (benefit) for income taxes 1,189 1,245 760 490 (842)
-------------------------------------------------------------------------
Net income (loss) $ 1,917 $ 1,976 $ 1,125 $ 638 $ (1,483)
=========================================================================
Net income(loss) per diluted share $ 0.14 $ 0.16 $ 0.10 $ 0.06 $ (0.15)
=========================================================================
June 30,
-------------------------------------------------------------------------
Balance Sheet Data (000): 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Working capital (deficiency) $ 4,065 $ 4,514 $ 801 $ (1,151) $ (163)
Total assets 35,119 21,717 15,469 12,948 13,155
Current portion of long-term debt 3,438 282 19 215 2,142
Long-term obligation, less current
portion 3,702
Stockholders' equity $ 11,905 $ 9,079 $ 5,077 $ 3,648 $ 2,821
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated certain historical
income statement and other data for the Company and also sets forth such data as
a percentage of gross revenues (in thousands).
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.
8
<PAGE>
The following table sets forth, for the periods indicated certain historical
income statement and other data for the Company and also sets forth such data as
a percentage of gross revenues (in thousands).
<TABLE>
<CAPTION>
Year Ended June 30,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 50,756 100% $ 41,562 100.0% $ 34,057 100.0%
Direct costs 20,450 16,641 48.9
25,028 49.3 49.2
--------------------------------------------------------------------------------------
Gross profit 50.7% 21,112 50.8% 17,416 51.1%
25,728
Operating expenses 17,802 14,868 43.7
22,739 44.8 42.8
Unusual costs 320 723 2.1
- - 0.8
--------------------------------------------------------------------------------------
Income from operations 5.9% 2,990 7.2% 1,825 5.3%
2,989
Interest income 231 20 0.1
152 0.3 0.6
Other income, net - 40 0.1
- - -
Minority Interest (35) (0.1) - - - -
--------------------------------------------------------------------------------------
Income before income taxes 6.1% 3,221 7.8% 1,885 5.5%
3,106
Provision for income taxes 1,245 760 2.2
1,189 2.3 3.0
--------------------------------------------------------------------------------------
Net income $ 1,917 3.8% $ 1,976 4.8% $ 1,125 3.3%
======================================================================================
</TABLE>
FISCAL YEAR ENDED JUNE 30, 2000 AS COMPARED TO FISCAL YEAR ENDED JUNE 30, 1999
Revenues increased approximately 22.0 percent from fiscal 1999 to
fiscal 2000. This is attributable to growth in the core business. Included in
fiscal 2000 revenues are Romtec results for May and June.
The gross profit increased from approximately $21,112,000 in fiscal
1999 to approximately $25,728,000 in fiscal 2000, an increase of $4,616,000.
However, as a percentage of revenues, gross profit declined from 50.8 percent of
revenues in fiscal 1999 to 50.7 percent of revenues in fiscal 2000. The gross
profit was negatively impacted by two multi-million dollar projects that
included large amounts of data collection and processing that occurred during
the first six months of the fiscal year. It was also negatively impacted by a
significant reduction in a large contract by a client late in the fourth
quarter. The Company anticipates that this contract reduction will have an
impact on revenues and profitability in the first and second quarters of fiscal
2001. Overall, the Company continues to generate gross profits of greater than
50 percent for most of its research projects.
Operating costs increased from approximately $17,802,000 in fiscal 1999
to approximately $22,739,000 in fiscal 2000, or $4,937,000. As a percentage of
revenues, operating costs increased from 42.8 percent in fiscal 1999 to 44.8
percent in fiscal 2000. The increase can be attributed to additional costs
associated with increasing the capacity of its two centers, startup costs
associated with Blinke, costs associated with developing new web products and
services, additional marketing costs for new sales material as well as
additional labor costs. Unusual costs recorded in 1999 and 1998 related to the
transition agreement for key executives.
Income from operations decreased as a percentage of revenues from 7.2
percent to 5.9 percent in fiscal 2000, or approximately ($1,000). The decrease
is primarily attributable to the increase in operating costs from year to year.
Interest income decreased from fiscal 1999 to fiscal 2000 by
approximately ($79,000). This is the result of the interest paid on loans used
to acquire Romtec and the Company's working capital facility offset by interest
earned on higher cash balances held in the United States and by Romtec.
The provision for income taxes decreased due to lower income before
taxes, for the reasons stated above. The effective tax rate decreased from 38.6
percent in fiscal 1999 to 38.3 percent in fiscal 2000 primarily due to a higher
percentage of income being earned overseas in lower tax rate jurisdictions.
The Company defines backlog as the unearned portions of its existing
contracts at each balance sheet date. At June 30, 2000, backlog was
approximately $19,900,000 as compared to a backlog of approximately $18,100,000
at June 30, 1999. The $19,900,000 figure is the largest backlog figure in the
Company's history. The amount of backlog at any time may not be indicative of
intermediate or long-term trends in the Company's operations.
9
<PAGE>
FISCAL YEAR ENDED JUNE 30, 1999 AS COMPARED TO FISCAL YEAR ENDED JUNE 30, 1998
Revenues increased approximately 22.0 percent from fiscal 1998 to
fiscal 1999. The increases are primarily the result of increased activity in its
Customer Loyalty and SMS divisions.
The gross profit of the Company decreased slightly from 51.1 percent of
revenues in fiscal 1998 to 50.8 percent of revenues in fiscal 1999, primarily
due to the significantly larger dollar value contracts the Company completed
over the past year. The Company's average contract price increased from
approximately $50,000 in fiscal 1998 to approximately $95,000 in fiscal 1999.
Larger full-service market research studies generally require a greater
percentage of data-collection and data-processing costs, which typically lowers
the gross profit as a percentage of revenues.
Operating costs decreased approximately one percent from 43.7 percent
of revenues in fiscal 1998 to 42.8 percent of revenues in fiscal 1999. This
decrease is the result of the Company's continuing efforts to keep its operating
costs down as it continues to generate greater revenues. Additionally, the
Company recognized an unusual charge of $320,000 associated with the retirement
of two executives.
Income from operations increased as a percentage of revenues from 5.3
percent to 7.2 percent in fiscal 1999, or approximately $1,165,000. The increase
can be attributed mainly to the Company's ability to successfully win and
complete larger contracts while maintaining its operating cost structure.
Interest income increased from 0.1 percent of revenues in fiscal 1998
to 0.6 percent of revenues in fiscal 1999, or approximately $210,000 from
approximately $20,000 in fiscal 1998 to approximately $230,000 in fiscal 1999.
This increase is the result of the interest earned on the increased cash
balances of the Company.
The provision for income taxes increased due to increased income in
fiscal 1999. The effective tax rate decreased from 40.3 percent in fiscal 1998
to 38.6 percent in fiscal 1999 as a result of varying levels of work being
completed in the states in which the Company operates. Overall, the Company
increased its net income as a percentage of sales from 3.3 percent in fiscal
1998 to 4.8 percent in fiscal 1999, or approximately $850,000, from
approximately $1,125,000 in fiscal 1998 to approximately $1,975,000 in fiscal
1999.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's cash and cash equivalents increased from approximately
$5,203,000 in fiscal 1999 to $6,712,000 in fiscal 2000. The Company was able to
generate approximately $1,793,000 from operating activities and $4,874,000 from
financing activity; the majority of this is attributable to the borrowing
necessary to complete the acquisition of Romtec. The Company utilized cash to
invest in Romtec, software, equipment, leasehold improvements, and the buy-back
of 76,250 shares of the Company's stock at a cost of ($285,000).
At June 30, 2000, the Company's working capital decreased $449,000 to
$4,065,000 from $4,514,000 at June 30, 1999, and the current ratio decreased
from 1.38 in fiscal 1999 to 1.21 in fiscal 2000.
The Company has a credit agreement with Summit Bank, located in
Princeton, NJ. 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. Monthly principal
payments, plus interest, amount to $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 June 30, 2000 was 9%. 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 $607,000 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 June 30, 2000 and 1999, borrowings were approximately (pound)0 and
(pound)178,917 (approximately $280,000 U.S. dollars) against this overdraft
facility.
RECENT TRENDS
-------------
During this fiscal year, the Company completed the acquisition of
Romtec. This acquisition is designed to achieve several strategic goals of the
Company including expanding the Company's capabilities beyond marketing research
into the broader marketing
10
<PAGE>
services arena. Romtec's use of e-panels for web surveys and development of
marketers' contact databases begin to address these goals.
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 fiscal 2000.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKETING RISK
The Company has two foreign operating subsidiaries whose financial statements
are translated using the accounting policies described in Note 1 of the Notes to
the Consolidated 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 market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and notes thereto are presented under Item
14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
DISMISSAL OF FORMER ACCOUNTANT
Effective on October 22, 1998, the Company dismissed Amper, Politzimer & Mattia
("APM") as the Company's principal independent accountants. The decision to
change independent accountants was recommended by the Audit Committee of the
Company's Board of Directors.
The reports of APM on the Company's financial statements as of and for each of
the fiscal years ended June 30, 1997 and 1998 did not contain an adverse opinion
or disclaimer of opinion, nor were such reports qualified or modified as to
uncertainty, audit scope or accounting principles. In connection with audits of
the financial statements of the Company for the years ended June 30, 1997 and
1998 and during the interim period through the date of APM's dismissal, there
were no disagreements between the Company and APM on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures which, if not resolved to APM's satisfaction, would have caused APM
to make reference to such matter in its reports. Further, during such periods,
there were no events of the type required to be reported pursuant to Item
304(a)(1)(iv) of Regulation S-K.
ENGAGEMENT OF NEW ACCOUNTANT
On or about the date of the dismissal of APM, the Company appointed Ernst &
Young as the Company's new independent accountants.
During the Company's two most recent fiscal years or any subsequent interim
period prior to engaging Ernst & Young, neither the Company nor anyone on its
behalf consulted Ernst & Young regarding (i) the application of accounting
principles to any transaction; or the type of audit opinion that might be
rendered on the Company's financial statements, or (ii) any matter that was
either the subject of a disagreement or an event required to be reported
pursuant to Item 304(a)(1)(iv) of Regulation S-K.
11
<PAGE>
PART III
Information required under Items 10, 11, 12 and 13 is incorporated herein
by reference to the Company's definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days after the year covered by
this Form 10-K with respect to its Annual Meeting of Stockholders to be held on
December 8, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF FORM 8K
<TABLE>
<CAPTION>
(a) The following documents are filed as part of this report.
<C> <S>
1. Financial Statements Page Reference
Reports of Independent Auditors. F-1 - F-2
Consolidated Balance Sheets as of June 30, 2000 and 1999. F-3
Consolidated Statements of Income for the years ended
June 30, 2000, 1999 and 1998. F-4
Consolidated Statements of Stockholders' Equity for the years
ended June 30, 2000, 1999 and 1998. F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 2000, 1999 and 1998. F-6
Notes to Consolidated Financial Statements. F-7
2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts S-1
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable or the required
information is given in the Financial Statements or Notes thereto, and therefore
have been omitted.
(b) Reports on Form 8K
None
12
<PAGE>
(c) Exhibits
The following documents are filed as part of this Form 10K at
the page indicated or are incorporated by reference herein. Any
document incorporated by reference is identified by a parenthetical
reference to the filing with the Commission which included such
document.
Exhibit No. Description
----------- -----------
2.1 Certificate of Merger dated February 17, 1987 (incorporated by
reference by the 1999 Form 10-K);
2.2 Offer Letter, dated as of April 20, 2000 (incorporated by
reference to Exhibit 2.1 to the Form 8-K);
2.3 Deed of Irrevocable Undertaking, dated as of April 13, 2000, by
Russell Nathan (incorporated by reference to Exhibit 2.2 to the
Form 8-K);
2.4 Deed of Warranties, dated as of April 13, 2000, by Russell Nathan
(as Warrantor), Total Research Acquisitions Limited and Total
Research Corporation (incorporated by reference to Exhibit 2.3 to
the Form 8-K);
3.1 Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Registration Statement on Form
S-18, as amended, Registration No. 33-9078-NY; the "Form S-18");
3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2
to the Form S-18);
10.1 Lease, dated as of December 12, 1985, between the Company and
Bellemeade Development Corporation (incorporated by reference to
Exhibit 10.2 to the Form S-18);
10.2 Total Research Corporation Savings & Retirement Plan
(incorporated by reference to Exhibit 10.3 to the Form S-18);
10.3 Employment Agreement, dated January 2, 1997, between the Company
and Terri Flanagan (incorporated by reference to Exhibit 1 of the
1997 Form 10-K);
10.4 Sublease, dated July 17, 1997, between the Company and Hexaware
Technologies (incorporated by reference by the 1999 Form 10-K);
10.5 Employment Agreement, dated July 1, 1998, between the Company and
Albert Angrisani (incorporated by reference by the 1999 Form
10-K);
10.6 Employment Agreement, dated January 1, 1999, between the Company
and Patti Hoffman (incorporated by reference by the 1999 Form
10-K);
10.7 Employment Agreement, dated January 1, 1999, between the Company
and Eric Zissman (incorporated by reference by the 1999 Form
10-K);
10.8 Employment Agreement, dated January 1, 1999, between the Company
and Mark Nissenfeld (incorporated by reference by the 1999 Form
10-K);
10.9 Loan Agreement between Summit Bank and the Company dated January
1, 1999 (incorporated by reference by the 1999 Form 10-K).
10.10 1995 Stock Incentive Plan (incorporated by reference by the Form
S-8, Registration No. 333-74635);
10.11 1986 Stock Incentive Plan (incorporated by reference by the Form
S-8, Registration No. 333-74631);
21.1 List of Subsidiaries;
13
<PAGE>
(d) Exhibits (cont'd)
--------
23.1 Consent of Ernst & Young LLP dated September 26, 2000
23.2 Consent of Amper, Politziner & Mattia dated September 27, 2000;
27 Financial Data Schedule (EDGAR only).
14
<PAGE>
TOTAL RESEARCH CORPORATION
AND SUBSIDIARIES
For the Years Ended
June 30, 2000, 1999 and 1998
Reports of Independent Auditors F-1
Consolidated Balance Sheets as of June 30, 2000 and 1999 F-3
Consolidated Statements of Income for the Years Ended
June 30, 2000, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the Years Ended
June 30, 2000, 1999 and 1998 F-6
Notes to the Consolidated Financial Statements F-7
Schedules:
Schedule II - Valuation and Qualifying Accounts S-1
15
<PAGE>
REPORT OF INDEPENDENT AUDITOR
To the Board of Directors and
Stockholders of Total Research
Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Total Research
Corporation and Subsidiaries as of June 30, 2000 and 1999 and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. Our audits also included the financial statement schedule
listed in the Index at Item 14A. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Total
Research Corporation and Subsidiaries as of June 30, 2000 and 1999, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ERNST & YOUNG, LLP
MetroPark, New Jersey
September 21, 2000
F - 1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Stockholders of Total Research
Corporation and Subsidiaries
We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows for the year ended June 30, 1998 of Total
Research Corporation and Subsidiary. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements, based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, as of June 30, 1998 and the results of their
operations and their cash flows of Total Research corporation and Subsidiary for
the year ended June 30, 1998 in conformity with generally accepted accounting
principles.
/s/AMPER, POLITZINER & MATTIA, PC
September 21, 1998
Edison, New Jersey
F - 2
<PAGE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30,
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Current assets
Cash and cash equivalents $ 6,711,882 $ 5,203,383
Accounts receivable, less allowance for 10,373,705 7,068,199
doubtful accounts of $182,340 and
$110,000, at June 30, 2000 and 1999
Costs and estimated earnings in excess of 3,170,375 3,248,270
billings on uncompleted contracts
Deferred taxes 250,960 330,000
Prepaid expenses and other current assets 2,582,053 585,262
---------------------------------------
Total current assets 23,088,975 16,435,114
Fixed assets, less accumulated depreciation of $5,575,904 and $4,553,729,
respectively 4,258,360 2,609,152
Goodwill, net of accumulated amortization of $586,964 and $379,181, respectively 7,142,414 1,644,696
Deferred taxes 0 264,000
Other assets 629,438 763,767
---------------------------------------
$ 35,119,187 $ 21,716,729
=======================================
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 3,438,318 $ 282,027
Accounts payable 4,594,780 4,038,566
Accrued expenses and other current liabilities 4,315,844 3,512,938
Billings in excess of costs and estimated earnings 6,200,373 3,373,665
Income taxes payable 474,586 714,059
---------------------------------------
Total current liabilities 19,023,901 11,921,255
Deferred taxes 52,396
Minority interest 65,558
Other long-term liabilities 369,376 716,605
Debt, less current maturities 3,702,493
---------------------------------------
23,213,724 12,637,860
---------------------------------------
Stockholders' equity
Common stock authorized 50,000,000 shares
.001 par value, 12,614,608 and 11,761,608 shares issued
at June 30, 2000 and 1999 12,615 11,762
Additional paid-in capital 7,644,929 6,627,782
Retained earnings 5,051,566 3,134,938
Accumulated other comprehensive income (128,146) (35,925)
---------------------------------------
12,580,964 9,738,557
Less: treasury stock, at cost (675,501) (659,688)
---------------------------------------
Total stockholders' equity 11,905,463 9,078,869
---------------------------------------
Total liabilities and stockholders' equity $ 35,119,187 $ 21,716,729
=======================================
See notes to consolidated financial statements.
</TABLE>
F - 3
<PAGE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
For the Years Ended
June 30
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Revenues $ 50,755,769 $ 41,561,835 $ 34,057,084
Direct costs 25,028,136 20,450,287 16,641,169
----------------------------------------------------
Gross profit 25,727,633 21,111,548 17,415,915
Operating expenses 22,738,922 17,801,453 14,868,072
Unusual charge 320,000 723,000
----------------------------------------------------
Income from operations 2,988,711 2,990,095 1,824,843
Interest income, net 152,128 230,462 20,424
Other income, net 40,000
Minority interest in income of subsidiaries (34,775)
----------------------------------------------------
Income before provision
for income taxes 3,106,064 3,220,557 1,885,267
Provision for income taxes 1,189,436 1,244,820 760,450
----------------------------------------------------
Net income $ 1,916,628 $ 1,975,737 $ 1,124,817
====================================================
Earnings per share
Basic $ 0.16 $ 0.17 $ 0.11
Diluted $ 0.14 $ 0.16 $ 0.10
Weighted average common shares
Outstanding - Basic 12,334,925 11,586,010 10,118,908
- Diluted 13,579,232 12,693,423 11,704,804
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Treasury Stock
--------------
Accumulated
Additional Other Total
Shares Paid-in Comprehensive Retained Stockholders'
Issued Amount Capital Income Earnings Shares Amount Equity
------ ------ ------- ------ -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance-June 30, 1997 10,044,108 $10,044 $ 3,576,545 $27,095 $34,384 - $ - $3,648,068
Exercise of options 432,000 432 172,359 - - 92,930 (287,717) (114,926)
Tax benefit-exercise of - 424,000 424,000
options
Translation adjustment - - - (4,493) - - - (4,493)
Net income - - - - 1,124,817 - - 1,124,817
------------ -------- ------------ -------- --------- ------- --------- ----------
Balance - June 30, 1998 10,476,108 10,476 4,172,904 22,602 1,159,201 92,930 (287,717) 5,077,466
------------ -------- ------------ -------- --------- ------- --------- ----------
Exercise of options 285,500 286 259,906 - - 98,949 (371,971) (111,779)
Tax benefit - exercise of
options - - 272,420 - - - - 272,420
Shares issued to group of 1,000,000 1,000 1,922,552 1,923,552
investors
Translation adjustment - - - (58,527) - - - (58,527)
Net income - - - - 1,975,737 - - 1,975,737
------------ -------- ------------ -------- --------- ------- --------- ----------
- - - -
Balance-June 30, 1999 11,761,608 11,762 6,627,782 (35,925) 3,134,938 191,879 (659,688) 9,078,869
------------ -------- ------------ -------- --------- ------- --------- ----------
Exercise of options 853,000 853 506,888 - - 4,535 (15,813) 491,928
Tax benefit - exercise of - -
options 510,259 - - 510,259
Translation adjustment - - - (92,221) - - (92,221)
Net income - - 1,916,628 1,916,628
------------ -------- ------------ -------- --------- ------- --------- ----------
- - - -
Balance-June 30, 2000 12,614,608 $ 12,615 $7,644,929 $ (128,146) $ 5,051,566 196,414 $(675,501) $11,905,463
========== ======== ========== =========== =========== ======= ========== ===========
See notes to consolidated financial statements.
</TABLE>
F - 5
<PAGE>
<TABLE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended June 30,
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net income $1,916,628 $1,975,737 $ 1,124,817
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation 859,853 776,371 588,937
Amortization 346,358 343,250 237,844
Deferred income taxes 395,436 10,100 (93,320)
Minority interest in income of subsidiaries 34,775
CHANGES IN OPERATING ASSETS AND LIABILITIES
Accounts receivable (3,305,506) (616,654) (1,349,949)
Costs and estimated earnings in excess of
billings on uncompleted contracts 77,895 (2,047,005) 39,587
Prepaid expenses and other current assets (1,996,791) 130,114 (147,591)
Other assets (85,490) (463,103) 5,845
Accounts payable 556,214 652,857 1,279,154
Accrued expenses and other current liabilities 802,906 678,878 187,830
Billings in excess of costs and estimated
earnings 2,826,708 (20,880) (492,827)
Income taxes payable (239,473) 420,888 126,697
Other long-term liabilities (396,870) 232,398 205,189
------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,792,643 2,072,951 1,712,213
------------------------------------------------
Cash flows from investing activities
Purchases of equipment and lease improvements (2,509,061) (1,274,609) (383,221)
Acquisition of Romtec, net of cash acquired (2,557,230)
------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (5,066,290) (1,274,609) (383,221)
------------------------------------------------
Cash flows from financing activities
Payments on bank borrowings (398,693) 282,027 (214,575)
Payments under capital leases 70,873
Proceeds from bank borrowing 4,200,000
Proceeds from issuance of common stock 717,064 2,084,194 309,073
Purchase of treasury stock 285,123
------------------------------------------------
Net cash provided by financing activities 4,874,367 2,366,221 94,498
------------------------------------------------
Effect of foreign exchange rate changes on cash (92,221) (58,527) (4,493)
------------------------------------------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 1,508,499 3,106,036 1,418,997
Cash and cash equivalents - beginning of year 5,203,383 2,097,347 678,350
------------------------------------------------
Cash and cash equivalents - end of year $ 6,711,882 $5,203,383 $ 2,097,347
================================================
Supplemental disclosures of cash flow information
Income taxes paid $ 1,976,378 $ 493,310 $ 54,750
Interest paid $ 80,309 $ 43,789 $ 17,759
Supplemental disclosure of non-cash financing
activity
Exchange of common stock as payment for exercised $ 15,813 $ 371,971 $ 287,717
stock options
Romtec seller notes $ 3,057,477 -- --
See notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
TOTAL RESEARCH CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
NOTE 1 - THE COMPANY
-----------
The Company performs marketing research and marketing services for
various Fortune 100 companies in a broad spectrum of industries. For the year
ended June 30, 2000, one customer accounted for 21% of total revenues of the
Company. No single customer accounted for more than 10% of the Company's
revenues and 10 percent of accounts receivable in the years ended June 30, 1999
and 1998.
The Company services these clients through its U.S. locations in
Princeton, NJ; Minneapolis, MN; Tampa, FL; and its overseas location, London,
England.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
REVENUE RECOGNITION
-------------------
The Company employs the percentage of completion method of accounting
to report its revenues on its single-client studies, while on multi-client
studies it recognizes revenues when the results are delivered to its clients.
Clients are generally billed in accordance with the terms of the applicable
contracts, which are not necessarily indicative of the stage of completion of
the project.
For single-client studies, the stage of completion and earned revenues
are determined for each project for the applicable period. The amount by which
the work completed exceeds billings to clients is carried as a current asset on
the Company's balance sheet and is shown as "costs and estimated earnings in
excess of billings" on uncompleted contracts. Where billings exceed work
completed, the amounts are carried on the Company's balance sheet as a current
liability and are shown as "billings in excess of costs and estimated earnings."
PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of the
Company and its subsidiaries after elimination of intercompany accounts and
transactions.
USE OF ESTIMATES
----------------
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
-------------------------
For the purpose of the statement of cash flows, cash equivalents
include certificates of deposit and all highly liquid debt instruments with
original maturities of three months or less.
FIXED ASSETS
------------
Fixed assets are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets: three years
for transportation equipment and software development and five to ten years for
office equipment and furnishings. Leasehold improvements are amortized over the
shorter of the economic lives or the underlying lease term.
F-7
<PAGE>
DEFERRED RENT
-------------
The excess of lease payments on a straight-line basis over the actual
monthly payments is recorded as deferred rent, which will reverse in future
periods. Included in other long-term assets is deferred rent of approximately
$9,550, at June 30, 2000. Included in other long-term liabilities is deferred
rent of approximately $25,500 and $484,000, at June 30, 2000 and 1999,
respectively.
GOODWILL
--------
Goodwill has been recorded in relation to the excess of the purchase
price over the fair values of the identified assets acquired. The Company
amortizes goodwill over 25 years. The carrying value of goodwill is evaluated
periodically in relation to the operating performance and future undiscounted
net cash flows of the underlying business. Investment adjustments will be
recorded if the sum of expected future net cash flows is less than the carrying
amount of the goodwill.
INCOME TAXES
------------
The provision for income taxes includes Federal, foreign, state and
local income taxes currently payable and receivable and those deferred because
of temporary differences between the financial statement and tax basis of assets
and liabilities. The unremitted earnings of the Company's foreign subsidiaries
are considered to be permanently reinvested and are not expected to be remitted
to the parent company. Calculation of any possible future tax liabilities is not
practical.
IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------
The Company records impairment losses on long-lived assets used in
operations or expected to be disposed when events and circumstances indicate
that the assets might be impaired and the undiscounted cash flows estimated to
be generated by those assets are less than the carrying amounts of those assets.
STOCK-BASED COMPENSATION
------------------------
As permitted by FASB Statement No. 123, Accounting for Stock-Based
Compensation, the Company has elected to follow Accounting Principal Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee option plans. Under APB 25, no
compensation expense is recognized at the time of option grant if the exercise
price of the Company's employee stock option equals or exceeds the fair market
value of the underlying common stock on the date of grant.
EARNINGS PER SHARE
------------------
Basic and diluted earnings per share are calculated in accordance with
Financial Accounting Standards Board Statement No. 128, "Earnings Per Share".
All earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the Statement No. 128 requirements.
FOREIGN CURRENCY TRANSLATION
----------------------------
Assets and liabilities of foreign subsidiaries, all of which are
located in Europe, have been translated at current exchange rates and related
revenues and expenses have been translated at average rates of exchange in
effect during the year. Resulting cumulative translation adjustments have been
recorded within other comprehensive income in accordance with FASB Statement No.
130 "Reporting Comprehensive Income".
Comprehensive income for the years ended June 30 consisted of:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net income $1,916,628 $1,975,737 $1,124,817
Translation adjustment (92,221) (58,527) (4,493)
--------------------------------------------------------------------------------------
Comprehensive Income $1,824,407 $1,917,210 $1,120,324
======================================================================================
</TABLE>
F-8
<PAGE>
NOTE 3. ACQUISITION
-----------
In May of 2000, the Company acquired Romtec Plc and Subsidiary
("Romtec"), a European Internet research and marketing services company. The
total acquisition price consisted of cash and notes amounting to a maximum of
$7.2 million. The excess of the purchase price and direct acquisition costs over
the fair value of the net assets acquired was calculated as follows
(approximately):
Cash paid at closing $4,100,000
Notes due to Seller (See Note 6) 3,100,000
Total Purchase Price $7,200,000
Fair value of net assets acquired 1,800,000
---------
Excess purchase price 5,400,000
Direct acquisition costs 200,000
-----------
Total goodwill 5,600,000
===========
The acquisition was accounted for as a purchase, and the operations of
Romtec are included in the accompanying consolidated statements of income from
the purchase date through June 30, 2000. The purchase price has been allocated
to the assets acquired and liabilities assumed based on their fair values as of
the acquisition date. Romtec plc has a 51% ownership interest in its subsidiary,
Romtec gfk. The remaining 49% ownership interest is owned by an unrelated third
party. The total amount of goodwill is being amortized on a straight-line basis
over 25 years. In addition, the acquisition was completed through a newly
formed, wholly-owned subsidiary, TRC Holdings, Inc.
The following table presents the unaudited pro forma consolidated
results of operations for the years ended June 30, 2000 and 1999 as if the above
acquisition had occurred on July 1, 1998:
UNAUDITED
---------
2000 1999
---- ----
Sales $56,741,000 $48,563,000
Net income 2,118,000 2,035,000
Basic net income per share 0.17 0.18
Diluted net income per share 0.16 0.16
The pro forma amounts reflect amortization of the excess of purchase
price over the net assets acquired and the related tax effect. The pro forma
results are not necessarily indicative of the results of operations that would
have occurred had the acquisition taken place at the beginning of the period
presented nor are they intended to be indicative of results that may occur in
the future.
NOTE 4 - CONCENTRATION OF CASH BALANCE
-----------------------------
At June 30, 2000, a cash balance of $4,966,788 is maintained in a bank
account insured by the Federal Deposit Insurance Corporation (FDIC). This
balance exceeds the insured amount of $100,000.
F-9
<PAGE>
NOTE 5 - FIXED ASSETS
------------
Fixed assets consist of the following:
June 30,
2000 1999
Office equipment and fixtures $ 7,983,218 $ 6,421,768
Software development 894,111
Leasehold improvements 956,935 741,113
------------- -----------
9,834,264 7,162,881
Less: accumulated depreciation and
amortization 5,575,904 4,553,729
-------------- -----------
$ 4,258,360 $2,609,152
============== ===========
Depreciation expense for the years ended June 30, 2000, 1999 and 1998 was
approximately $860,000, $692,000 and $585,000, respectively. Amortization
expense for the years ended June 30, 2000, 1999 and 1998 was approximately
$229,000, $84,000 and $4,000, respectively.
NOTE 6 - DEBT
----
Long-term debt consists of the following:
June 30
2000 1999
---- ----
Summit Bank credit agreement
Facility "A" $3,383,334
Facility "B" 700,000
Bank overdraft facility $282,027
Note payable - Romtec acquisition 3,057,477
------------ -------
7,140,811 282,027
Less current portion 3,438,318 282,027
------------ -------
Long-term portion of debt $3,702,493 $ -
============ =======
Maturities of debt are as follows:
Years ending June 30
--------------------
2001 $3,438,318
2002 1,719,159
2003 700,000
2004 700,000
2005 583,334
-----------
Total $7,140,811
The Company has a credit agreement with Summit Bank, located in
Princeton, NJ. 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. Monthly principal
payments, plus interest, amount to $58,333 through the maturity date of March
31, 2005. Facility "B" is a line of credit and is designated for working capital
purposes, and is capped at the difference between $10 million less the balance
of Facility "A". The interest rate for the entire credit agreement is
F-10
<PAGE>
NOTE 6 - DEBT (cont'd)
----
prime plus one-half percent. The prime rate as of June 30, 2000 was 9.0%. This
credit agreement is scheduled to expire on March 31, 2005.
As of June 30, 2000, the Company was in compliance with all the
financial covenants.
In addition, the Company has a bank overdraft facility of
(pound)400,000 (approximately $607,320 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 June 30, 2000 and 1999, borrowings were approximately (pound)0 and
(pound)178,917 (approximately $280,000 U.S. dollars) against this overdraft
facility.
In connection with the acquisition of Romtec as defined in Note 3, the
Company has a note payable to the Seller in the total amount of $3,057,477. Of
this amount, $2,038,318 is a guaranteed payment to be made on the first
anniversary of the acquisition. This amount has been classified as current. The
remaining amount of $1,019,159 is to be made on the second anniversary of the
acquisition and may be adjusted should Romtec fall short of specified operating
targets. The Company believes such operating targets will be met.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
-----------------------------
OPERATING LEASES
----------------
The Company is committed under various leases for office space. In addition, the
Company subleases a portion of its office premises. Approximate future minimum
rental payments and sublease rentals under non-cancelable leases are as follows:
For the Years Ending
June 30,
Rental Sublease
Payments Rentals Net
-------- ------- ---
2001 2,132,351 1,759,306
373,045
2002 2,152,173 1,763,222
388,951
2003 1,885,634 1,644,547
241,087
2004 1,781,023 1,781,023
2005 1,506,048 1,506,048
Thereafter 1,170,681 1,170,681
---------------- ------------- -------------
Total minimum
Payments required $10,627,910 $1,003,083 $9,624,827
================ ============= =============
In addition to the above minimum rentals, the leases are subject to escalation
clauses covering increases in real estate taxes and operating costs over the
base year. The leases provide for renewal options for periods from two to ten
years. Net rental expense charged to operations was approximately $1,732,000,
$1,178,000 and $1,130,000 for the fiscal years ended June 30, 2000, 1999 and
1998, respectively.
EMPLOYMENT AGREEMENTS
---------------------
The Company has entered into employment agreements with key management
personnel. These agreements expire at different times through June 30, 2001.
They contain provisions for future base salaries through this date that total
$907,000. There is also a bonus arrangement for up to 20 percent of the base
salary if individual goals are met. In addition, key management will be eligible
for an excess bonus if such goals are exceeded.
On July 1, 1998, the Company entered into an employment agreement with an
officer of the Company, providing, among other things, for the employment by the
Company of the officer for a term of three years, effective immediately.
Included in other assets as of June 30, 2000 is a non-collateralized loan
receivable, with interest at the IRS rate of 7% at June 30, 2000, from this
officer amounting to $300,000 which is due June 30, 2001.
F-11
<PAGE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES (cont'd)
-----------------------------
In fiscal 1998 the Company entered into an employment transition agreement with
the former Chairman of the Board and Chief Executive Officer, who now holds the
position of Chairman Emeritus and retains a seat on the Company's Board of
Directors. The agreement ends on June 30, 2001 and sets forth the total
compensation of $723,000 and is included in the income statement as an unusual
cost.
In addition, in fiscal 1999 the Company entered into transition agreements with
two former employees and directors of the Company. The agreements end on June
30, 2001 and provide for total compensation of $320,000 and is included in the
income statement as an unusual cost.
NOTE 8 - INCOME TAXES
------------
Deferred tax attributes resulting from differences between financial accounting
amounts and tax basis of assets and liabilities at June 30 are as follows:
Current assets and (liabilities) 2000 1999
---- ----
Allowance for doubtful accounts $ 38,351 $ 43,000
Accrued vacation 190,931 148,000
Retirement plans - 83,000
Accrued expenses 32,626 26,000
Other (10,948) 30,000
-------------------------------
Total current deferred tax asset $250,960 $330,000
===============================
Non-current assets and (liabilities)
Depreciation $(253,302) $(198,000)
Deferred rental obligation (6,339) 172,000
Capitalized market research products 64,917 84,000
Transition agreement 129,044 212,000
Other 13,284 (6,000)
-------------------------------
Total non-current deferred tax asset
(liability) $(52,396) $264,000
===============================
The Company has a history of operating earnings. Although recognition is not
assured, management has determined that the future operating income of the
Company will more likely than not be sufficient to recognize fully these net
deferred tax assets. As a result, no valuation allowance has been provided for
either year.
The sources of income before income taxes for the year ended June 30 is as
follows:
2000 1999 1998
---- ---- ----
United States $ 2,398,620 $ 2,422,613 $ 1,144,775
United Kingdom 707,444 797,944 740,492
---------------------------------------------
Total $ 3,106,064 $ 3,220,557 $ 1,885,267
=============================================
F-12
<PAGE>
The components of the provision for income taxes for the years ended June 30 are
as follows:
Current expense
2000 1999 1998
---- ---- ----
Federal $ 469,762 $ 866,768 $ 601,320
State 135,427 138,095 -
United Kingdom 188,811 229,886 252,450
--------------------------------------------
794,000 1,234,749 853,770
Deferred expense (benefit)
Federal 310,424 10,071 (93,320)
State 71,264
Foreign 13,748
--------------------------------------------
$1,189,436 $1,244,820 $760,450
============================================
Reconciliation of the tax provision computed at the U.S. statutory tax rate to
the income tax provided for the years ended June 30 is as follows:
2000 1999 1998
---- ---- ----
Computed provision at the statutory rate $1,056,052 $ 1,055,508 $ 641,000
Permanent differences 13,013 39,967 33,000
International rate differences (25,528) 12,707 450
State income tax, net 136,416 136,638 69,000
Other 9,483 17,000
--------------------------------------
Income tax provision $1,189,436 $ 1,244,820 $ 760,450
======================================
Included in other assets at June 30, 2000 are prepaid taxes of $1,504,000.
NOTE 9 - EMPLOYEE BENEFITS AND DEFERRED COMPENSATION
-------------------------------------------
The Company maintains a 401(k) Savings Plan for the benefit of all its
employees. The 401(k) Savings Plan is funded through the Company's and
participating employees' contributions and generally provides that employees may
contribute, through payroll reductions, from 1% to 15% of their compensation.
The Company has, in the past, made a matching contribution in an amount equal to
50% of each participating employee's elective contribution up to 6% of the
participating employee's compensation. Company contributions charged to
operating expense were approximately $498,000, $205,000 and $195,000 for fiscal
years ended June 30, 2000, 1999 and 1998, respectively.
NOTE 10 - ACCRUED EXPENSES
----------------
The following is a summary of the items that comprise the accrued expenses and
other current liabilities at June 30:
2000 1999
---- ----
Bonus and other payroll accruals 2,050,756 1,966,181
Vacation accrual 480,426 392,568
Accrued project direct costs 1,232,784 200,000
Accrued transition agreements 324,704 737,613
Other 227,174 216,576
-------------------------------
$ 4,315,844 $ 3,512,938
===============================
F-13
<PAGE>
NOTE 11 - STOCK OPTION PLANS
------------------
The Company has elected to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options as permitted under Financial
Accounting Standards Statement No. 123, "Accounting for Stock-Based
Compensation," (SFAS 123) the fair value alternative method. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. Under SFAS 123, the Company will provide pro forma net
income and pro forma earnings per share.
The Company's 1986 Stock Option Plan has authorized the grant of options to
personnel for up to 1,800,000 shares of the Company's common stock. Under the
Plan, options may be granted at not less than fair market value on the date of
grant (85% of fair market value with respect to non-qualified options). Options
granted under the plan become exercisable immediately and expire five years
after the date of grant (five years and one day with respect to non-qualified
options). On April 16, 1996 the Company adopted the 1995 Stock Incentive Plan
and froze the 1986 Stock Option Plan.
The 1995 Stock Incentive Plan authorizes the Company to issue 2,500,000 options
to existing and future Officers, Directors, Employees and Consultants of the
Company. Incentive Stock Options or Non-Statutory Stock Options become
exercisable immediately and may be issued for a term of no more than ten years
from the date of grant, at an option price not less than 100% of the fair market
value of the Company's common stock at the date of grant. In addition, any
non-employee director and/or advisory board director shall be automatically
granted an option to purchase 10,000 shares of common stock for each year that
such person serves as a director. However, such options shall vest 33-1/3% for
each twelve months of continuous service until fully vested.
Pro forma information regarding net income and earnings per share is required by
SFAS 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for all options was estimated at the date of grant using the Black-Scholes
option "pricing model with the following weighted-average assumptions for June
30, 2000, 1999 and 1998, respectively: risk-free interest rates of 5.68%, 5.20%
and 5.72%; dividend yields of 0%, 0% and 0%; volatility factors of the expected
market price of the Company's common stock of .78 , .76 and .75; and a weighted
average expected life of the option of 7 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
June 30,
2000 1999 1998
---- ---- ----
Pro forma net income $1,340,972 $1,640,445 $ 817,563
Pro forma income per share
Basic 0.11 0.14 0.08
Diluted 0.10 0.13 0.07
Pro forma compensation expense arising from stock options was $575,656, $335,292
and $512,090 for the years ended June 30, 2000, 1999 and 1998, respectively.
F-14
<PAGE>
NOTE 11 - STOCK OPTION PLANS (CONT'D)
A summary of the Company's stock option activity, and related information for
the years ended June 30, follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------- ------------------------------- -------------------------------
Weighted - Weighted - Weighted -
Options Average Options Average Options Average
(000) Exercise Price (000) Exercise Price (000) Exercise Price
----- -------------- ----- -------------- ----- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -
Beginning of Year 4,144 $1.56 3,001 $ 1.04 3,123 $0.78
Granted - - 1,429 2.50 330 2.38
Exercised (853) (0.96) (286) (1.07) (431) (0.43)
Forfeited 0 0 0 0 (21) (0.86)
- - - - ---- ------
Outstanding - end of
year 3,291 $1.76 4,144 $1.56 3,001 $1.04
===== ===== ===== ===== ===== =====
Exercisable - end of
year 1,929 $1.37 876 $1.85 1,209 $1.32
Weighted-average fair
value of options granted
during the year: - $1.61 $1.55
</TABLE>
Following is a summary of the status of stock options outstanding at June 30,
2000:
<TABLE>
Outstanding Options Exercisable Options
------------------- -------------------
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Exercise Price Remaining Exercise Price Exercise Price
Range Number Contractual Life Number
----------------------- ---------------- ------------------- ------------------ ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
$ .00 - $ .99 1,165,000 1.3 years $0.80 1,076,000 $0.81
$1.00 - $1.99 262,000 1.3 years $1.09 252,000 $1.10
$2.00 - $2.99 1,764,000 7.8 years $2.38 568,000 $2.42
$3.00 - $3.99 100,000 8.9 years $3.81 33,000 $3.81
</TABLE>
The Company received 4,535, 98,949 and 92,300 shares of its own Common Stock
with a fair market value of $15,813, $371,971 and $287,717 in connection with
the exercise of certain stock options during fiscal years 2000, 1999 and 1998,
respectively.
NOTE 12 - GEOGRAPHIC SEGMENT INFORMATION
------------------------------
The Company identifies its segments based on the Company's geographic locations
and industries in which the Company operates. The Company currently has two
reportable segments: US Market Research and UK Market Research. There were no
significant inter-segment events which materially affected the financial
statements. The Company measures segment profits based on income before income
taxes. Information on segments and reconciliation to consolidated totals for the
years ended June 30 (in thousands) are as follows:
F-15
<PAGE>
NOTE 12 - GEOGRAPHIC SEGMENT INFORMATION (cont'd)
---------------------------------------
Year ended June 30, 2000: US Market UK Market Total
Research Research Segments
Revenues $34,523 $ 16,233 $ 50,756
Depreciation and amortization 967 239 1,206
Operating income 2,116 873 2,989
Interest income (expense) 228 (76) 152
Income before income taxes 2,344 762 3,106
Total assets 25,578 9,541 35,119
Capital expenditures 1,543 966 2509
Year ended June 30, 1999:
Revenues $28,990 $ 12,572 $ 41,562
Depreciation and amortization 902 218 1,120
Unusual charge 320 - 320
Operating income 1,715 842 2,990
Interest income (expense) 274 (44) 230
Income before income taxes 2,423 798 3,221
Total assets 14,783 6,934 21,717
Capital expenditures 414 861 1,275
Year ended June 30, 1998:
Revenues $23,319 $ 10,738 $ 34,057
Depreciation and amortization 639 188 827
Unusual charge 723 - 723
Operating income 980 845 1,825
Interest income (expense) 124 (104) 20
Other Income 40 - 40
Income before income taxes 1,145 740 1,885
Total assets 9,718 5,751 15,469
Capital expenditures 110 273 383
NOTE 13 - STOCKHOLDERS' EQUITY
--------------------
On July 1, 1998, the Company closed an agreement with a number of
investors, pursuant to which, among other things, the Investors purchased an
aggregate of 1,000,000 shares of the Company's Common Stock at a price of $2.25
per share, and the Company issued options, exercisable at any time within
five(5) years from the issuance thereof, to purchase an aggregate of 250,000
shares of the Company's Common Stock at an exercise price of $2.25 per share.
The Purchase Agreement includes a provision whereby the Investors will,
on a best efforts basis, assist the Company in obtaining up to $25,000,000 in
debt or equity financing for acquisitions or other projects approved by the
Board of Directors of the Company.
On June 30, 1999, the Company's Board of Directors authorized the
Company to repurchase from time to time over the next two years in open market
transactions or otherwise up to one million shares of the Company's common
stock. For the year ended June 30, 2000, the Company has repurchased 76,250
shares at a cost of $285,000, which were immediately retired.
F-16
<PAGE>
NOTE 14 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
----------------------------------------------
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 (SOP "98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 establishes
standards for recording the costs of software for internal use. SOP 98-1
indicated that certain costs incurred in the development or purchase of software
designated for internal use should be capitalized. All other associated costs
should be expensed. The Company has adopted SOP 98-1 in fiscal year ended June
30, 2000. Adoption of this statement has not had a material effect on the
Company's financial position or results of operations.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS 133 will be effective for the Company's
fiscal year ending June 30, 2001. Management believes that this Statement will
not have a significant impact on the Company.
In December 1999, the Securities and Exchange Commission staff issued
Staff Accounting Bulletin (SAB) No. 101 Revenue Recognition in Financial
Statements. The SAB spells out four basic criteria that must be met before
registrants an record revenue. In addition, the SAB also provides guidance on
the disclosures (both in footnotes and in Management's Discussion and Analysis
of Financial Condition and Results of Operatoins) registrants should make about
their revenue recognition policies and the impact of events and trends on
revenue. The SAB states that all registrants are expected to apply the
accounting and disclosures described in it no later than the fourth fiscal
quarter of the fiscal year beginning after December 15, 1999. Management is
currently evaluating the impact of SAB No. 101 on the Company's financial
condition and results of operations.
NOTE 15 - QUARTERLY RESULTS OF OPERATIONS
-------------------------------
The following table presents summarized quarterly results for 2000:
(unaudited)
------------- ------------ ---------------- ------------
First Second Third Fourth
------------- ------------ ---------------- ------------
Revenues $13,791 $12,112 $10,273 $14,580
Gross profit 6,860 5,222(1) 5,344 8,302
Net income 625 646 413 233
Basic net income per
share .05 .05 .03 .03
Diluted net income per
share .05 .05 .03 .03
(1) Gross profit was reduced by two multi-million dollar projects that included
a large amount of data collection and processing costs.
The following table presents summarized quarterly results for 1999:
(unaudited)
------------- --------------- -------------- -------------
First Second Third Fourth
------------- --------------- -------------- -------------
Revenues $10,069 $9,626 $9,969 $11,898
Gross profit 5,116 4,713 5,158 6,125
Net income 521 539 511 405
Basic net income per .05 .05 .04 .03
share
Diluted net income per .04 .04 .04 .04
share
F-17
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: _________________________
TOTAL RESEARCH CORPORATION
By:/s/Albert Angrisani
---------------------------------
Albert Angrisani, Chief Executive
Officer
In accordance with Section 13 or 15 (d) of the Exchange Act, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
TOTAL RESEARCH CORPORATION
Dated: September 28, 2000 By:/s/David Brodsky
---------------------------------
DAVID BRODSKY, Chairman of the
Board of Directors
Dated: September 28, 2000 By:/s/Albert Angrisani
---------------------------------
ALBERT ANGRISANI, Chief Executive
Officer (principal executive
officer), Director
Dated: September 28, 2000 By:/s/Matthew Kirby
---------------------------------
MATTHEW KIRBY, Acting Chief
Financial Officer and Acting
Chief Accounting Officer
Dated: September 28, 2000 By:/s/Howard Shecter
---------------------------------
HOWARD SHECTER, Director
Dated: September 28, 2000 By:/s/George Lindemann
---------------------------------
GEORGE LINDEMANN, Director
Dated: September 28, 2000 By:/s/Jack Freeman
---------------------------------
JACK FREEMAN, Director
Dated: September 28, 2000 By:/s/J. Edward Shrawder
---------------------------------
J. EDWARD SHRAWDER, Director
Dated: September 28, 2000 By:/s/Lorin Zissman
---------------------------------
LORIN ZISSMAN, Director
<PAGE>
Schedule II - Valuation and Qualifying Accounts
TOTAL RESEARCH CORPORATION AND SUBSIDIARIES
Rule 12-09. Valuation and Qualifying Accounts
Balance at Charged to
Beginning Costs and Deductions Balance at
Description of Period Expenses, net Describe End of period
----------- --------- ------------- -------- -------------
YEAR ENDED JUNE 30, 2000:
Allowance for uncollectible
accounts $110,000 $ 85,340 $ 13,000(1) $182,340
YEAR ENDED JUNE 30, 1999:
Allowance for uncollectible
accounts $110,000 - - $110,000
YEAR ENDED JUNE 30, 1998:
Allowance for uncollectible
accounts $110,000 - - $110,000
(1) Write offs of fully reserved bad debts.
S-1
