-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PXeKTEvWWQVtU90VzeAruLn+5qCPo43TE2axePcGURkwT9Fbka+J/dDlJkiNCvQy qr2fPraSgSpTSYUhM745/Q== 0000950110-00-000024.txt : 20000202 0000950110-00-000024.hdr.sgml : 20000202 ACCESSION NUMBER: 0000950110-00-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TSR INC CENTRAL INDEX KEY: 0000098338 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 132635899 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-08656 FILM NUMBER: 506506 BUSINESS ADDRESS: STREET 1: 400 OSER AVE CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5162310333 MAIL ADDRESS: STREET 1: 400 OSER AVENUE CITY: HAUPPAUGE STATE: NY ZIP: 11788 FORMER COMPANY: FORMER CONFORMED NAME: TIME SHARING RESOURCES INC DATE OF NAME CHANGE: 19840129 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended November 30, 1999 [ ] 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: 0-8656 --------------------------------------------------------- TSR, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-2635899 - -------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 400 Oser Avenue, Hauppauge, NY 11788 - -------------------------------------------------------------------------------- (Address of principal executive offices) 516-231-0333 - -------------------------------------------------------------------------------- (Registrant's telephone number) None - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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. [X] Yes [ ] No SHARES OUTSTANDING ------------------ 5,022,612 shares of common stock, par value $.01 per share, ----------------------------------------------------------- as of December 31, 1999 ----------------------- Page 1 TSR, INC. AND SUBSIDIARIES INDEX Page Number Part I. Financial Information: Item 1. Financial Statements: Consolidated Condensed Balance Sheets - November 30, 1999 and May 31, 1999...................... 3 Consolidated Condensed Statements of Earnings - For the three months and six months ended November 30, 1999 and 1998.............................. 4 Consolidated Condensed Statements of Cash Flows - For the six months ended November 30, 1999 and 1998..... 5 Notes to Consolidated Condensed Financial Statements......... 6 Item 2. Management's Discussion and Analysis........................ 7 Part II. Other Information............................................... 12 Signatures................................................................ 12 Page 2 Part I. Financial Information Item 1. Financial Statements TSR, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS November 30, May 31, ASSETS 1999 1999 ---- ----
Current Assets: Cash and cash equivalents (Note 6) ............................... $ 3,226,030 $ 2,234,723 Marketable securities (Note 7) .................................... 4,943,992 5,898,272 Accounts receivable (net of allowance for doubtful accounts of $173,000) .................................. 13,492,867 14,226,289 Other receivables ................................................. 209,385 167,415 Prepaid expenses .................................................. 2,831 44,731 Prepaid and recoverable income taxes ............................. 202,025 98,789 Deferred income taxes ............................................. 59,000 59,000 ---------- ---------- Total current assets.......................................... 22,136,130 22,729,219 Equipment and leasehold improvements, at cost (net of accumulated depreciation and amortization of $1,907,000 and $1,833,000) ..... 138,560 161,315 Other assets .......................................................... 42,236 35,276 Deferred income taxes ................................................. 253,000 265,000 ---------- ---------- $22,569,926 $23,190,810 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts and other payables ....................................... $ 458,495 $ 305,067 Accrued and other liabilities ..................................... 3,367,649 3,774,513 Advances from customers ........................................... 1,664,761 1,206,137 Income taxes payable .............................................. 118,726 140,548 ---------- ---------- Total current liabilities ................................... 5,609,631 5,426,265 ---------- ---------- Shareholders' Equity: Preferred stock, $1 par value, authorized 1,000,000 shares; none issued ................................ -- -- Common stock, $.01 par value, authorized 25,000,000 shares; issued 6,078,326 shares ................... 60,783 60,783 Additional paid-in capital ....................................... 4,134,053 4,134,053 Retained earnings ................................................ 20,133,277 17,764,087 ---------- ---------- 24,328,113 21,958,923 Less: Treasury Stock, 964,514 and 576,500 shares at cost ......... 7,367,818 4,194,378 ---------- ---------- 16,960,295 17,764,545 ---------- ---------- $22,569,926 $23,190,810 ========== ==========
The accompanying notes are an integral part of these consolidated condensed financial statements. Page 3 TSR, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998
Three Months Ended Six Months Ended November 30, November 30, 1999 1998 1999 1998 ---- ---- ---- ---- Revenues ...................................................... $ 20,680,945 $ 21,682,375 $ 41,635,639 $ 42,147,906 Cost of sales .................................................. 15,637,241 15,887,756 31,798,934 30,948,128 Selling, general and administrative expenses .................. 3,037,298 3,526,087 5,901,385 6,885,351 Research and development expenses .............................. -- 80,310 -- 228,481 ------------ ------------ ------------ ------------ 18,674,539 19,494,153 37,700,319 38,061,960 ------------ ------------ ------------ ------------ Income from operations ......................................... 2,006,406 2,188,222 3,935,320 4,085,946 Other income: Interest and dividend income .............................. 117,906 78,687 209,947 146,573 Gain (loss) from marketable securities, net ............... (2,378) 23,901 8,973 (3,881) Gain from sales of assets ................................. 1,950 -- 1,950 -- ------------ ------------ ------------ ------------ Income before income taxes ..................................... 2,123,884 2,290,810 4,156,190 4,228,638 Provision for income taxes ..................................... 910,000 1,000,000 1,787,000 1,850,000 ------------ ------------ ------------ ------------ Net income ................................................ $ 1,213,884 $ 1,290,810 $ 2,369,190 $ 2,378,638 ============ ============ ============ ============ Basic and diluted net income per common share .............................................. $ 0.23 $ 0.22 $ 0.45 $ 0.40 ============ ============ ============ ============ Weighted average number of basic and diluted common shares outstanding ................................. 5,181,657 5,988,276 5,229,317 5,988,276 ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated condensed financial statements. Page 4 TSR, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998 Six Months Ended November 30, 1999 1998 ---- ----
Cash flows from operating activities: Net income ................................................... $2,369,190 $ 2,378,638 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................. 74,055 431,500 Loss (gain)from marketable securities, net ............... (8,973) 3,881 Deferred income taxes ..................................... 12,000 (24,000) Gain on sales of assets ................................... (1,950) -- Changes in assets and liabilities: Accounts receivable ...................................... 733,422 (289,937) Other receivables ........................................ (41,970) (66,113) Prepaid expenses .......................................... 41,900 58,066 Prepaid and recoverable income taxes ...................... (103,236) 9,966 Other assets .............................................. (6,960) (28,100) Accounts payable and accrued expenses ..................... (253,436) 1,014,938 Income taxes payable ...................................... (21,822) (137,941) Advances from customers ................................... 458,624 (36,739) ---------- ---------- Net cash provided by operating activities .................... 3,250,844 3,314,159 ---------- ---------- Cash flows from investing activities: Proceeds from maturities and sales of marketable securities ................................... 2,892,956 974,054 Purchases of marketable securities ........................ (1,929,703) (1,929,684) Purchases of fixed assets ................................. (51,300) (58,879) Proceeds from sales of assets ............................. 1,950 -- ---------- ---------- Net cash provided by (used in) investing activities ....... 913,903 (1,014,509) ---------- ---------- Cash flows from financing activities: Purchases of treasury stock ............................... (3,173,440) -- ---------- ---------- Net cash used in financing activities ..................... (3,173,440) -- ---------- ---------- Net increase in cash and cash equivalents ........................ 991,307 2,299,650 Cash and cash equivalents at beginning of period ................. 2,234,723 2,425,122 ---------- ---------- Cash and cash equivalents at end of period ........................ $3,226,030 $ 4,724,772 ========= ========== Supplemental Disclosures: Income tax payments ........................................ $1,909,000 $ 2,002,000 ========= ========== Interest paid .............................................. $ -- $ -- ========= =========
The accompanying notes are an integral part of these consolidated condensed financial statements. Page 5 TSR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS NOVEMBER 30, 1999 1. The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions of Form 10-Q of Regulation S-X. Accordingly, they do not include all the information and notes required by generally accepted accounting principles for complete financial statements. For further information refer to the Company's consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended May 31, 1999. 2. In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the consolidated financial position, the consolidated results of operations, and consolidated cash flows for the periods presented. 3. The Company is primarily engaged in the business of providing computer programming consulting services. The Company provides technical computer personnel to companies to supplement their in-house information technology capabilities. In addition, the Company provided services converting software applications to be year 2000 compliant utilizing Catch/21 a year 2000 software solution which automates to a significant extent the conversion process. 4. The consolidated condensed financial statements include the accounts of TSR, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 5. The Company recognizes computer programming consulting services revenues as services are provided. Provided that acceptance is probable, revenue from Catch/21 code conversion is recognized when the converted code is delivered. 6. The Company considers short-term highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents were comprised of the following as of November 30, 1999: Cash in banks ...................................$ -- Money Market Funds............................... 2,238,035 United States Treasury Bills..................... 987,995 ----------- $ 3,226,030 =========== 7. Marketable securities consists of United States Treasury Bills and equity securities. The treasury bills with maturities at acquisition in excess of 90 days, are classified as held to maturity investments. The Company's equity securities are classified as trading securities. The amortized cost, gross unrealized holding gains, gross unrealized holding losses and carrying value for marketable securities by major security type at November 30, 1999 are as follows:
Gross Gross Unrealized Unrealized Amortized Holding Holding Carrying Cost Gains Losses Value ---------- --------- --------- ----------- United States Treasury Bills......... $ 4,803,919 -- -- 4,803,919 Equity Securities.................... 133,289 29,660 (22,876) 140,073 ---------- --------- --------- ----------- $ 4,937,208 $ 29,660 $ (22,876) $ 4,943,992 ========== ========= ========= ===========
8. During fiscal 1999, under a buy-back plan authorized by the Board of Directors to repurchase up to 600,000 shares of the Company's common stock, the Company purchased for $4,194,378, 576,500 shares of its common stock at the market value of the stock on the purchase date. The remaining authorization under the buy-back plan was completed after year end. In June 1999 the Board of Directors authorized an additional buy-back of up to 500,000 shares of common stock. During the six months ended November 30, 1999, the Company repurchased 388,014 shares of its common stock at a cost of $3,173,440. Page 6 Part I. Financial Information Item 2. TSR, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion and analysis should be read in conjunction with the consolidated condensed financial statements and the notes to the consolidated condensed financial statements. Results of Operations - --------------------- The following table sets forth for the periods indicated certain financial information derived from the Company's consolidated statements of earnings. There can be no assurance that trends in sales growth or operating results will continue in the future: Three months ended November 30, 1999 compared with three months ended November 30, 1998 - ------------------------------------------------------------------------------
(Dollar amounts in Thousands) 3 Months Ended November 30, 1999 1998 % of % of Amount Revenues Amount Revenues -------- -------- -------- -------- Revenues . . . . . . . . . . . . . . . . . . . . . $ 20,681 100.0 $ 21,682 100.0 Cost of Sales . . . . . . . . . . . . . . . . . . . 15,637 75.6 15,887 73.3 -------- ----- -------- ----- Gross Profit . . . . . . . . . . . . . . . . . . . 5,044 24.4 5,795 26.7 Selling, General, and Administrative expenses . . . 3,038 14.7 3,526 16.2 Research and Development expenses . . . . . . . . . -- -- 80 0.4 -------- ----- -------- ----- Income from Operations . . . . . . . . . . . . . . 2,006 9.7 2,189 10.1 Other Income . . . . . . . . . . . . . . . . . . . 118 0.6 102 0.5 -------- ----- -------- ----- Income Before Income Taxes . . . . . . . . . . . . 2,124 10.3 2,291 10.6 Provision for Income Taxes . . . . . . . . . . . . 910 4.4 1,000 4.6 -------- ----- -------- ----- Net Income . . . . . . . . . . . . . . . . . . . . $ 1,214 5.9 $ 1,291 6.0 ======== ===== ======== =====
Revenues - -------- Revenues consist primarily of revenues from computer programming consulting services. In addition, the Company's revenues included revenues from its Year 2000 business which commenced in fiscal 1997. Revenues for the quarter ended November 30, 1999 decreased $1,001,000 or 4.6% from the comparable period in fiscal 1999. For the current quarter 96.6% of revenues were derived from computer programming consulting services and 3.4% from Year 2000 services, as compared with 89.8% and 10.2% respectively in fiscal 1999. Computer programming consulting services revenues increased $515,000 or 2.6% from $19,460,000 in the quarter ended November 30, 1998 to $19,975,000 in the quarter ended November 30, 1999. This increase resulted from an overall increase in the average number of programmers on billing with clients from approximately 505 for the quarter ended November 30, 1998 to approximately 537 for the current quarter. Growth in consulting services revenues was at a slower rate than it had been in the past. The Company believes that this slower growth was attributable to a delay in new IT projects because customers were devoting their resources to Year 2000 testing. While the Company anticipates an increase in new projects in the current calendar year, the Company cannot predict when these new projects will commence. Revenues from the Company's Catch/21 Year 2000 compliance services, were $705,000 for the current quarter versus $2,222,000 in the fiscal 1999 second quarter. The Company's Year 2000 revenues have decreased significantly and the Company expects these revenues will further decline and are not likely to represent a material portion of the Companies revenues in the future. Page 7 Cost of Sales - ------------- Cost of sales as a percentage of revenues increased from 73.3% in the quarter ended November 30, 1998 to 75.6% in the quarter ended November 30, 1999. This increase is primarily attributable to the decrease in Year 2000 revenues for which cost of sales as a percentage of revenues is less than the computer programming consulting services business. In the computer programming consulting services business, cost of sales as a percentage of sales increased from 77.0% in the quarter ended November 30, 1998 to 77.1% in the quarter ended November 30, 1999. This increase is attributable to increases in amounts being paid to qualified programming professionals outpacing the Company's ability to pass these increases on to customers due to competitive market pressures in the industry. Additional market pressures have also created an environment where major customers are requiring discounts from existing pricing. The Year 2000 business incurred cost of sales of $241,000 in the quarter ended November 30, 1999 versus $908,000 in the prior year quarter. The Company significantly reduced the number of employees in its Year 2000 Services during fiscal 1999 and is currently providing such services through contractual arrangements with certain former employees. Selling, General and Administrative Expenses - -------------------------------------------- Selling, general and administrative expenses consist primarily of expenses relating to account executives, technical recruiters, facilities costs, management and corporate overhead. These expenses decreased $489,000 or 13.9% from $3,526,000 in the quarter ended November 30, 1998 to $3,037,000 in the quarter ended November 30, 1999. This decrease was primarily attributable to the reduction in Year 2000 services. Selling, general and administrative expenses related to computer programming consulting services increased $193,000 over the prior year period to $2,994,000. This increase was primarily attributable to expenses relating to the hiring of additional account executives and technical recruiting professionals to broaden the Company's client base and recruit additional technical consultants in connection with the continuation of the Company's planned expansion. In the quarter ended November 30, 1999, approximately $43,000 in selling, general and administrative expenses were attributable to Year 2000 services. These expenses consist primarily of management, and facilities expenses. Such expenses significantly decreased from fiscal 1999. Comparable Year 2000 selling, general and administrative expenses in the quarter ended November 30, 1998 were $725,000. Research and Development - ------------------------ Research and development costs of $80,000 in the quarter ended November 30, 1998 represent amounts expended by the Company to expand Catch/21, the Company's Year 2000 compliance solution, product offerings including XRAY/2000 which stands for Examination, Repair, and Audit for Year 2000 Compliance, and various testing utilities. There were no research and development expenses in the quarter ended November 30, 1999. Income from Operations - ---------------------- In the quarter ended November 30, 1999, the computer programming consulting service business contributed $1,585,000 or 79.0% of the income from operations, while the Year 2000 business contributed the remaining $421,000 or 21.0%. In the prior year quarter, the computer programming consulting service business contributed $1,680,000 or 76.7% of income from operations and the Year 2000 business $509,000 or 23.3%. The Company does not expect Year 2000 services to materially contribute to income from operations for the balance of its 2000 fiscal year. The Company believes that growth in contract computer programming services will, over time, offset the loss of income from operations from Year 2000 services. Other Income - ------------ Other income resulted primarily from interest and dividend income which increased by $39,000 to $118,000 due to higher average available investable funds in the quarter ended November 30, 1999. Additionally, the Company also had a net loss of $2,000 from marketable securities due to mark to market adjustments of its equity portfolio compared with a gain of $24,000 in the prior year quarter. Income Taxes - ------------ The effective income tax rate decreased to 42.8% in the quarter ended November 30, 1999 from 43.7% in the quarter ended November 30, 1998 because of lower state and local taxes. Page 8 Six months ended November 30, 1999 compared with six months ended November 30, 1998. - -------------------------------------------------------------------------------
(Dollar amounts in Thousands) 6 Months Ended November 30, 1999 1998 % of % of Amount Revenues Amount Revenues ------ -------- ------ -------- Revenues . . . . . . . . . . . . . . . . . . . . . $ 41,636 100.0 $ 42,148 100.0 Cost of Sales . . . . . . . . . . . . . . . . . . . 31,799 76.4 30,948 73.4 -------- ----- -------- ----- Gross Profit . . . . . . . . . . . . . . . . . . . 9,837 23.6 11,200 26.6 Selling, General, and Administrative expenses . . . 5,902 14.2 6,885 16.3 Research and Development expenses . . . . . . . . . -- -- 228 0.6 -------- ----- -------- ----- Income from Operations . . . . . . . . . . . . . . 3,935 9.4 4,087 9.7 Other Income . . . . . . . . . . . . . . . . . . . 221 0.6 142 0.3 -------- ----- -------- ----- Income Before Income Taxes . . . . . . . . . . . . 4,156 10.0 4,229 10.0 Provision for Income Taxes . . . . . . . . . . . . 1,787 4.3 1,850 4.4 -------- ----- -------- ----- Net Income . . . . . . . . . . . . . . . . . . . . $ 2,369 5.7 $ 2,379 5.6 ======== ===== ======== =====
Revenues - -------- Revenues consist primarily of revenues from computer programming consulting services. In addition, the Company's revenues included revenues from its Year 2000 business which commenced in fiscal 1997. Revenues for the six months ended November 30, 1999 decreased $512,000 or 1.2% over the comparable period in fiscal 1999. For the current six months 96.8% of revenues were derived from computer programming consulting services and 3.2% from Year 2000 services, as compared with 89.2% and 10.8% respectively in fiscal 1999. Computer programming consulting services revenues increased $2,694,000 or 7.2% from $37,595,000 in the six months ended November 30, 1998 to $40,289,000 in the six months ended November 30, 1999. This increase resulted from an overall increase in the average number of programmers on billing with clients from an average of 490 for the six months ended November 30, 1998 to approximately 540 in the six months ended at November 30, 1999. Growth in consulting services revenues was at a slower rate than it had been in the past. The Company believes that this slower growth was attributable to a delay in new IT projects because customers were devoting their resources to Year 2000 testing. While the Company anticipates an increase in new projects in the current calendar year, the Company cannot predict when these new projects will commence. Revenues from the Company's Catch/21 Year 2000 compliance services, were $1,346,000 for the current six months versus $4,553,000 in the prior year period. The Company's Year 2000 revenues have decreased significantly and the Company expects these revenues will further decline and are not likely to represent a material portion of the Companies revenues in the future. Page 9 Cost of Sales - ------------- Cost of sales as a percentage of revenues increased from 73.4% in the six months ended November 30, 1998 to 76.4% in the six months ended November 30, 1999. This increase is primarily attributable to the decrease in Year 2000 revenues for which cost of sales as a percentage of revenues is less than the computer programming consulting services business. In the computer programming consulting services business, cost of sales as a percentage of sales increased from 77.1% in the six months ended November 30, 1998 to 77.7% in the six months ended November 30, 1999. This increase is attributable to increases in amounts being paid to qualified programming professionals outpacing the Company's ability to pass these increases on to customers due to competitive market pressures in the industry. Additional market pressures have also created an environment where major customers are requiring discounts from existing pricing. The Year 2000 business incurred cost of sales of $501,000 in the six months ended November 30, 1999 versus $1,988,000 in the prior year period. The Company significantly reduced the number of employees in its Year 2000 Services during fiscal 1999 and is currently providing such services through contractual arrangements with certain former employees. Selling, General and Administrative Expenses - -------------------------------------------- Selling, general and administrative expenses consist primarily of expenses relating to account executives, technical recruiters, facilities costs, management and corporate overhead. These expenses decreased $984,000 or 14.3% from $6,885,000 in the six months ended November 30, 1998 to $5,901,000 in the six months ended November 30, 1999. This decrease was primarily attributable to the reduction in Year 2000 services. Selling, general and administrative expenses related to computer programming consulting services increased $284,000 over the prior year period to $5,806,000. This increase was primarily attributable to expenses relating to the hiring of additional account executives and technical recruiting professionals to broaden the Company's client base and recruit additional technical consultants in connection with the continuation of the Company's planned expansion. In the six months ended November 30, 1999, approximately $95,000 in selling, general and administrative expenses were attributable to Year 2000 services. These expenses consist primarily of management, and facilities expenses. Such expenses significantly decreased from fiscal 1999. Comparable Year 2000 selling, general and administrative expenses in the six months ended November 30, 1998 were $1,363,000. Research and Development - ------------------------ Research and development costs of $228,000 in the six months ended November 30, 1998 represent amounts expended by the Company to expand Catch/21, the Company's Year 2000 compliance solution, product offerings including XRAY/2000 which stands for Examination, Repair, and Audit for Year 2000 Compliance, and various testing utilities. There were no research and development expenses in the six months ended November 30, 1999. Income from Operations - ---------------------- In the six months ended November 30, 1999, the computer programming consulting service business contributed $3,185,000 or 80.9% of the income from operations, while the Year 2000 business contributed the remaining $750,000 or 19.1%. In the prior year period, the computer programming consulting service business contributed $3,113,000 or 76.2% of income from operations and the Year 2000 business $974,000 or 23.8%. The Company does not expect Year 2000 services to materially contribute to income from operations for the balance of its 2000 fiscal year. The Company believes that growth in contract computer programming services will, over time, offset the loss of income from operations from Year 2000 services. Other Income - ------------ Other income resulted primarily from interest and dividend income which increased by $63,000 to $210,000 due to higher average available investable funds in the six months ended November 30, 1999. Additionally, the Company also had a net gain of $9,000 from marketable securities due to mark to market adjustments of its equity portfolio as compared to a loss of $4,000 in the prior year period. Income Taxes - ------------ The effective income tax rate decreased to 43.0% in the six months ended November 30, 1999 from 43.7% in the six months ended November 30, 1998 because of lower state and local taxes. Page 10 Liquidity, Capital Resources and Changes in Financial Condition - --------------------------------------------------------------- The Company expects that cash flow generated from operations together with its cash and marketable securities will be sufficient to provide the Company with adequate resources to meet its cash requirements. At November 30, 1999, the Company had working capital of $16,526,000 and cash and cash equivalents of $3,226,000 as compared to working capital of $17,303,000 and cash and cash equivalents of $2,235,000 at May 31, 1999. Working capital decreased primarily due to the Company's purchase of $3,173,000 of treasury stock of the Company in the six months ended November 30, 1999. The Company had positive net cash flow of $3,251,000 from operations during the six months ended November 30, 1999 as compared to positive net cash flow from operations of $3,314,000 in the six months ended November 30, 1998. The Company had net income of $2,369,000, in the six months ended November 30, 1999. The Company also had additional cash flow as a result of the decrease in the accounts receivable of $733,000 and an increase in advances from customers of $459,000. The decrease in accounts receivable occurred primarily because the rate of collections exceeded the rate of revenue growth. The increase in advances from customers resulted from a significant prepayment made by one customer. Although it is likely this prepayment will be used in full, any unused balances will be returned to the customer. The increase in accounts payable and accrued expenses resulted primarily from the increase in cost of sales. Cash flow provided by investing activities resulted primarily from the maturity of United States Treasury Bills in the current period. Cash flow used in financing activities of $3,173,000 in the six months ended November 30, 1999 resulted from the repurchase of 388,000 shares of common stock of the Company. As of November 30, 1999, the Company has repurchased a total of 965,000 shares at an average price of $7.64 or a total cost of $7,368,000. The Company has completed the initial buy back authorization of 600,000 shares and the Company's board of directors has authorized the repurchase of up to an additional 500,000 shares of its common stock. No time limit has been placed on the duration of the share repurchases. Subject to applicable securities laws, such purchases will be at times and in amounts as the Company deems appropriate and may be discontinued at any time. The Company has no obligation or commitment to repurchase all or any portion of the shares covered by the authorization. The Company's capital resource commitments at November 30, 1999 consisted of lease obligations on its branch and corporate facilities. The Company intends to finance these lease commitments from cash flow provided by operations, available cash and short-term marketable securities. The Company's cash and marketable securities were sufficient to enable it to meet its cash requirements during the six months ended November 30, 1999. The Company has available a revolving line of credit of $5,000,000 with a major money center bank, which the Company believes provides sufficient financing if the need arose. As of November 30, 1999 no amounts were outstanding under this line of credit. Year 2000 Information - --------------------- Readiness for Year 2000 The Company has only limited internal systems which it believes could be affected by Year 2000 issues. The Company's principal information technology (IT) systems are its resume search (which contains its databases of IT professionals), payroll, billing, and general ledger systems. The Company believes that its search, payroll and billing software systems were designed and programmed to be Year 2000 compliant. The Company's general ledger system required an upgrade to be Year 2000 compliant and the Company has implemented the upgrade. The cost of the upgrade was not material. The Company is not currently aware of any non-IT systems which are material to the Company and contain embedded chip systems which have Year 2000 issues. Management does not believe that it will have material Year 2000 problems relating to its IT and non-IT systems. The Company's management currently believes that it was successful in identifying and resolving any potential deficiencies in its systems with respect to Year 2000 issues, that all material systems are compliant and that the cost to address the Year 2000 issue was not material. The Company does not materially rely on individual third party vendors and suppliers and accordingly does not believe that the Year 2000 readiness of third party vendors or suppliers will have a material impact on its business. Nonetheless, the Company's business is dependent on third parties, such as public utilities, electric systems, telecommunication systems, mail and overnight delivery services. The Company's business could be materially adversely affected by disruption in services provided by such entities, or by conditions resulting from Year 2000 issues generally affecting companies with which it does business. Page 11 The Company's management believes the impact of the Year 2000 will not cause any material disruptions in the Company's operations. However, the impact of such potential disruptions is difficult to assess and accordingly there is a risk that there will be disruptions which could have a material adverse effect on the Company. To date, the Company has not encountered any significant effects of the Year 2000 problem either internally or with third parties. This does not guarantee that problems will not occur in the future or have not yet been detected. Item 3. Quantitative and Qualitative Disclosure About Market Risk --------------------------------------------------------- The Company's earnings and cash flows are subject to fluctuations due to changes in interest rates primarily from its investment of available cash balances in money market funds and marketable securities. Under its current policies, the Company does not use interest rate derivative instruments to manage exposure to interest rate changes. Forward-Looking Statements - -------------------------- Certain statements contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations", including statements concerning the development of the Company's Catch/21 solution, future prospects and the Company's future cash flow requirements are forward looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projections in the forward looking statements which statements involve risks and uncertainties, including but not limited to the following: risks relating to the competitive nature of the markets for computer programming consulting services, the extent to which growth in the Company's contract computer programming services will offset the anticipated loss of Year 2000 profits, concentration of the Company's business with certain customers and uncertainty as to the Company's ability to bring in new customers and the Company's readiness for the Year 2000. TSR, INC. AND SUBSIDIARIES Part II. Other Information Item 6. Exhibits and Reports on Form 8K (a). Exhibit 10.1: Employment Agreement dated January 1, 2000 between TSR, Inc. and John G. Sharkey (b). Exhibit 27: Financial Data Schedule (c). Reports on Form 8K: None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TSR, INC. -------------------------------------------- (Registrant) Date: January 10, 2000 /s/ J.F. HUGHES -------------------------------------------- J.F. Hughes, Chairman, President and Treasurer Date: January 10, 2000 /s/ JOHN G. SHARKEY -------------------------------------------- John G. Sharkey, Vice President, Finance EX-10 2 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT AGREEMENT effective this _1st_ day of January, 2000 by and between TSR Inc., a Delaware corporation, with offices at 400 Oser Avenue, Hauppauge, New York 11788 (hereinafter called the "Corporation") and John G. Sharkey, residing at 24 Wintergreen Dr., Melville, New York 11747 (hereinafter called "Executive"). W I T N E S S E T H : WHEREAS, the Corporation desires to employ Executive and Executive is willing to undertake such employment on the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto agree as follows: 1. The Corporation hereby employs Executive as Vice President of Finance and Controller of the Corporation or such other position as he may be elected or appointed to by the Corporation's Board of Directors, to perform such supervisory or executive duties on behalf of the Corporation as the Board of Directors of the Corporation may from time to time determine. 2. Executive hereby accepts such employment and agrees that throughout the period of his employment hereunder, he will devote his full time, attention, knowledge and skills, faithfully, diligently and to the best of his ability, in furtherance of the business of the Corporation and to promote the interest of the Corporation, will perform the duties assigned to him pursuant to Paragraph 1 hereof, subject, at all times, to the direction and control of the Board of Directors of the Corporation and the Corporation's President. Executive shall at all times be subject to, observe and carry out such rules and regulations as the Board of Directors of President of the Corporation or it may from time to time establish. During the period of Executive's employment hereunder, Executive shall not be entitled to additional compensation for serving in any office of the Corporation or any of its subsidiaries to which he is elected, including without limitation as a director of the Corporation or any of its subsidiaries. 3. Executive shall be employed for a term of three (3) years commencing as of the 1st day of January, 2000 and ending on the 31st day of December, 2002 (the "Term"), unless his employment is terminated prior to the expiration of said three (3) year term pursuant to the provisions hereof. 4. As full compensation for his services hereunder, the Corporation will pay to Executive a salary at the rate of One Twenty-Five Thousand ($125,000) Dollars per annum, payable in equal installments no less frequently than semi-monthly. The annual salary shall be subject to increase in the discretion of the President of the Corporation. In addition, Executive shall be entitled to a discretionary bonus, in an amount determined in good faith by the President of the Corporation, based on standards relating to the Executive's performance and the Corporation's performance determined in good faith by the President of the Corporation. The bonus provided for hereunder shall be payable by the Corporation to Executive within 30 days of the end of the calendar year to which such bonus relates. In addition to such compensation, Executive shall be entitled to participate, to the extent he is eligible under the terms and conditions thereof, in any pension, profit-sharing, retirement, hospitalization, insurance medical services, or other employee benefit plan generally available to executives of the Corporation which may be in effect from time to time during the period of his employment hereunder. The Corporation shall be under no obligation to institute or continue the existence of any such employee benefit plan. Employee shall also continue to be entitled to a leased car comparable to the car which he is currently provided. Executive shall be entitled to four weeks of paid vacation for each year. 5. The Corporation shall reimburse Executive for all expenses reasonably incurred by him in connection with the performance of his duties hereunder and the business of the Corporation, upon the submission to the Corporation of appropriate vouchers therefor and approval thereof by the President of the Corporation; provided, however, that no reimbursement has been made by the Corporation for expenses substantially disallowed, Executive shall reimburse the Corporation for any such amounts. Such reimbursements shall be subject to the expense reimbursement policies of the Corporation which are in effect from time to time. 6. Notwithstanding any provision contained herein to the contrary, the Corporation may terminate Employee's employment hereunder at any time for "Cause" as such term has been interpreted pursuant to the decisions of the courts of the State of New York which have interpreted the meaning for "Cause" for justifiable termination pursuant to employment arrangements generally. The Corporation may terminate such employment without Cause at any time; provided however, the Corporation shall continue to pay the Employee his base compensation, which shall not exceed the rate of $125,000 per annum, during the balance of the term. In the event of a termination of Employee's employment Employee shall be eligible to continue to receive, at the Company's expense, all benefits provided by the Corporation as enumerated in Paragraph 4, above. 7. CHANGE IN CONTROL. (a) Executive shall have the right to terminate his employment hereunder following a Change in Control. If Executive elects to terminate his employment hereunder, he shall do so by written notice given within 60 days after the event constituting a Change in Control. (b) For purposes of this Agreement "Change in Control" shall mean that any of the following events has occurred: (i) An acquisition (other than directly from the Corporation) of any voting securities of the Corporation (treating all classes of outstanding voting securities or other securities convertible into voting securities as if they were converted into voting securities) (the "VOTING SECURITIES") by any "person", "entity" or "group of affiliated persons" (as such terms are used for purposes of Section 13(d) or 14(d) (collectively, "PERSONS") of the -2- Securities Exchange Act of 1934, as amended (the "1934 Act") (other than Joseph Hughes or a group which includes Joseph Hughes) immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act and irrespective of any vesting or waiting periods) of twenty (20%) percent or more of the combined voting power of the Corporation's then outstanding Voting Securities; unless immediately after such acquisition Joseph Hughes beneficially owns a greater percentage of the Voting Securities than such Persons. (ii) An acquisition of any voting sceurities of the corporation (treating all classes of outstanding voting securities or other securities convertible into voting securities as if they were converted into voting securities) ( the "VOTING SECURITIES" by any "person", "entity" or "group of affiliated persons" ( as such terms are used for purposes of Section 13(d) or 14(d) ( collectively, " PERSONS" ) of the Securities Exchange Act of 1934 , as amended ( the "1934 Act") ( other than Joseph Hughes or a group which includes Joseph Hughes) immediately after which such Person has " Beneficial Ownership" ( within the meaning of Rule 13d-3 promulgated under the 1934 Act and irrespective of any vesting or waiting periods) of a greater percentage of the Voting Securities than Joseph Hughes, if within six months thereafter the individuals who were members of the Board of Directors immediately prior to such acquisution or the initial agreement relating to such acquisution no longer constitute at least a majority of the members of the Board of Directors of the Company. (iii) A merger, consolidation or reorganization involving the Corporation or a sale of all or substantially all of the assets of the Corporation, unless (A) the shareholders of the Corporation, immediately before such merger, consolidation or reorganization, own, directly or indirectly, immediately following such merger, consolidation or reorganization, more than fifty (50%) percent of the combined voting power of the outstanding Voting Securities of the entity resulting from such merger or consolidation or reorganization or sale of all or substantially all of the assets (the "SURVIVING ENTITY") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization or sale of all or substantially all of the assets, and (B) the individuals who were members of the Board of Directors immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization or sale of all or substantially all of the assets constitute at least a majority of the members of the board of directors of the Surviving Entity or an entity beneficially owning, directly or indirectly, a majority of the Voting Securities of the Surviving Entity, and -3- (C) no Person (other than the Corporation, any subsidiary, any employee benefit plan (or any trust forming a part thereof) maintained by the Corporation, the Surviving Entity or any subsidiary, or any Person who, immediately prior to such merger, consolidation or reorganization or sale of all or substantially all of the assets had Beneficial Ownership of thirty (30%) percent or more of the then outstanding Voting Securities) owns, directly or indirectly, thirty (30%) percent or more of the combined voting power of the Surviving Entity's then outstanding Voting Securities. (iv) A complete liquidation or dissolution of the Corporation. (v) There has been a public announcement of a Change in Control of the Corporation (provided, however, that consummation of the Change in Control of the Corporation shall be a condition precedent to the effectiveness of this provision) and at any time thereafter the employment of the Executive under this Agreement is terminated for any reason whatsoever; (c) Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "SUBJECT PERSON") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Corporation which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. (d) If Employee's employment is terminated pursuant to this Section, the Corporation shall pay to the Executive (i) his full salary at the rate then in effective through the date of termination and plus an amount equal to the annual salary payable hereunder at the rate then in effect and (ii) and an amount equal to the pro rata portion of the bonus to which Executive is entitled for the then current year (based on the portion of the year through the date of termination) through the date of termination or if such amount cannot be determined, the pro rata portion of the bonus paid for the preceding year through the date of termination plus an amount equal to the bonus payable for a one year period based on the annual bonus payable for the then current year, or if such amount cannot be determined, the amount of the bonus paid for the prior year. In addition, the Company will continue to provide and to Executive, at the Company's expense, all benefits as enumerated in Paragraph 4 above for a period of one year. 8. The Corporation and Employee are simultaneously herewith entering into a Maintenance of Confidence and Non-Compete Agreement, the terms of which are hereby expressly incorporated into this Agreement, provided, however, that the Maintenance of Confidence and Non-Compete Agreement shall continue to be effective notwithstanding any termination of Employee's employment hereunder and shall continue in effect upon expiration of this Employment Agreement pursuant to the terms of the Maintenance of Confidence and Non-Compete Agreement. -4- 9. In the event of Executive's death during the Term, this Agreement shall terminate immediately, and Executive's legal representatives shall be entitled to receive the salary due Executive through the last day of the calendar month during which his death shall have occurred. 10. If, during the Term, Executive is unable to perform his duties hereunder on account of illness, accident or other physical or mental incapacity and such illness or other incapacity shall continue for a period of four(4) consecutive months or an aggregate of one hundred and eighty (180) days in any consecutive twelve (12) month period, the Corporation shall have the right, on fifteen (15) days written notice (given after such period) to Executive, to terminate this Agreement. In such event, the Corporation shall be obligated to pay to Executive his compensation only to the end of the calendar month in which such termination occurs. However, if prior to the date specified in such notice, Executive's illness or incapacity shall have terminated and he shall have taken up the performance of his duties hereunder, Executive shall be entitled to resume his employment hereunder, as though such notice had not been given. 11. (a) The Corporation shall have the right from time to time to purchase, increase, modify or terminate insurance policies on the life of Executive for the benefit of the Corporation, in such amounts as the Corporation shall determine in its sole discretion 12. (b) In connection with paragraph 11(a) above, Executive shall, at such time or times and at such place or places as the Corporation may reasonable direct, submit himself to such physical examinations and executive and deliver such documents as the Corporation may deem necessary or desirable. Confidentiality. Executive acknowledges that, through his status as Vice President, Finance and Controller of the Corporation, and will have, possession of Confidential Information (as defined herein) as to the business of the Corporation. Executive agrees that all such Confidential Information constitutes a vital part of the business of the Corporation and its affiliates and is by its nature trade secrets and confidential information proprietary to the Corporation and its affiliates. Executive agrees that he shall not divulge, communicate, furnish or make accessible (whether orally or in writing or in books, articles or any other medium to any individual, firm, partnership, corporation or other entity or person, any knowledge or information with respect to Confidential Information directly or indirectly relating to the business of the Corporation or any of its affiliates. The term "Confidential Information" shall mean any information not generally known in the relevant trade or otherwise not generally available to the public, which was obtained from the Corporation or which was learned, discovered, developed, conceived, originated or prepared during or as a result of the performance of any services by Executive on behalf of the Corporation. 13. The parties hereto acknowledge that Executive's service are unique and that, in the event of a breach of Executive of any of his obligations under this Agreement, the corporation will not have an adequate remedy at law. Accordingly, in the event of any such breach of threatened breach by Executive, the Corporation shall be entitled to such equitable and injunctive relief as may be available to restrain the Executive participating in such breach of threatened breach from the violation of the provisions thereof. Nothing herein shall be construed as prohibiting the Corporation from pursuing any other remedies at law or in equity for such breach or threatened breach, including the recovery of damages and the immediate termination of the employment of Executive hereunder. -5- 14. This Agreement together with the Maintenance of Confidence and Non-Compete Agreement executed on the same date hereof, constitute the entire agreement of the parties hereto and no amendment or modification hereof shall be valid or binding unless made in writing and signed by the party against whom enforcement thereof is sought. 15. Any notice required, permitted or desired to be given pursuant to any of the provisions of this Agreement shall be deemed to have been sufficiently given or served for all purposes if delivered in person or sent by certified mail, return receipt requested, postage and fees prepaid as follows: If to the Corporation at: Chairman of the Board TSR, Inc. 400 Oser Avenue Hauppauge, New York 11788 With a copy to: Steven A. Fishman, Esq. Battle Fowler LLP 75 East 55th Street New York, NY 10022 If to the Executive at: Mr. John Sharkey 24 Wintergreen Dr. Melville, NY 11747 Either of the parties hereto may at any time and from time to time change the address to which notice shall be sent hereunder by notice to the other party given under this paragraph 16. The date of the giving of any notice sent by mail shall be the date of the posting of the mail. 16. Neither this Agreement nor the right to receive any payments hereunder may be assigned by Executive. This Agreement shall be binding upon Executive, his heirs, executors and administrators and upon the Corporation, its successors and assigns. 17. No course of dealing nor any delay on the part of the Corporation in exercising any rights hereunder shall operate as a waiver of any such rights. No waiver of any default or breach of this Agreement shall be deemed a continuing waiver or a waiver of any other breach or default. 18. This Agreement shall be governed, interpreted and construed in accordance with the laws of the Sate of New York applicable to agreements entered into and to be performed entirely therein. 19. If any clause, paragraph, section of part of this Agreement shall be held or declared to be void, invalid or illegal, for any reason, by any court of competent jurisdiction, such provision shall be ineffective but shall not in any way invalidate or affect any other clause, paragraph, section or part of this Agreement. -6- 20. Employee acknowledges that he is not subject to any agreement which would in any way restrict him from carrying out his employment as contemplated hereunder. 21. This agreement supersedes any prior employment agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day in year first above written. TSR, INC. By: /s/ J. F. HUGHES --------------------------- Name: J. F. Hughes Title: President /s/ JOHN G. SHARKEY --------------------------- John G. Sharkey EX-27 3 FINANCIAL DATA SCHEDULE
5 TSR, INC. AND SUBSIDIARIES Exhibit 27, Financial Data Schedule to Report on Form 10Q, November 30, 1999 6-MOS May-31-2000 Nov-30-1999 3,226,030 4,943,992 13,666,131 173,264 0 22,136,130 2,045,379 1,906,819 22,569,926 5,609,631 0 0 0 60,783 16,899,512 22,569,926 0 41,635,639 0 31,798,934 5,901,385 0 0 4,156,190 1,787,000 2,369,190 0 0 0 2,369,190 0.45 0.45
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