-----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, J7NgnrjjGkc2NqfkKHDEqc891V8vjSaGzA71pqefHe6ISMdNxtlHMkNFduYi2d15 qZdLUcu8GWsAM9iIOn4ufQ== 0001072613-06-000034.txt : 20060109 0001072613-06-000034.hdr.sgml : 20060109 20060109121341 ACCESSION NUMBER: 0001072613-06-000034 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20051130 FILED AS OF DATE: 20060109 DATE AS OF CHANGE: 20060109 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: 1934 Act SEC FILE NUMBER: 000-08656 FILM NUMBER: 06518407 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 form10-q_14074.txt FORM 10-Q (NOVEMBER 30, 2005) ================================================================================ 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, 2005 [_] 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) 631-231-0333 - -------------------------------------------------------------------------------- (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 Indicate by check mark whether the Registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). [_] Yes [X] No Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [_] Yes [X] No SHARES OUTSTANDING ------------------ 4,568,012 shares of common stock, par value $.01 per share, ----------------------------------------------------------- as of December 31, 2005 ----------------------- ================================================================================ TSR, INC. AND SUBSIDIARIES INDEX Page Number Part I. Financial Information: ------ Item 1. Financial Statements: Condensed Consolidated Balance Sheets - November 30, 2005 and May 31, 2005.................... 3 Condensed Consolidated Statements of Income - For the three months and six months ended November 30, 2005 and 2004............................ 4 Condensed Consolidated Statements of Cash Flows - For the six months ended November 30, 2005 and 2004... 5 Notes to Condensed Consolidated Financial Statements...... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................... 9 Item 3. Quantitative and Qualitative Disclosure About Market Risk. 15 Item 4. Controls and Procedures................................... 16 Part II. Other Information.................................................. 16 Item 6. Exhibits.................................................. 16 Signatures................................................................... 16 Page 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TSR, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
November 30, May 31, 2005 2005 ------------ ------------ (Unaudited) ASSETS Current Assets: Cash and cash equivalents (Note 3) .......................................... $ 1,999,376 $ 2,571,276 Marketable securities (Note 5) .............................................. 7,394,254 7,908,138 Accounts receivable (net of allowance for doubtful accounts of $380,000 and 430,000) ................................................ 8,123,531 7,509,188 Other receivables ........................................................... 84,070 69,511 Prepaid expenses ............................................................ 25,296 46,280 Prepaid and recoverable income taxes ........................................ 45,420 15,403 Deferred income taxes ....................................................... 160,000 180,000 ------------ ------------ Total current assets .................................................... 17,831,947 18,299,796 Equipment and leasehold improvements, at cost (net of accumulated depreciation and amortization of $534,702 and $524,142)...................... 38,317 33,093 Other assets ..................................................................... 49,653 49,893 Deferred income taxes ............................................................ 111,000 148,000 ------------ ------------ $ 18,030,917 $ 18,530,782 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts and other payables ................................................. $ 164,251 $ 216,031 Accrued expenses and other current liabilities .............................. 1,703,856 2,015,995 Advances from customers ..................................................... 1,502,259 1,523,549 Income taxes payable ........................................................ 102,350 152,966 ------------ ------------ Total current liabilities ............................................... 3,472,716 3,908,541 ------------ ------------ Minority Interest ................................................................ 62,326 33,458 ------------ ------------ Stockholders' Equity: Preferred stock, $1 par value, authorized 1,000,000 shares; none issued ............................................................. -- -- Common stock, $.01 par value, authorized 25,000,000 shares; issued 6,228,326 shares ................................................. 62,283 62,283 Additional paid-in capital .................................................. 5,071,727 5,071,727 Retained earnings ........................................................... 21,393,166 21,486,074 ------------ ------------ 26,527,176 26,620,084 Less: Treasury stock, 1,660,314 shares, at cost ............................. 12,031,301 12,031,301 ------------ ------------ 14,495,875 14,588,783 ------------ ------------ $ 18,030,917 $ 18,530,782 ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. Page 3 TSR, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2005 AND 2004 (UNAUDITED)
Three Months Ended Six Months Ended November 30, November 30, ---------------------------- ---------------------------- 2005 2004 2005 2004 ------------ ------------ ------------ ------------ Revenues, net ..................................................... $ 11,829,402 $ 13,138,281 $ 24,294,103 $ 26,519,239 Cost of sales ..................................................... 9,459,779 10,231,397 19,399,227 20,684,995 Selling, general and administrative expenses ...................... 1,601,046 1,906,599 3,341,648 3,773,169 ------------ ------------ ------------ ------------ 11,060,825 12,137,996 22,740,875 24,458,164 ------------ ------------ ------------ ------------ Income from operations ........................................... 768,577 1,000,285 1,553,228 2,061,075 Other income (expense): Interest and dividend income ................................ 83,450 34,012 161,599 61,479 Realized and unrealized gain (loss) from marketable securities, net .......................................... 768 1,184 (224) (3,828) Minority interest in subsidiary operating profits ........... (22,923) (20,071) (47,868) (35,781) ------------ ------------ ------------ ------------ Income before income taxes ........................................ 829,872 1,015,410 1,666,735 2,082,945 Provision for income taxes ....................................... 346,000 440,000 709,000 909,000 ------------ ------------ ------------ ------------ Net income .................................................. $ 483,872 $ 575,410 $ 957,735 $ 1,173,945 ============ ============ ============ ============ Basic and diluted net income per common share ..................... $ 0.11 $ 0.13 $ 0.21 $ 0.26 ============ ============ ============ ============ Weighted average number of basic common shares outstanding ........ 4,568,012 4,568,012 4,568,012 4,568,012 ============ ============ ============ ============ Weighted average number of diluted common shares outstanding ...... 4,568,012 4,569,649 4,568,012 4,569,563 ============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. Page 4 TSR, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED NOVEMBER 30, 2005 AND 2004 (UNAUDITED)
Six Months Ended November 30, ---------------------------- 2005 2004 ------------ ------------ Cash flows from operating activities: Net income ............................................................................... $ 957,735 $ 1,173,945 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ......................................................... 10,560 22,493 Realized and unrealized loss from marketable securities, net .......................... 224 3,828 Stock based compensation expense ...................................................... -- 2,900 Minority interest in subsidiary operating profits ..................................... 47,868 35,781 Deferred income taxes ................................................................. 57,000 (5,000) Recovery of bad debt expense ......................................................... (50,000) -- Changes in assets and liabilities: Accounts receivable - trade .............................................................. (564,343) 1,712,669 Other receivables ........................................................................ (14,559) (5,392) Prepaid expenses ......................................................................... 20,984 21,867 Prepaid and recoverable income taxes ..................................................... (30,017) 11,938 Other assets ............................................................................. 240 35,001 Accounts payable and accrued expenses .................................................... (363,919) (139,566) Income taxes payable ..................................................................... (50,616) 23,032 Advances from customers .................................................................. (21,290) (43,227) ------------ ------------ Net cash provided by (used in) operating activities ................................... (133) 2,850,269 ------------ ------------ Cash flows from investing activities: Proceeds from maturities and sales of marketable securities .............................. 5,913,431 6, 476,443 Purchases of marketable securities ...................................................... (5,399,771) (5,942,846) Purchases of fixed assets ................................................................ (15,784) (15,662) ------------ ------------ Net cash provided by investing activities ............................................ 497,876 517,935 ------------ ------------ Cash flows from financing activities: Distribution to minority interest ....................................................... (19,000) (16,000) Cash dividends paid ...................................................................... (1,050,643) (1,370,404) ------------ ------------ Net cash used in financing activities ................................................. (1,069,643) (1,386,404) ------------ ------------ Net increase (decrease) in cash and cash equivalents .................................. (571,900) 1,981,800 Cash and cash equivalents at beginning of period ..................................... 2,571,276 2,268,796 ------------ ------------ Cash and cash equivalents at end of period ................................................ $ 1,999,376 $ 4,250,596 ============ ============ Supplemental Disclosures: Income tax payments ..................................................................... $ 733,000 $ 879,000 ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. Page 5 TSR, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 2005 (UNAUDITED) 1. Basis of Presentation --------------------- The accompanying condensed consolidated interim financial statements include the accounts of TSR, Inc. and its subsidiaries (the "Company"). All significant inter-company balances and transactions have been eliminated in consolidation. These interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America applying to interim financial information and with the instructions to Form 10-Q of Regulation S-X of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures required by accounting principles generally accepted in the United States of America and normally included in the Company's annual financial statements have been condensed or omitted. These interim financial statements as of and for the six months ended November 30, 2005, are unaudited; however, in the opinion of management, such statements include all adjustments (consisting of normal recurring accruals) necessary to present fairly the consolidated financial position, results of operations, and cash flows of the Company for the periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending May 31, 2006. These interim financial statements should be read in conjunction with 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, 2005. 2. Net Income Per Common Share --------------------------- Basic net income per common share is computed by dividing income available to common stockholders (which for the Company equals its net income) by the weighted average number of common shares outstanding, and diluted net income per common share adds the dilutive effect of stock options and other common stock equivalents. No options covering shares of common stock have been omitted from the calculations of diluted net income per common share for the three month and six month periods ended November 30, 2005 and November 30, 2004, respectively, because their effect would have been antidilutive. 3. Cash and Cash Equivalents ------------------------- 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, 2005: Cash in banks. . . . . . . . . . . . . . . . . . . $ 364,823 Money Market Funds . . . . . . . . . . . . . . . . 1,634,553 ------------ $ 1,999,376 ============ 4. Revenue Recognition ------------------- The Company's contract computer programming services are generally provided under time and materials agreements with customers. Accordingly, the Company recognizes such revenues as services are provided. Advances from customers represent amounts received from customers prior to the Company's provision of the related services and credit balances from overpayments. Reimbursements received by the Company for out-of-pocket expenses are characterized as revenue in accordance with Emerging Issues Task Force (EITF) Issue 01-14 "Income Statement of Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses Incurred." Page 6 TSR, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOVEMBER 30, 2005 (UNAUDITED) 5. Marketable Securities --------------------- The Company accounts for its marketable securities in accordance with Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities." Accordingly, the Company classifies its marketable securities at acquisition as either (i) held-to-maturity, (ii) trading, or (iii) available-for-sale. Based upon the Company's intent and ability to hold its US Treasury securities to maturity (which maturities are mostly less than one year), such securities have been classified as held-to -maturity and are carried at amortized cost. The Company's equity securities are classified as trading securities, which are carried at fair value with unrealized gains and losses included in earnings. The Company's marketable securities are summarized as follows:
Gross Gross Unrealized Unrealized Amortized Holding Holding Recorded Cost Gains Losses Value ---------- ---------- ---------- ---------- United States Treasury Securities .... $7,372,910 -- -- 7,372,910 Equity Securities .................... 16,866 4,478 -- 21,344 ---------- ---------- ---------- ---------- $7,389,776 $ 4,478 $ -- $7,394,254 ========== ========== ========== ==========
Page 7 TSR, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOVEMBER 30, 2005 (UNAUDITED) 6. Stock Options ------------- On July 28, 2003 the Company paid a large nonrecurring cash dividend of $2.00 per share to shareholders of record as of July 11, 2003. The dividend paid amounted to $9,088,024. Guidance under Emerging Issues Task Force (EITF) 00-23, ISSUES RELATED TO THE ACCOUNTING FOR STOCK COMPENSATION UNDER APB OPINION NO.25 AND FASB INTERPRETATION NO.44, requires modification for outstanding stock options by adjusting the price and/or the number of shares under a fixed stock option award as a result of a large nonrecurring cash dividend. The Company did not adjust the terms of any outstanding stock options and, given the circumstances, a new measurement date and variable accounting treatment was required for its outstanding options at the dividend payment date. The Company had 10,000 such outstanding options, all of which were vested, as of November 30, 2004 which were subject to variable accounting treatment. Accordingly, the Company recorded a non-cash compensation charge of $10,500 for the three months ended November 30, 2004 and $2,900 for the six months ended November 30, 2004. These options expired in June 2005. The Company has one stock-based employee compensation plan in effect. The Company accounts for all transactions under which employees receive shares of stock or other equity instruments in the Company based on the price of its stock in accordance with the provisions of Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. All options granted under the plan had an exercise price equal to the market value of the underlying common stock, and the number of shares represented by such options were known and fixed, on the date of grant. However, as a result of the large nonrecurring cash dividend, the remaining outstanding 10,000 options were treated as variable options until their expiration in June 2005. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123 ACCOUNTING FOR STOCK-BASED COMPENSATION.
Three Months Ended Six Months Ended November 30, November 30, --------------------------- --------------------------- 2005 2004 2005 2004 ------------ ------------ ------------ ------------ Net income: As reported ............... $ 483,872 $ 575,410 $ 957,735 $ 1,173,945 Add: Stock based employee compensation expense included in reported net income, net of related tax effect ........... -- 10,500 -- 2,900 ------------ ------------ ------------ ------------ Proforma net income ....... $ 483,872 $ 585,910 $ 957,735 $ 1,176,845 ============ ============ ============ ============ Basic net income per share: As reported .................. $ 0.11 $ 0.13 $ 0.21 $ 0.26 ============ ============ ============ ============ Proforma ..................... $ 0.11 $ 0.13 $ 0.21 $ 0.26 ============ ============ ============ ============
There were no options granted in fiscal 2006 and 2005. Page 8 TSR, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOVEMBER 30, 2005 (UNAUDITED) 7. Recent Accounting Pronouncements -------------------------------- In December 2004, the FASB issued a revision of SFAS No. 123, "Statement of Financial Accounting Standards No. 123 (revised 2004)," which requires that the cost resulting from all share based payment transactions be recognized in the financial statements. This Statement establishes fair value as the measurement objective in accounting for share based payment arrangements and requires all entities to apply a fair value based measurement method in accounting for share based transactions with employees except for equity instruments held by employee share ownership plans. This Statement is effective as of the beginning of the first annual reporting period that begins after June 15, 2005. The Company does expect the adoption of the revised SFAS No. 123 to have a material impact on its consolidated financial statements. Page 9 PART I. FINANCIAL INFORMATION ITEM 2. TSR, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the notes to such financial statements. Forward-Looking Statements - -------------------------- Certain statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations, including statements concerning the Company's 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 contract computer programming services; the extent to which market conditions for the Company's contract computer consulting services will continue to adversely affect the Company's business; the concentration of the Company's business with certain customers; uncertainty as to the Company's ability to maintain its relations with existing customers and expand its contract computer consulting services business; the impact of changes in the industry, such as the use of vendor management companies in connection with the consulting procurement process the increase in customers moving IT operations offshore, and uncertainty as to the operating results of the Company's legacy system migration service and the impact of the changes in pricing methodology of the Company's largest customer and other risks and uncertainties set forth in the Company's filings with the Securities and Exchange Commission. Results of Operations - --------------------- The following table sets forth for the periods indicated certain financial information derived from the Company's condensed consolidated statements of earnings. There can be no assurance that trends in operating results will continue in the future: Three months ended November 30, 2005 compared with three months ended November - ------------------------------------------------------------------------------ 30, 2004 - --------
Three Months Ended November 30, (Dollar amounts in Thousands) ------------------------------------------------- 2005 2004 ----------------------- ----------------------- % of % of Amount Revenues Amount Revenues ---------- ---------- ---------- ---------- Revenues ................................................... $ 11,829 100.0 $ 13,138 100.0 Cost of sales .............................................. 9,460 80.0 10,231 77.9 ---------- ---------- ---------- ---------- Gross profit ............................................... 2,369 20.0 2,907 22.1 Selling, general, and administrative expenses .............. 1,601 13.5 1,907 14.5 ---------- ---------- ---------- ---------- Income from operations ..................................... 768 6.5 1,000 7.6 Other income ............................................... 62 0.5 15 0.1 ---------- ---------- ---------- ---------- Income before income taxes ................................. 830 7.0 1,015 7.7 Provision for income taxes ................................. 346 2.9 440 3.3 ---------- ---------- ---------- ---------- Net income ................................................. $ 484 4.1 $ 575 4.4 ========== ========== ========== ==========
Page 10 TSR, INC. AND SUBSIDIARIES Revenues - -------- Revenues consist primarily of revenues from computer programming consulting services. Revenues for the quarter ended November 30, 2005 decreased $1,309,000 or 10.0% from the comparable prior year period. The decline in revenues resulted primarily from a decrease in the average number of consultants on billing with clients from 389 for the quarter ended November 30, 2004 to 345 for the quarter ended November 30, 2005. Additionally, revenues decreased as a result of the impact of a full quarter of the previously announced price reduction by the Company's largest customer. Cost of Sales - ------------- Cost of sales for the quarter ended November 30, 2005, decreased $771,000 or 7.5% to $9,460,000 from $10,231,000 in the prior year period. This decrease is primarily attributable to fewer consultants on billing with customers. Cost of sales as a percentage of revenues increased from 77.9% in the quarter ended November 30, 2004 to 80.0% in the quarter ended November 30, 2005. This increase is primarily attributable to the decreased revenues resulting from the impact of the previously announced price reduction by the Company's largest customer. This change in pricing methodology, which provides for pricing on a "cost plus" basis, reduced revenues while not allowing offsetting cost reductions. 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 $306,000 or 16.0% from $1,907,000 in the quarter November 30, 2004 to $1,601,000 in the quarter ended November 30, 2005. This decrease was primarily attributable to reduced selling expenses resulting from a reduced number of account executives and the termination of the "Transformer" service described below. During the past year, the Company had been working on developing a new service, "Transformer", aimed at converting legacy systems that run on large main-frame computers to lower cost computer environments. The Company has terminated this effort, although it may renew its efforts in the future. Income from Operations - ---------------------- Income from operations decreased $232,000 or 23.2% from $1,000,000 in the quarter ended November 30, 2004 to $768,000 in the quarter ended November 30, 2005. The decrease in income from operations was primarily attributable to the impact of a full quarter of the previously announced price reduction by the Company's largest customer. This change in pricing methodology reduced revenues while not allowing offsetting cost reductions, resulting in a greater percentage decline in net income than in revenues. Other Income - ------------ Other income resulted primarily from interest and dividend income, which increased by $49,000 to $83,000 due to higher interest rates in the quarter ended November 30, 2005. Additionally, the Company had a net unrealized gain of $1,000 in the quarter ended November 30, 2005 versus a gain of $5,000 in the quarter ended November 30, 2004 from marketable securities due to mark to market adjustments of its trading securities equity portfolio. The unrealized gain of $5,000 in the quarter ended November 30, 2004 was offset by a recognized loss of $4,000 on the sale of marketable securities. Income Taxes - ------------ The effective income tax rate of 41.7% for the quarter ended November 30, 2005 decreased from a rate of 43.3% in the quarter ended November 30, 2004. Page 11 TSR, INC. AND SUBSIDIARIES Six months ended November 30, 2005 compared with six months ended November 30, - ------------------------------------------------------------------------------ 2004 - ----
Six Months Ended November 30, (Dollar amounts in Thousands) ------------------------------------------------- 2005 2004 ----------------------- ----------------------- % of % of Amount Revenues Amount Revenues ---------- ---------- ---------- ---------- Revenues ................................................... $ 24,294 100.0 $ 26,519 100.0 Cost of sales .............................................. 19,399 79.9 20,685 78.0 ---------- ---------- ---------- ---------- Gross profit ............................................... 4,895 20.1 5,834 22.0 Selling, general, and administrative expenses .............. 3,342 13.8 3,773 14.2 ---------- ---------- ---------- ---------- Income from operations ..................................... 1,553 6.3 2,061 7.8 Other income ............................................... 114 0.5 22 -- ---------- ---------- ---------- ---------- Income before income taxes ................................. 1,667 6.8 2,083 7.8 Provision for income taxes ................................. 709 2.9 909 3.4 ---------- ---------- ---------- ---------- Net income ................................................. $ 958 3.9 $ 1,174 4.4 ========== ========== ========== ==========
Revenues - -------- Revenues consist primarily of revenues from computer programming consulting services. Revenues for the six months ended November 30, 2005 decreased $2,225,000 or 8.4% from the comparable prior year period. The decline in revenues resulted primarily from a decrease in the average number of consultants on billing with clients from 387 for the six months ended November 30, 2004 to 347 for the six months ended November 30, 2005. Additionally, revenues decreased as a result of the impact of the previously announced price reduction by the Company's largest customer. Cost of Sales - ------------- Cost of sales for the six months ended November 30, 2005, decreased $1,286,000 or 6.2% to $19,399,000 from $20,685,000 in the prior year period. This decrease is primarily attributable to fewer consultants on billing with customers. Cost of sales as a percentage of revenues increased from 78.0% in the six months ended November 30, 2004 to 79.9% in the six months ended November 30, 2005. This increase is primarily attributable to the decreased revenues resulting from the impact of the previously announced price reduction by the Company's largest customer. This change in pricing methodology, which provides for pricing on a "cost plus" basis, reduced revenues while not allowing offsetting cost reductions. Page 12 TSR, INC. AND SUBSIDIARIES 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 $431,000 or 11.4% from $3,773,000 in the six months ended November 30, 2004 to $3,342,000 in the six months ended November 30, 2005. This decrease was primarily attributable to reduced selling expenses from a reduced number of account executives and the termination of the "Transformer" services described below. During the past year, the Company had been working on developing a new service, "Transformer", aimed at converting legacy systems that run on large main-frame computers to lower cost computer environments. The Company has terminated this effort, although it may renew its efforts in the future. Income from Operations - ---------------------- Income from operations decreased $508,000 or 24.6% from $2,061,000 in the six months ended November 30, 2004 to $1,553,000 in the six months ended November 30, 2005. The decrease in income from operations was primarily attributable to the impact of a full period of the previously announced price reduction by the Company's largest customer. This change in pricing methodology reduced revenues while not allowing offsetting cost reductions, resulting in a greater percentage decline in net income than in revenues. Other Income - ------------ Other income resulted primarily from interest and dividend income, which increased by $100,000 to $162,000 due to higher interest rates in the period ended November 30, 2005. The Company also had a recognized loss of $4,000 in the six months ended November 30, 2004 from the sale of marketable securities. Income Taxes - ------------ The effective income tax rate of 42.5% for the six months ended November 30, 2005 decreased from a rate of 43.6% in the six months ended November 30, 2004. Page 13 TSR, INC. AND SUBSIDIARIES Liquidity and Capital Resources - ------------------------------- 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 liquidity requirements for the foreseeable future. At November 30, 2005, the Company had working capital of $14,359,000 and cash and cash equivalents of $1,999,000 as compared to working capital of $14,391,000 and cash and cash equivalents of $2,571,000 at May 31, 2005. The Company's working capital also included $7,394,000 and $7,908,000 of marketable securities at November 30, 2005 and May 31, 2005, respectively. The Company used net cash of $133 in operating activities for the six months ended November 30, 2005, compared to cash provided of $2,850,000 for the six months ended November 30, 2004. The absence of cash provided by operating activities resulted primarily from the Company's net income being offset by an increase in accounts receivable and a decrease in accrued expenses. The increase in accounts receivable of $564,000 pertained primarily to delays at two accounts. These amounts have been subsequently paid. The cash provided by operating activities for the six months ended November 30, 2004 resulted primarily from a decrease in accounts receivable due to collection of amounts due from a major customer who had delayed payments at May 31, 2004. Net cash provided by investing activities of $498,000 and $518,000 for the six months ended November 30, 2005 and 2004 respectively primarily resulted from allowing US Treasury Bills to mature without reinvesting all of the proceeds. Net cash used in financing activities resulted primarily from the payment of a cash dividend of $1,051,000 and distributions to the minority interest of $19,000. The Board of Directors has reduced the quarterly cash dividend for fiscal 2006 from $0.15 to $0.08 per share. This will reduce the cash outlay for the dividend by $320,000 per quarter. The Company's capital resource commitments at November 30, 2005 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, 2005. The Company had available a revolving line of credit of $5,000,000 with a major money center bank through October 6, 2005. As of November 30, 2005, no amounts were outstanding under this line of credit. The Company and the bank are in process of negotiating a renewal of the line of credit. Tabular Disclosure of Contractural Obligations ----------------------------------------------
- ---------------------------------------------------------------------------------------------------- Payments Due By Period - ---------------------------------------------------------------------------------------------------- LESS THAN MORE THAN CONTRACTURAL OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 3-5 YEARS 5 YEARS - ------------------------ ---------- ---------- ---------- ---------- ---------- Long-Term Debt .................... -- -- -- -- -- Capital Lease Obligations ......... -- -- -- -- -- Operating Leases .................. 923,000 311,000 461,000 151,000 -- Purchase Obligations .............. -- -- -- -- -- Employment Agreements ............. 1,399,000 628,000 546,000 225,000 -- Consulting Contract ............... 300,000 200,000 100,000 -- -- Other Long-Term Liabilities Reflected on the Registrant's Balance Sheet under GAAP ....... -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Total ............................. $2,622,000 $1,139,000 $1,107,000 $ 376,000 -- ========== ========== ========== ========== ==========
Page 14 TSR, INC. AND SUBSIDIARIES Recent Account Pronouncements - ----------------------------- In December 2004, the FASB issued a revision of SFAS No. 123, "Statement of Financial Accounting Standards No. 123 (revised 2004)," which requires that the cost resulting from all share based payment transactions be recognized in the financial statements. This Statement establishes fair value as the measurement objective in accounting for shared based payment arrangements and requires all entities to apply a fair value based measurement method in accounting for share based transactions with employees except for equity instruments held by employee share ownership plans. This Statement is effective as of the beginning of the first annual reporting period that begins after June 15, 2005. The Company does not expect the adoption of the revised SFAS No. 123 to have a material impact on its consolidated financial statements. Critical Accounting Policies - ---------------------------- The SEC defines "critical accounting policies" as those that require the application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. The Company's significant accounting policies are described in Note 1 to the Company's consolidated financial statements, contained in its May 31, 2005 Annual Report on Form 10-K, as filed with the SEC. The Company believes that the following accounting policies require the application of management's most difficult, subjective or complex judgments: ESTIMATING ALLOWANCES FOR DOUBTFUL ACCOUNTS RECEIVABLE We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current credit worthiness, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of any of our significant customers could have a material adverse effect on the collectibility of our accounts receivable and our future operating results. VALUATION OF DEFERRED TAX ASSETS We regularly evaluate our ability to recover the reported amount of our deferred income taxes considering several factors, including our estimate of the likelihood of the Company generating sufficient taxable income in future years during the period over which temporary differences reverse. Presently, the Company believes that it is more likely than not that it will realize the benefits of its deferred tax assets based primarily on the Company's history of and projections for taxable income in the future. In the event that actual results differ from our estimates or we adjust these estimates in future periods, we may need to establish a valuation allowance against a portion or all of our deferred tax assets, which could materially impact our financial position or results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK --------------------------------------------------------- The Company's earnings and cash flows are subject to fluctuations due to (i) changes in interest rates primarily affecting its income from the investment of available cash balances in money market funds and (ii) changes in market values of its investments in trading equity securities. Under its current policies, the Company does not use interest rate derivative instruments to manage exposure to interest rate changes. The Company's present exposure to changes in the market value of its investments in equity securities is not significant. Page 15 ITEM 4. CONTROLS AND PROCEDURES ----------------------- DISCLOSURE CONTROLS AND PROCEDURES. The Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures are effective. INTERNAL CONTROL OVER FINANCIAL REPORTING. There was no change in the Company's internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the Company's most recently reported completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II. OTHER INFORMATION ITEM 6. EXHIBITS -------- (a). Exhibit 31.1 - Certification by J.F. Hughes pursuant to 18 U.S.C. Section 1350, as adopt pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31.2 - Certification by John G. Sharkey pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32.1 - Certification by J.F. Hughes pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 32.2 - Certification by John G. Sharkey pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 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 5, 2006 /s/ J.F. Hughes ---------------------------------------------- J.F. Hughes, Chairman, President and Treasurer Date: January 5, 2006 /s/ John G. Sharkey ---------------------------------------------- John G. Sharkey, Vice President Finance Page 16 EX-31.1 2 exhibit31-1_14074.txt 302 CERTIFICATION - C.E.O. EXHIBIT 31.1 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, J.F. Hughes, Chairman of the Board, Chief Executive Officer and Director, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of TSR, Inc.; 2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this Quarterly Report based on such evaluation; c. disclosed in this Quarterly Report any change in registrant's internal controls over financial reporting that occurred during the registrant's fourth fiscal quarter that materially affected, or is reasonably likely to materially affect, the registrant's internal controls over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies or material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: January 5, 2006 /s/ J.F. Hughes - ------------------------- Chairman of the Board, Chief Executive Officer and Director EX-31.2 3 exhibit31-2_14074.txt 302 CERTIFICATION - C.F.O. EXHIBIT 31.2 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John G. Sharkey, Vice President-Finance and Chief Financial Officer, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of TSR, Inc.; 2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this Quarterly Report based on such evaluation; c. disclosed in this Quarterly Report any change in registrant's internal controls over financial reporting that occurred during the registrant's fourth fiscal quarter that materially affected, or is reasonably likely to materially affect, the registrant's internal controls over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies or material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: January 5, 2006 /s/ John G. Sharkey - --------------------------- Vice President-Finance and Chief Financial Officer EX-32.1 4 exhibit32-1_14074.txt 906 CERTIFICATION - C.E.O. EXHIBIT 32.1 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of TSR, Inc. (the "Company") on Form 10-Q for the period ended November 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, J.F. Hughes, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. The forgoing certification is incorporated solely for the purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act and is not intended to be used for any other purpose. /s/ J.F. Hughes - --------------------------- Chairman of the Board, Chief Executive Officer and Director January 5, 2006 EX-32.2 5 exhibit32-2_14074.txt 906 CERTIFICATION - C.F.O. EXHIBIT 32.2 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of TSR, Inc. (the "Company") on Form 10-Q for the period ended November 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John G. Sharkey, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. The forgoing certification is incorporated solely for the purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act and is not intended to be used for any other purpose. /s/ John G. Sharkey - -------------------------- Vice President-Finance and Chief Financial Officer January 5, 2006 -----END PRIVACY-ENHANCED MESSAGE-----