-----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, ASmvKymuFOfwxAYwcK92HhjoQnWLJnPlGogWf7xLCPL878XWQKIpj1puUSMarlso FbOjq2eS7vHrTxCDqhpfiQ== 0001072613-08-001892.txt : 20081014 0001072613-08-001892.hdr.sgml : 20081013 20081014072109 ACCESSION NUMBER: 0001072613-08-001892 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20080831 FILED AS OF DATE: 20081014 DATE AS OF CHANGE: 20081014 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: 081119693 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 form10q_16133.txt FORM 10-Q DATED AUGUST 31, 2008 ================================================================================ 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 August 31, 2008 [_] 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 Incorporation or organization) Identification No.) 400 Oser Avenue, Hauppauge, NY 11788 - -------------------------------------------------------------------------------- (Address of principal executive offices) 631-231-0333 - -------------------------------------------------------------------------------- (Registrant's telephone number) - -------------------------------------------------------------------------------- (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 large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerated Filer [_] Accelerated Filer [_] Non-Accelerated filer [_] Smaller Reporting Company [X] (Do not check if a smaller reporting company) 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 ------------------ 4,507,011 shares of common stock, par value $.01 per share, as of September 30, 2008 ================================================================================ TSR, INC. AND SUBSIDIARIES INDEX
Page Part I. Financial Information: Number ------ Item 1. Financial Statements: Condensed Consolidated Balance Sheets - August 31, 2008 and May 31, 2008 .............................. 3 Condensed Consolidated Statements of Income - For the three months ended August 31, 2008 and 2007 ........... 4 Condensed Consolidated Statements of Cash Flows - For the three months ended August 31, 2008 and 2007 ........... 5 Notes to Condensed Consolidated Financial Statements ................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................................... 9 Item 4T. Controls and Procedures .............................................. 13 Part II. Other Information ............................................................. 14 Item 2(c). Unregistered Sales of Equity Securities and Use of Proceeds ........ 14 Item 6. Exhibits ............................................................. 14 Signatures ............................................................................. 14
Page 2 Part I. Financial Information Item 1. Financial Statements TSR, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
August 31, May 31, 2008 2008 ------------ ------------ ASSETS (Unaudited) (Note 1) Current Assets: Cash and cash equivalents $ 747,519 $ 1,588,443 Marketable securities 6,467,452 6,459,832 Accounts receivable, net of allowance for doubtful accounts of $315,000 and $326,000 8,896,009 8,176,936 Other receivables 62,778 52,375 Prepaid expenses 57,674 53,788 Prepaid and recoverable income taxes 34,048 48,015 Deferred income taxes 131,000 135,000 ------------ ------------ Total Current Assets 16,396,480 16,514,389 Marketable securities 999,648 999,648 Equipment and leasehold improvements, net of accumulated depreciation and amortization of $401,695 and $396,963 25,620 23,285 Other assets 49,653 49,653 Deferred income taxes 53,000 55,000 ------------ ------------ Total Assets $ 17,524,401 $ 17,641,975 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts and other payables $ 294,678 $ 313,157 Accrued expenses and other current liabilities 1,666,566 1,919,564 Advances from customers 1,526,170 1,589,087 Dividends payable 365,441 -- Income taxes payable 103,722 -- ------------ ------------ Total Current Liabilities 3,956,577 3,821,808 ------------ ------------ Minority Interest 55,886 53,533 ------------ ------------ 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 20,513,534 20,663,925 ------------ ------------ 25,647,544 25,797,935 Less: Treasury stock, 1,698,214 and 1,660,314 shares, at cost 12,135,606 12,031,301 ------------ ------------ Total Stockholders' Equity 13,511,938 13,766,634 ------------ ------------ Total Liabilities and Stockholders' Equity $ 17,524,401 $ 17,641,975 ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. Page 3 TSR, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME For The Three Months Ended August 31, 2008 and 2007 (UNAUDITED)
Three Months Ended August 31, ----------------------------- 2008 2007 ------------ ------------ Revenue, net $ 12,149,820 $ 13,525,652 ------------ ------------ Cost of sales 10,027,820 11,016,350 Selling, general and administrative expenses 1,799,646 1,798,871 ------------ ------------ 11,827,466 12,815,221 ------------ ------------ Income from operations 322,354 710,431 Other income (expense): Interest and dividend income 67,297 112,454 Unrealized gain (loss) on marketable securities, net (248) 2,856 Minority interest in subsidiary operating profits (9,353) (30,273) ------------ ------------ Income before income taxes 380,050 795,468 Provision for income taxes 165,000 348,000 ------------ ------------ Net income $ 215,050 $ 447,468 ============ ============ Basic and diluted net income per common share $ 0.05 $ 0.10 ============ ============ Weighted average number of basic and diluted common shares outstanding 4,564,787 4,568,012 ============ ============
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 Three Months Ended August 31, 2008 and 2007 (UNAUDITED)
Three Months Ended August 31, ----------------------------- 2008 2007 ------------ ------------ Cash flows from operating activities: Net Income $ 215,050 $ 447,468 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 4,732 7,142 Unrealized loss (gain) on marketable securities, net 248 (2,856) Minority interest in subsidiary operating profits 9,353 30,273 Deferred income taxes 6,000 -- Changes in operating assets and liabilities: Accounts receivable (719,073) (1,306,694) Other receivables (10,403) 2,901 Prepaid expenses (3,886) (4,255) Prepaid and recoverable income taxes 13,967 148,462 Accounts payable and accrued expenses (271,477) 192,385 Income taxes payable 103,722 159,153 Advances from customers (62,917) (70,650) ------------ ------------ Net cash used in operating activities (714,684) (396,671) ------------ ------------ Cash flows from investing activities: Proceeds from maturities of marketable securities 2,466,482 2,934,269 Purchases of marketable securities (2,474,350) (2,940,850) Purchase of fixed assets (7,067) (1,441) ------------ ------------ Net cash used in investing activities (14,935) (8,022) ------------ ------------ Cash flows from financing activities: Purchases of treasury stock (104,305) -- Distribution to minority interest (7,000) (5,500) ------------ ------------ Net cash used in financing activities (111,305) (5,500) ------------ ------------ Net decrease in cash and cash equivalents (840,924) (410,193) Cash and cash equivalents at beginning of period 1,588,443 1,900,264 ------------ ------------ Cash and cash equivalents at end of period $ 747,519 $ 1,490,071 ============ ============ Supplemental disclosures of cash flow data: Income taxes paid $ 41,000 $ 40,000 ============ ============
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 August 31, 2008 (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 three months ended August 31, 2008 are unaudited; however, in the opinion of management, such statements include all adjustments (consisting of normal recurring accruals) necessary to present fairly the consolidated 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, 2009. The balance sheet at May 31, 2008 has been derived from the audited financial statements at that date. 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, 2008. 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. The Company has had no stock options or other common stock equivalents outstanding during any of the periods presented. 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 August 31, 2008 and May 31, 2008: August 31, May 31, 2008 2008 ------------ ------------ Cash in banks $ 134,993 $ 394,987 Money market funds 612,526 1,193,456 ------------ ------------ $ 747,519 $ 1,588,443 ============ ============ 4. Revenue Recognition ------------------- The Company's contract computer programming services are generally provided under time and materials agreements with customers. Revenue is recognized in accordance with Staff Accounting Bulletin (SAB) 104, "Revenue Recognition," when persuasive evidence of an arrangement exists, the services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. These conditions occur when a customer agreement is effected and the consultant performs the authorized services. 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 August 31, 2008 (Unaudited) 5. Marketable Securities --------------------- The Company accounts for its marketable securities in accordance with Statement of Financial Accounting Standards ("SFAS") 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 range up to 24 months), such securities have been classified as held-to-maturity and are carried at amortized cost, which approximates market value. The Company's equity securities are classified as trading securities, which are carried at fair value, as determined by quoted market price, which is level 1 input, as established by the fair value hierarchy under SFAS No. 157. The related unrealized gains and losses are included in earnings. The Company's marketable securities at August 31, 2008 and May 31, 2008 are summarized as follows:
Gross Gross August 31, 2008 Unrealized Unrealized --------------- Amortized Holding Holding Recorded Current Cost Gains Losses Value --------- ------------ ------------ ------------ ------------ United States Treasury Securities $ 6,449,156 $ -- $ -- $ 6,449,156 Equity Securities 16,866 1,430 -- 18,296 ------------ ------------ ------------ ------------ $ 6,466,022 $ 1,430 $ -- $ 6,467,452 ============ ============ ============ ============ Long - Term ----------- United States Treasury Securities $ 999,648 $ -- $ -- $ 999,648 ============ ============ ============ ============ Gross Gross May 31, 2008 Unrealized Unrealized ------------ Amortized Holding Holding Recorded Current Cost Gains Losses Value --------- ------------ ------------ ------------ ------------ United States Treasury Securities $ 6,441,288 $ -- $ -- $ 6,441,288 Equity Securities 16,866 1,678 -- 18,544 ------------ ------------ ------------ ------------ $ 6,458,154 $ 1,678 $ -- $ 6,459,832 ============ ============ ============ ============ Long - Term ----------- United States Treasury Securities $ 999,648 $ -- $ -- $ 999,648 ============ ============ ============ ============
Page 7 TSR, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued August 31, 2008 (Unaudited) 6. Recent Accounting Pronouncements -------------------------------- On September 15, 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). SFAS No 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. SFAS No. 157 provides guidance related to estimating fair value and requires expanded disclosures. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. SFAS No. 157 does not expand the use of fair value in any new circumstances. The adoption of SFAS No. 157 did not have a material impact on the Company's consolidated financial statements. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - including an amendment to FASB Statement No. 115" ("SFAS No. 159"). SFAS No. 159 permits entities to elect to measure many financial instruments and certain other items at fair value. Upon adoption of SFAS No. 159, an entity may elect the fair value option for eligible items that exist at the adoption date. Subsequent to the initial adoption, the election of the fair value option should only be made at initial recognition of the asset or liability or upon a re-measurement event that gives rise to new-basis accounting. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value nor does it eliminate disclosure requirements included in other accounting standards. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159 did not have a material impact on the Company's consolidated financial statements. In December 2007, the FASB issued SFAS No. 141 (R), "Business Combinations" ("SFAS 141(R)"), and SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements" ("SFAS 160"). SFAS 141 (R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS 160 clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated financial statements. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS 141 (R) and SFAS 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. The Company does not expect the adoption of SFAS 141 (R) and SFAS 160 to have a material impact on its consolidated financial statements. 7. Dividends --------- On August 6, 2008, the Board of Directors of the Company declared that a regular quarterly cash dividend of $0.08 per share for the quarter ended May 31, 2008 would be paid on September 18, 2008 to stockholders of record as of August 27, 2008. The dividend amounted to approximately $365,000 and was paid from the Company's cash and marketable securities. Page 8 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: the impact of current adverse conditions in the credit markets and current adverse economic conditions on the Company's business; 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 other risks and uncertainties set forth in the Company's filings with the Securities and Exchange Commission. The Company is under no obligation to publicly update or revise forward looking statements. Results of Operations - --------------------- The following table sets forth, for the periods indicated, certain financial information derived from the Company's condensed consolidated statements of income. There can be no assurance that trends in operating results will continue in the future: Three months ended August 31, 2008 compared with three months ended August 31, - ------------------------------------------------------------------------------ 2007 - ----
Three Months Ended August 31, (Dollar amounts in Thousands) 2008 2007 ----------------------------- ----------------------------- % of % of Amount Revenue Amount Revenue ------------ ------------ ------------ ------------ Revenue, net $ 12,150 100.0 $ 13,526 100.0 Cost of sales 10,028 82.5 11,017 81.4 ------------ ------------ ------------ ------------ Gross profit 2,122 17.5 2,509 18.6 Selling, general and administrative expenses 1,800 14.8 1,799 13.3 ------------ ------------ ------------ ------------ Income from operations 322 2.7 710 5.3 Other income, net 58 0.4 85 0.6 ------------ ------------ ------------ ------------ Income before income taxes 380 3.1 795 5.9 Provision for income taxes 165 1.3 348 2.6 ------------ ------------ ------------ ------------ Net income $ 215 1.8 $ 447 3.3 ============ ============ ============ ============
Page 9 TSR, INC. AND SUBSIDIARIES Revenue - ------- Revenue consists primarily of revenue from computer programming consulting services. Revenue for the quarter ended August 31, 2008 decreased $1,376,000 or 10.2% from the quarter ended August 31, 2007. The average number of consultants on billing with customers decreased from approximately 336 for the quarter ended August 31, 2007 to 299 for the quarter ended August 31, 2008. The decrease in revenue resulted primarily from the continued reduction in consultants placed with AT&T, additional reductions in consultants on billing with customers which the Company attributes to current economic conditions and decreases in revenue due to lower billing rates caused by discounts and other rate reductions instituted by customers. As a result of the merger of AT&T with SBC Communications, Inc., Procurestaff, which had been the sole vendor management company for AT&T, is currently one of the many vendors to the new AT&T and no longer serves as the primary vendor manager. Due to these changes, the Company experienced a decrease in new placements with AT&T beginning in the second quarter of fiscal 2007. This has reduced the number of consultants on billing with AT&T from 100 at August 31, 2006 to 68 at August 31, 2007 and 35 at August 31, 2008. The Company expects this change in relationship will continue to impact the Company's business relationship with AT&T, resulting in fewer opportunities to place new consultants at AT&T. As a result of the current economic downturn and, specifically, the impact of the adverse conditions in the credit markets on the financial services industry, the Company expects that IT spending will continue to decrease in the short term and that the impact is likely to be greater in the financial services industry. These economic conditions have reduced the opportunities to place new consultants on billing with clients. The Company derived approximately 20 percent of its revenue from banking and brokerage clients in fiscal 2008. The Company cannot predict the extent to which these conditions will affect the number of consultants on billing with customers. The Company has provided services to Lehman Brothers Holdings, Inc. ("LBHI") through its contract with Beeline.com, Inc. ("Beeline"), a vendor management company. LBHI filed a petition under Chapter 11 of the U.S. Bankruptcy Code on September 15, 2008. As part of the bankruptcy proceedings, the Bankruptcy Court has approved a sale of Lehman Brothers, Inc. ("LBI"), a subsidiary of LBHI to Barclays Capital Inc. ("Barclays"). The Beeline contract has been assumed by LBI as part of the purchase agreement. The Company has received payment in full for amounts due for services rendered through the date of the bankruptcy filing and will not incur a charge against earnings as the result of the bankruptcy filing. LBHI and its subsidiaries constituted approximately 6% of the Company's revenue in fiscal 2008 and the Company cannot determine the impact that the bankruptcy filing and purchase of LBI by Barclays will have on the number of consultants on billing with LBI and its affiliates. Cost of Sales - ------------- Cost of sales for the quarter ended August 31, 2008, decreased $989,000 or 9.0% to $10,028,000 from $11,017,000 in the prior year period. The decrease in cost of sales resulted primarily from the decrease in the number of consultants on billing with clients. Cost of sales as a percentage of revenue increased from 81.4% in the quarter ended August 31, 2007 to 82.5% in the quarter ended August 31, 2008. The increase in cost of sales percentage of revenue was primarily attributable to discount programs instituted or expanded by customers and other customer required rate reductions. These discount programs and other billing rate reduction initiatives decrease revenue without 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 increased $1,000 or 0.1% from $1,799,000 in the quarter ended August 31, 2007 to $1,800,000 in the quarter ended August 31, 2008. This increase was primarily attributable to the amounts paid to additional sales people offset by decreased legal and auditing expenses and the lower commissions paid to the existing sales and recruiting personnel due to the lower revenue. However, while selling, general and administrative expenses only increased slightly, these expenses as a percentage of revenue increased from 13.3% in the quarter ended August 31, 2007 to 14.8% in the quarter ended August 31, 2008. Page 10 TSR, INC. AND SUBSIDIARIES Income from Operations - ---------------------- Income from operations decreased $388,000 or 54.6% from $710,000 in the quarter ended August 31, 2007 to $322,000 in the quarter ended August 31, 2008. The combination of reduced revenue, reduced gross margins and relatively flat selling, general and administrative expenses had a significant negative impact on income from operations. Other Income - ------------ Other income for the quarter ended August 31, 2008 resulted primarily from interest and dividend income of $67,000, which decreased by $45,000 from the level realized in the quarter ended August 31, 2007 due to lower interest rates earned on the Company's US Treasury securities and money market accounts . Income Taxes - ------------ The effective income tax rate of 43.4% for the quarter ended August 31, 2008 decreased from a rate of 43.7% in the quarter ended August 31, 2007. Page 11 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 August 31, 2008, the Company had working capital of $12,440,000 including cash and cash equivalents of $748,000 as compared to working capital of $12,693,000 including cash and cash equivalents of $1,588,000 at May 31, 2008. The Company's working capital also included $6,467,000 and $6,460,000 of marketable securities with maturities of less than one year at August 31, 2008 and May 31, 2008, respectively. For the three months ended August 31, 2008, net cash used in operating activities was $715,000 compared to cash used of $397,000 for the three months ended August 31, 2007, or a decrease of $318,000. The cash used in operating activities primarily resulted from an increase in accounts receivable of $719,000 and a decrease in accounts payable and accrued expenses of $271,000. The increase in accounts receivable resulted primarily from delayed payments from two clients with the same vendor manager. These amounts were collected after the end of the quarter. The cash used by operating activities in the three months ended August 31, 2007, resulted primarily from an increase in accounts receivable. Net cash used in investing activities of $15,000 for the three months ended August 31, 2008 primarily resulted from reinvesting all of the proceeds of maturing US Treasury Securities with decreasing interest rates and the purchase of fixed assets. Net cash used in financing activities resulted from the purchase of treasury stock amounting to $104,000 and distributions to the minority interest of $7,000. The Company's capital resource commitments at August 31, 2008 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 three months ended August 31, 2008. The Company has available a revolving line of credit of $5,000,000 with a major money center bank through October 31, 2009. As of August 31, 2008, no amounts were outstanding under this line of credit. Tabular Disclosure of Contractual Obligations ---------------------------------------------
Payments Due By Period Less than More than Contractual Obligations Total 1 Year 1-3 Years 3-5 Years 5 Years - ----------------------- ------------ ------------ ------------ ------------ ------------ Operating Leases $ 1,482,000 $ 359,000 $ 680,000 $ 443,000 $ -- Employment Agreements 1,380,000 749,000 531,000 100,000 -- ------------ ------------ ------------ ------------ ------------ Total $ 2,862,000 $ 1,108,000 $ 1,211,000 $ 543,000 $ -- ============ ============ ============ ============ ============
Page 12 TSR, INC. AND SUBSIDIARIES Recent Account Pronouncements - ----------------------------- On September 15, 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. SFAS No. 157 provides guidance related to estimating fair value and requires expanded disclosures. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. SFAS No. 157 does not expand the use of fair value in any new circumstances. The adoption of SFAS No. 157 did not have a material impact on the Company's consolidated financial statements. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - including an amendment of FASB Statement No. 115" ("SFAS No. 159"). SFAS No. 159 permits entities to elect to measure many financial instruments and certain other items at fair value. Upon adoption of SFAS No. 159, an entity may elect the fair value option for eligible items that exist at the adoption date. Subsequent to the initial adoption, the election of the fair value option should only be made at initial recognition of the asset or liability or upon a re-measurement event that gives rise to new-basis accounting. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value nor does it eliminate disclosure requirements included in other accounting standards. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159 did not have a material impact on the Company's consolidated financial statements. In December 2007, the FASB issued SFAS No. 141 (R), "Business Combinations" ("SFAS 141(R)"), and SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements" ("SFAS 160"). SFAS 141 (R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS 160 clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated financial statements. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS 141 (R) and SFAS 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. The Company does not expect the adoption of SFAS 141 (R) and SFAS 160 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, 2008 Annual Report on Form10-K, as filed with the SEC. The Company believes that those accounting policies require the application of management's most difficult, subjective or complex judgments. There have been no changes in the Company's significant accounting policies as of August 31, 2008. Item 4T. 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 accounting officer, of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation, the principal executive officer and principal accounting 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 Rules 13a-15(f) and 15d-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. Page 13 Part II. Other Information Item 2(c). Unregistered Sales of Equity Securities and Use of Proceeds The following table sets forth information concerning any purchase of the Company's common stock made by or on behalf of the Company or any "affiliated purchaser," as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934 during the Company's first fiscal quarter: ISSUER PURCHASES OF EQUITY SECURITIES
Maximum Number (or Total Number of Approximate Dollar Shares (or Units) Value) of Shares Purchased as Part (or Units) that May Total Number of Average Price of Publicly Yet Be Purchase Shares (or Units) Paid per Share Announced Plans Under the Period Purchased (or Unit) or Programs Plans or Programs - -------------------- ------------------ ------------------ ------------------ ------------------ June 1, 2008 - June 30, 2008 0 n/a 0 300,000 July 1, 2008 - July 31, 2008 0 n/a 0 300,000 August 1, 2008- August 31, 2008 37,900 $2.75 37,900(1) 262,100 - -------------------- ------------------ ------------------ ------------------ ------------------ Total 37,900 $2.75 37,900 262,100
(1) The repurchase plan was authorized by the Board of Directors and publicly announced on December 17, 2007. The plan does not have an expiration date. Item 6. Exhibits (a). Exhibit 31.1 - Certification by J.F. Hughes pursuant to 18 U.S.C. Section 1350, as adopted 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 thereto duly authorized. TSR Inc. ----------------------------------------------- (Registrant) Date: October 10, 2008 /s/ J.F. Hughes ----------------------------------------------- J.F. Hughes, Chairman and President Date: October 10, 2008 /s/ John G. Sharkey ----------------------------------------------- John G. Sharkey, Vice President Finance and Chief Financial Officer Page 14 EX-31.1 2 exh31-1_16133.txt 302 CERTIFICATION - CEO 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-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provider reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. 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; d. 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: October 10, 2008 /s/ J.F. Hughes - ------------------------------------ Chairman of the Board, Chief Executive Officer and Director EX-31.2 3 exh31-2_16133.txt 302 CERTIFICATION - CFO 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-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) 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. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provider reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. 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; d. 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: October 10, 2008 /s/ John G. Sharkey - ------------------------------------ Vice President-Finance and Chief Financial Officer EX-32.1 4 exh32-1_16133.txt 906 CERTIFICATION - CEO 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 August 31, 2008 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 foregoing 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 October 10, 2008 EX-32.2 5 exh32-2_16133.txt 906 CERTIFICATION - CFO 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 August 31, 2008 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 foregoing 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 October 10, 2008 -----END PRIVACY-ENHANCED MESSAGE-----