UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act Of 1934
For the period ended February 29, 1996
[ ] Transition Report Under Section 13 or 15(d)
of the Securities Exchange Act Of 1934
For the transition period from ______ to _____
Commission File Number: 0-8656
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TSR, Inc.
- --------------------------------------------------------------------------------
(Exact name of small business issuer 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
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(Address of principal executive offices)
516-231-0333
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(Issuer's telephone number)
None
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
SHARES OUTSTANDING
1,472,069 shares of common stock, par value $.01 per share,
-----------------------------------------------------------
as of March 31, 1996.
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Page 1
<PAGE>
TSR, INC. AND SUBSIDIARIES
INDEX
Page
Number
------
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheet - February 29, 1996........... 3
Consolidated Condensed Statements of Earnings - For the three
and nine months ended February 29, 1996 and February 28, 1995.... 4
Consolidated Condensed Statements of Cash Flows -
For the nine months ended February 29, 1996 and
February 28, 1995. ............................................... 5
Notes to Consolidated Condensed Financial Statements................ 6
Item 2. Management's Discussion and Analysis.......................... 7
Part II. Other Information................................................ 10
Signatures................................................................. 10
Page 2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
February 29,
1996
ASSETS ------------
Current Assets:
Cash and cash equivalents (Note 5)....................... $ 1,638,051
Marketable securities (Note 6)........................... 2,373,358
Accounts receivable (net of allowance for
doubtful accounts of $169,278)......................... 6,011,388
Other receivables........................................ 72,595
Prepaid expenses......................................... 45,822
Prepaid and recoverable income taxes..................... 14,586
Deferred income taxes.................................... 138,000
-----------
Total current assets .............................. 10,293,800
Equipment and leasehold improvements, at cost
(net of accumulated depreciation and
amortization of $794,689)............................... 234,177
Other assets................................................. 32,966
Deferred income taxes........................................ 25,000
-----------
$10,585,943
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts and other payables.............................. $ 112,756
Accrued and other liabilities............................ 1,622,467
Income taxes payable..................................... 86,978
Advances from customers.................................. 368,294
-----------
Total current liabilities ......................... 2,190,495
Shareholders' Equity:
Preferred stock, $1 par value, authorized
1,000,000 shares; none issued ......................... --
Common stock, $.01 par value, authorized
4,000,000 shares; issued 2,469,596 shares ............. 24,696
Additional paid-in capital............................... 1,562,973
Retained earnings........................................ 10,008,297
Less: 997,527 common shares in treasury, at cost . (3,200,518)
-----------
8,395,448
-----------
$10,585,943
===========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 3
<PAGE>
<TABLE>
<CAPTION>
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
For The Nine Months Ended February 29, 1996 and February 28, 1995
Three Months Ended Nine Months Ended
------------------------------ -------------------------------
February 29, February 28, February 29, February 28,
1996 1995 1996 1995
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues .............................................. $7,988,438 $6,609,172 $23,177,618 $19,170,467
Cost of sales ......................................... 5,884,589 4,882,011 16,915,219 13,873,044
Selling, general and
administrative expenses ............................ 1,797,778 1,483,763 5,298,497 4,441,680
---------- ---------- ----------- -----------
7,682,367 6,365,774 22,213,716 18,314,724
---------- ---------- ----------- -----------
Income from operations ................................ 306,071 243,398 963,902 855,743
Other income:
Interest and dividend income ..................... 53,059 54,762 175,565 143,922
Gain on sale of securities ....................... 4,131 -- 12,242 443
Gain (loss) from sales of assets ................. 1,500 -- (424) --
---------- ---------- ----------- -----------
Income before income taxes ............................ 364,761 298,160 1,151,285 1,000,108
Provision for income taxes ............................ 164,000 143,000 513,000 476,000
---------- ---------- ----------- -----------
Net income $ 200,761 $ 155,160 $ 638,285 $ 524,108
========== ========== =========== ===========
Net income per common share ........................... $ 0.13 $ 0.10 $ 0.42 $ 0.35
========== ========== =========== ===========
Weighted average number of
common shares outstanding .......................... 1,492,236 1,514,569 1,507,125 1,514,569
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 4
<PAGE>
<TABLE>
<CAPTION>
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Nine Months Ended February 29, 1996 and February 28, 1995
Nine Months Ended
-------------------------------------
February 29, February 28,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income .............................................................. $ 638,285 $ 524,108
----------- ------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization .......................................... 118,299 89,009
Provision for losses on accounts receivable ............................ 10,000 --
Gain on sales of securities ............................................ (12,242) (443)
Loss on sales of assets ................................................ 424 --
Deferred income taxes .................................................. (7,000) (58,000)
Changes in assets and liabilities:
Trade accounts receivable ........................................... (976,277) (183,973)
Other accounts receivable ........................................... 44,940 24,762
Prepaid expenses .................................................... (15,762) 12,806
Prepaid and recoverable income taxes ................................ 25,106 (15,645)
Other assets ........................................................ (9,645) 6,297
Accounts payable and accrued expenses ............................... 49,531 30,674
Income taxes payable ................................................ (8,134) (8,864)
Advances from customers ............................................. 129,703 --
----------- ------------
Total adjustments ..................................................... (651,057) (103,377)
----------- ------------
Net cash provided by (used in) operating activities .................... (12,772) 420,731
----------- ------------
Cash flows from investing activities:
Proceeds from sales and maturities of securities ..................... 4,633,298 2,450,418
Purchase of marketable securities .................................... (2,640,233) (3,908,844)
Purchase of fixed assets ............................................. (139,351) (71,523)
Proceeds from sales of fixed assets .................................. 15,756 --
----------- ------------
Net cash provided by (used in) investing activities ..................... 1,869,470 (1,529,949)
----------- ------------
Cash flows from financing activities:
Purchase of Treasury Stock ........................................... (246,475) --
Cash dividends ....................................................... (605,828) --
----------- ------------
Net cash used in financing activities ................................... (852,303) --
----------- ------------
Net increase (decrease) in cash and cash equivalents ...................... 1,004,395 (1,109,218)
Cash and cash equivalents at beginning of period .......................... 633,656 3,261,298
----------- ------------
Cash and cash equivalents at end of period ................................ $ 1,638,051 $ 2,152,080
=========== ===========
Supplemental Disclosures:
Income tax payments, net ............................................. $ 503,000 $ 559,000
=========== ===========
Interest paid ........................................................ $ -- $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 5
<PAGE>
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
February 29, 1996
1. The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions of Form 10-QSB
of Regulation S-B. Accordingly, they do not include all the information and
notes required by generally accepted accounting principles for complete
financial statements. For further information refer to the Registrant's
consolidated financial statements and notes thereto included in the
Registrant's Annual Report on Form 10-KSB for the year ended May 31, 1995.
2. In the opinion of the Registrant, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the consolidated
financial position, the consolidated results of operations, and
consolidated cash flows for the periods presented.
3. The Registrant is engaged primarily in the business of providing contract
programming services. In addition, the Registrant provides maintenance and
support for its conversion software and provides program updating and
consulting services to American Express Bank, Ltd. (AEBL). Additionally,
the Registrant provided construction specifications databases on magnetic
media through March 1, 1996, and provided temporary nursing services
through October 8, 1995. The results of operations for the nine month
period ended February 29, 1996 are not necessarily indicative of the
results to be expected for the full year.
4. The consolidated condensed financial statements include the accounts of
TSR, Inc. and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
5. Cash and cash equivalents consist primarily of United States Treasury Bills
with a maturity at acquisition of 90 days or less.
6. Marketable securities consist primarily of United States Treasury Bills
with a maturity at acquisition in excess of 90 days. Such investments are
expected to be held to maturity and are carried at amortized cost. Included
with marketable securities are the Registrant's trading securities which
consist of those investments the Registrant considers short-term in nature.
Such investments are carried at their fair market value. At February 29,
1996, the amortized cost approximated market value and no adjustments were
made. A breakdown of the investments are as follows:
Held to maturity ............... $2,174,305
Trading securities ............. 199,053
----------
$2,373,358
==========
7. On July 6, 1995 the Board of Directors of the Company declared a cash
dividend of $0.40 per share on Common Stock payable on August 28, 1995 to
shareholders of record on July 31, 1995. The Company funded such dividend
from its available cash and matured marketable securities. This dividend,
which amounted to $605,828 did not have a material impact on the liquidity
of the Company. This dividend was declared due to the Registrant's
favorable operating results achieved during fiscal 1995. The Registrant has
not adopted a policy of paying dividends on a regular periodic basis.
8. In the second quarter of fiscal 1996, the Registrant determined to
discontinue its health care services business. The growth and profitability
experienced had not matched the Registrant's expectations when the business
commenced. Small improvements in operating results notwithstanding, the
Registrant had concluded that its resources were better utilized in the
further development of its contract programming business. Therefore, the
existing caseload was transferred to another licensed home care agency as
of the close of business October 8, 1995.
9. In February 1995 the Board of Directors of the Registrant authorized the
repurchase of up to 150,000 shares of the Registrant's common stock. The
first transactions under this authorization occurred during the quarter
ended February 29, 1996. To date 42,500 shares have been repurchased at a
cost of $246,475.
10. On March 1, 1996 the Registrant's exclusive licensing agreement to market
construction specifications on magnetic media expired. In anticipation of
such expiration, the Registrant has accrued $240,00 which it deems adequate
to cover ongoing customer support costs associated with licenses sold prior
to March 1, 1996.
Page 6
<PAGE>
Part I. Financial Information
Item 2.
TSR, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with the
consolidated condensed financial statements and the notes to the consolidated
condensed financial statements.
Results of Operations
Nine Months Ended February 29, 1996 as compared with February 28, 1995
Income from operations as a percentage of revenues decreased to 4.2% in the
current nine month period from 4.5% in the prior year comparable period. This
decline occurred despite $180,000 of expenses accrued in the prior year period
to cover ongoing customer support costs to be incurred after the termination of
the Registrant's construction specifications business on March 1, 1996. The
decline in income from operations as a percentage of revenues is attributable to
compensation paid to additional contract programming sales and recruiting
employees, including those hired to open a new office in Connecticut, who do not
make an immediate contribution to operating results but are expected to fuel
future growth. The decline was also attributable to lower margins in contract
programming.
For the nine months ended February 29, 1996, revenues increased $4,007,000 or
20.9% over the prior year period. Although construction specifications and
health care services revenues declined from the prior year, contract programming
services revenues increased $4,436,000, which resulted primarily from further
penetration within existing accounts by the sales personnel.
Cost of sales increased $3,042,000 or 21.9% over the prior year period. This
increase included additonal costs of $3,467,000 from contract programming, which
resulted primarily from the above-mentioned revenue increase. However, the
increase in cost of sales was heightened, to an extent, by reduced margins in
the contract programming business. Cost of sales decreased by $224,000 in the
construction specifications business because of $180,000 of expenses accrued in
the prior year to cover ongoing customer support costs, which will be incurred
after the termination of this business on March 1, 1996. Costs associated with
health care services decreased $200,000 which resulted from the termination of
this business in October 1995.
Selling, general, and administrative expenses increased $857,000, or 19.3% over
the prior year comparable period. The contract programming business incurred
increases of $1,060,000 due to additional commission based compensation on
increased revenues and the hiring of additional sales and recruiting employees.
The investment in new hires is consistent with the Registrant's efforts to
expand the business through the acquisition of new accounts. The health care
services business which terminated in October 1995, and the construction
specifications business both reduced expenses for the period.
Interest and dividend income increased by $32,000 for the period, primarily
because of an increase in short-term interest rates paid on the Registrant's
treasury bills compared to the year ago.
The effective income tax rate decreased to 44.6% in the current period from
47.6% in the prior year period, mainly because of reduced state income taxes in
the current period.
Page 7
<PAGE>
TSR, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
Three months ended February 29, 1996 as compared with February 28, 1995
Income from operations as a percentage of revenues increased to 3.8% in the
current year quarter from 3.7% in the prior year comparable period. Contract
programming gross margins increased slightly in the current quarter over the
prior year's quarter, reversing a trend of declining spreads which began in
fiscal 1995. There can be no assurances that this reversal will continue or that
gross margins will increase.
For the quarter ended February 29, 1996, revenues increased $1,379,000 or 20.9%
over the prior year period. Contract programming services revenues contributed
$1,618,000 of this increase, which resulted primarily from further penetration
within existing accounts by the sales personnel. Healthcare services revenues
declined $206,000 due to the cessation of operations on October 8, 1995,
although the Registrant still particpates in certain revenues derived by the
successor operation, which revenues are not expected to be material.
Cost of sales increased $1,003,000 or 20.5% over the prior year's quarter. This
increase included additional costs of $1,119,000 from contract programming,
which primarily resulted from the above-mentioned revenue increase. Cost of
sales also decreased by $71,000 in the construction specifications business,
primarily because of $60,000 of expenses accrued in the prior year to cover
costs which will be incurred after the termination of this business on March 1,
1996.
Selling, general, and administrative expenses increased $314,000, or 21.1% over
the prior year comparable period. The contract programming business incurred
increases amounting to $426,000, due to additional commission based compensation
on higher revenues and the hiring of additional sales and recruiting employees.
These new hires included those assigned to the Registrant's new office in
Connecticut. The health care services business reduced expenses $75,000 for the
period due to the termination of the business on October 8, 1995.
Interest and dividend income stayed flat for the quarter, despite an increase in
short-term interest rates paid on the Registrant's treasury bills due to a lower
amount available for investment.
The effective income tax rate decreased to 45.0% in the current quarter from
48.0% in the prior year period mainly because of reduced state income taxes in
the current quarter.
Page 8
<PAGE>
TSR, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
Liquidity, Capital Resources and Changes in Financial Condition
Subject to continued profitability, the Registrant expects that cash flow
generated from operations will be sufficient to provide the Registrant with
adequate resources to meet all needs with respect to its existing business. In
the event the Registrant requires additional funds, the Registrant expects to
meet such needs not met by operations with its cash and short-term marketable
securities as well as interest earned thereon, which the Registrant believes to
be sufficient for the foreseeable future.
Net cash flow used in operations resulted primarily from an increase in accounts
receivable, which occurred partly because of the revenue increase and partly due
to a longer collection cycle. This use of cash was mostly offset by cash
provided from net income.
Cash flow provided or used by investing activities is affected mostly by the
Registrant's decisions to either purchase United States Treasury Bills with
maturities of three months or those with longer maturities. During the current
quarter, the Registrant did not roll over some of its maturing treasury
securities. This resulted in the funds being reclassified to cash and cash
equivalents from marketable securities for financial statement purposes. Also,
in the current year , the contract programming office in New Jersey relocated to
larger space to facilitate growth and an office was opened in Connecticut. This
resulted in capital expenditures for new telephone equipment, computers and
furniture.
On July 18, 1995 the Board of Directors of the Registrant declared a cash
dividend of $0.40 per share on Common Stock payable on August 28, 1995 to
shareholders of record on July 31, 1995. The Registrant funded such dividend
from its available cash and United States Treasury Bills. This dividend was
declared due to the Registrant's favorable operating results achieved during
fiscal 1995. The Registrant has not adopted a policy of paying dividends on a
regular periodic basis.
In February 1995, the Board of Directors of the Registrant authorized the
repurchase of up to 150,000 shares of the Registrant's common stock. During the
quarter ended February 29, 1996 the first transactions occurred under this
authorization. A total of 42,500 shares were repurchased at a cost of $246,475.
The Registrant's capital resource commitments at February 29, 1996 consisted of
lease obligations on its branch and corporate locations. The Registrant intends
to finance these commitments from cash provided from operations.
Expiration of Licensing Agreement
The Registrant's exclusive licensing agreement with the Construction Sciences
Research Foundation, Inc. (CSRF) under which the Registrant marketed
construction specifications on magnetic media expired March 1, 1996. In
anticipation of the termination of such agreement, the Registrant has accrued
$240,000 which it deems adequate to cover ongoing customer support costs to be
incurred after the termination of the construction specifications business. As a
consequence of the termination of the license, future results from operations
will be negatively impacted on a comparative basis since this business has
contributed operating income of approximately $100,000 per quarter for fiscal
1996.
Termination of Health Care Services Business
In the second quarter of fiscal 1996, the Registrant determined to withdraw from
the health care services business. The growth and profitability experience had
not matched what was expected when the business commenced. Small improvements in
operating results notwithstanding, the Registrant had concluded that its
resources were better utilized in the further development of the contract
programming business. The existing caseload was transferred to another licensed
home care agency as of the close of business October 8, 1995.
Page 9
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8k
(a). Exhibit 27: Financial Data Schedule
(b). Reports on Form 8k: None
TSR, INC. AND SUBSIDIARIES
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
TSR, INC.
----------------------------------------------
(Registrant)
Date: April 09, 1996
/s/ J. F. Hughes
----------------------------------------------
J.F. Hughes, Chairman, President and Treasurer
Date: April 09, 1996
/s/ John G. Sharkey
----------------------------------------------
John G. Sharkey, Vice President, Finance
Page 10
<TABLE> <S> <C>
<ARTICLE> 5
<CAPTION>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> FEB-29-1996
<CASH> 1,638,051
<SECURITIES> 2,373,358
<RECEIVABLES> 6,180,666
<ALLOWANCES> 169,278
<INVENTORY> 0
<CURRENT-ASSETS> 10,293,800
<PP&E> 1,028,866
<DEPRECIATION> 794,689
<TOTAL-ASSETS> 10,585,943
<CURRENT-LIABILITIES> 2,190,495
<BONDS> 0
0
0
<COMMON> 24,696
<OTHER-SE> 8,370,752
<TOTAL-LIABILITY-AND-EQUITY> 10,585,943
<SALES> 0
<TOTAL-REVENUES> 23,177,618
<CGS> 0
<TOTAL-COSTS> 16,915,219
<OTHER-EXPENSES> 5,298,487
<LOSS-PROVISION> 10,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,151,285
<INCOME-TAX> 513,000
<INCOME-CONTINUING> 638,285
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 638,285
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
