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, 1997
------------------
[ ] 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
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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
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(Address of principal executive offices)
516-231-0333
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(Registrant's telephone number)
None
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
SHARES OUTSTANDING
------------------
5,828,276 shares of common stock, par value $.01 per share,
as of December 31, 1997.
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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 Sheets--
November 30, 1997 and May 31, 1997.................... 3
Consolidated Condensed Statements of Earnings--
For the three months and six months ended
November 30, 1997 and 1996.......................... 4
Consolidated Condensed Statements of Cash Flows--
For the six months ended November 30, 1997 and 1996.. 5
Notes to Consolidated Condensed Financial Statements... 6
Item 2. Management's Discussion and Analysis..................... 7
Part II. Other Information............................................... 12
Signatures............................................................... 12
Page 2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
<CAPTION>
November 30, May 31,
ASSETS 1997 1997
------------ -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 6)............................................ $ 1,152,078 $ 2,931,180
Marketable securities (Note 7)................................................ 138,537 26,175
Accounts receivable (net of allowance for
doubtful accounts of $173,000)............................................ 12,827,634 10,408,542
Other receivables............................................................. 108,270 57,333
Prepaid expenses.............................................................. -- 3,860
Prepaid and recoverable income taxes.......................................... 50,900 11,095
Deferred income taxes......................................................... 59,000 59,000
----------- -----------
Total current assets...................................................... 14,336,419 13,497,185
Equipment and leasehold improvements, at cost (net of accumulated
depreciation and amortization of $875,000 and $687,000)....................... 1,010,406 459,902
Other assets....................................................................... 36,830 57,782
Deferred income taxes.............................................................. 49,000 29,000
----------- -----------
$15,432,655 $14,043,869
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts and other payables................................................... $ 191,971 $ 207,074
Accrued and other liabilities................................................. 2,673,457 2,486,788
Income taxes payable.......................................................... 10,472 135,173
Advances from customers....................................................... 775,364 783,892
----------- -----------
Total current liabilities................................................. 3,651,264 3,612,927
----------- -----------
Shareholders' Equity:
Preferred stock, $1 par value, authorized
1,000,000 shares; none issued............................................. -- --
Common stock, $.01 par value, authorized 25,000,000
shares; issued 5,828,276*................................................. 58,283 58,283
Additional paid-in capital*................................................... 878,446 878,446
Retained earnings............................................................. 10,844,662 9,494,213
----------- -----------
11,781,391 10,430,942
----------- -----------
$15,432,655 $14,043,869
=========== ===========
<FN>
*Adjusted for a stock split in the form of a 100% stock dividend on November 17, 1997.
</FN>
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
Page 3
<PAGE>
<TABLE>
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 1997 AND 1996
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues......................................... $17,515,674 $11,792,516 $33,294,519 $21,699,337
Cost of sales.................................... 12,671,061 8,887,196 24,618,079 16,305,995
Research and development......................... 211,930 80,480 377,184 93,967
Selling, general and administrative expenses 3,088,822 2,189,686 5,903,037 4,125,650
----------- ----------- ----------- -----------
15,971,813 11,157,362 30,898,300 20,525,612
----------- ----------- ----------- -----------
Income from operations........................... 1,543,861 635,154 2,396,219 1,173,725
Other income:
Interest and dividend income................ 41,075 36,672 72,270 89,781
Gain (loss) on marketable securities........ 3,410 (5,114) 7,360 6,907
Gain (loss) from sales of assets............ -- -- 8,600 77,650
----------- ----------- ----------- -----------
Income before income taxes....................... 1,588,346 666,712 2,484,449 1,348,063
Provision for income taxes....................... 707,000 302,000 1,134,000 598,000
----------- ----------- ----------- -----------
Net income.................................. $ 881,346 $ 364,712 $ 1,350,449 $ 750,063
=========== =========== =========== ===========
Net income per common share*..................... $ 0.15 $ 0.06 $ 0.23 $ 0.13
=========== =========== =========== ===========
Weighted average number of
common shares outstanding*.................... 5,966,704 5,828,276 5,942,206 5,828,276
=========== =========== =========== ===========
<FN>
*Adjusted for a stock split in the form of a 100% stock dividend on November 17, 1997.
</FN>
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
Page 4
<PAGE>
<TABLE>
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1997 AND 1996
<CAPTION>
Six Months Ended
November 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................... $ 1,350,449 $ 750,063
----------- -----------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization............................................. 188,097 76,072
Gain from marketable securities........................................... (7,360) (6,907)
Deferred income taxes..................................................... (20,000) 23,000
Gain on sales of assets................................................... (8,600) (77,650)
Changes in assets and liabilities:
Accounts receivable................................................... (2,419,092) (3,690,843)
Other receivables..................................................... (50,937) (18,143)
Prepaid expenses...................................................... 3,860 (20,098)
Prepaid and recoverable income taxes.................................. (39,805) (17,850)
Other assets.......................................................... 20,952 1,046
Accounts payable and accrued expenses................................. 171,566 168,891
Income taxes payable.................................................. (124,701) (55,037)
Advances from customers............................................... (8,528) 179,410
----------- -----------
Total adjustments......................................................... (2,294,548) (3,438,109)
----------- -----------
Net cash used in operating activities......................................... (944,099) (2,688,046)
----------- -----------
Cash flows from investing activities:
Proceeds from maturities and sales of marketable securities............... -- 2,937,168
Purchase of marketable securities......................................... (105,002) (2,465,112)
Purchase of fixed assets.................................................. (738,601) (142,413)
Proceeds from sales of assets............................................. 8,600 77,650
----------- -----------
Net cash provided by investing activities..................................... (835,003) 407,293
----------- -----------
Net decrease in cash and cash equivalents.......................................... (1,779,102) (2,280,753)
Cash and cash equivalents at beginning of period................................... 2,931,180 2,958,922
----------- -----------
Cash and cash equivalents at end of period......................................... $ 1,152,078 $ 678,169
=========== ===========
Supplemental Disclosures:
Income tax payments (refunds), net............................................ $ 1,319,000 $ 643,000
=========== ===========
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
NOVEMBER 30, 1997
1. The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions of Form 10-Q
of Regulation S-X. Accordingly, they do not include all the information and
notes required by generally accepted accounting principles for complete
financial statements. For further information refer to the Company's
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended May 31, 1997.
2. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the consolidated
financial position, the consolidated results of operations, and
consolidated cash flows for the periods presented.
3. The Company provides contract computer programming services and Year 2000
compliance solutions to its clients. The Company, in its contract computer
programming service business, provides technical computer personnel to
companies to supplement their in-house information technology capabilities.
In addition, the Company has developed Catch/21, a Year 2000 compliance
software solution that corrects, on a substantially automated basis,
problems which may occur in computer software as a result of the century
change in the year 2000.
4. The consolidated condensed financial statements include the accounts of
TSR, Inc. and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
5. The Company recognizes contract computer programming services revenues as
services are provided. Revenues from the maintenance and support of the
Company's proprietary software are recognized monthly as services are
rendered. Provided that acceptance is probable, revenue from code
conversion is recognized as services are rendered.
6. The Company considers short-term highly liquid investments with maturities
of three months or less at the time of purchase to be cash equivalents.
Cash and cash equivalents were comprised of the following as of November
30, 1997:
Cash in banks ............................. $ 745,941
Money Market Funds......................... 406,137
-----------
$ 1,152,078
===========
7. The Company's equity securities are classified as trading securities. The
amortized cost, gross unrealized holding gains, gross unrealized holding
losses and fair value for marketable securities by major security type at
November 30, 1997 are as follows:
Gross Gross
Unrealized Unrealized
Amortized Holding Holding
Cost Gains Losses Fair Value
--------- --------- --------- ----------
Equity Securities ....... $133,289 $6,590 $1,342 $138,537
======== ====== ====== ========
8. The Company's exclusive license to market construction specifications
databases expired March 1, 1996. In June 1996, the Company sold its
customer database for $76,850 which was recorded as non-operating income
in the first quarter of fiscal 1997.
9. On October 22, 1997 the Board of Directors of the Company declared a stock
split in the form of a 100% stock dividend on the shares of Common Stock
payable November 17, 1997 to stockholders of record as of November 3,
1997. All data for prior periods has been adjusted accordingly.
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
- ---------------------
The following table sets forth for the periods indicated certain financial
information derived from the Company's consolidated statements of earnings.
There can be no assurance that trends in sales growth or operating results will
continue in the future:
Three months ended November 30, 1997 compared with three months ended November
30, 1996.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in Thousands) 3 Months Ended
November 30,
----------------------------------------------------
1997 1996
---------------------- -----------------------
% of % of
Amount Revenues Amount Revenues
------ -------- ------ --------
<S> <C> <C> <C> <C>
Revenues ....................................................... $17,516 100.0 $11,792 100.0
Cost of Sales .................................................. 12,671 72.3 8,887 75.4
------- ----- ------- -----
Gross Profit ................................................... 4,845 27.7 2,905 24.6
Research and Development ....................................... 212 1.2 80 0.7
Selling, General, and Administrative Expenses .................. 3,089 17.7 2,190 18.5
------- ----- ------- -----
Income from Operations ......................................... 1,544 8.8 635 5.4
Other Income ................................................... 44 0.2 32 0.3
------- ----- ------- -----
Income Before Income Taxes ..................................... 1,588 9.0 667 5.7
Provision for Income Taxes ..................................... 707 4.0 302 2.6
------- ----- ------- -----
Net Income ..................................................... $ 881 5.0 $ 365 3.1
======= ===== ======= =====
</TABLE>
Revenues
- --------
Revenues consist primarily of revenues from contract computer programming
services. In addition, the Company's revenues for the quarter ended November 30,
1997 included revenues from its Year 2000 business which was commenced in fiscal
1997. Revenues for the quarter ended November 30, 1997 increased $5,724,000 or
48.5% over the comparable period in fiscal 1997.
Contract computer programming services revenues increased $4,174,000 from
$11,747,000 in the quarter ended November 30, 1996 to $15,921,000 in the quarter
ended November 30, 1997. This increase resulted from an overall increase in the
number of programmers on billing with clients from approximately 392 at November
30, 1996 to approximately 468 at November 30, 1997.
Revenues from the Company's Year 2000 business, which was commenced in fiscal
1997, were $1,580,000 for the quarter ended November 30, 1997. During the
current quarter the Company used its proprietary Catch/21 Software Solution on
conversion projects to remediate approximately 6,000,000 lines of code for
client software applications for a total of fifteen customers. These projects
are in various stages and the Company expects, assuming successful completion of
these projects, to receive additional conversion projects from many of these
companies.
The agreements under which the revenues were recognized provide that all
payments under the agreements are subject to satisfactory conversion of the
applications. Revenues include amounts billed or paid prior to the final
acceptance by the customer based upon management's belief that acceptance is
probable.
Page 7
<PAGE>
Cost of Sales
- -------------
Cost of sales as a percentage of revenues decreased from 75.4% in the quarter
ended November 30, 1996 to 72.3% in the quarter ended November 30, 1997. This
decrease is primarily attributable to the cost of sales as a percentage of
revenues in the Year 2000 business being less than the contract computer
programming business.
In the contract computer programming services business, cost of sales as a
percentage of sales increased from 75.7% in the quarter ended November 30, 1996
to 76.3% in the quarter ended November 30, 1997. This increase is attributable
to increases in amounts being paid to qualified programming professionals
outpacing the Company's ability to pass these increases on to customers due to
competitive market pressures in the industry.
The Year 2000 business incurred cost of sales of $522,000 or 33.0% of revenues
in the quarter ended November 30, 1997. These costs consisted primarily of
salaries of software analysts and quality assurance personnel. The Company
expects cost of sales from the Year 2000 business to continue to increase due to
the hiring and training of additional personnel in anticipation of future
conversion projects. There were no cost of sales for the Year 2000 business in
the quarter ended November 30, 1996.
Research and Development
- ------------------------
Research and development costs of $212,000 in the quarter ended November 30,
1997 represent amounts expended by the Company to develop and enhance its
Catch/21 Software Solution. Currently, the Catch/21 Software Solution can
convert IBM mainframe COBOL and RPG applications. The development expenditures
are expected to continue during fiscal 1998 as the Company seeks to expand its
product offerings to enable it to convert software applications which run on
additional computer platforms and are written in other languages such as PL/1,
Assembler and several fourth generation language platforms which the Company
expects to complete, subject to customer demand, during the next year. Research
and development expenses in the quarter ended November 30, 1996 were $80,000.
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 $899,000 or 41.1%
from $2,190,000 in the quarter ended November 30, 1996 to $3,089,000 in the
quarter ended November 30, 1997. Selling, general and administrative expenses
related to contract computer programming services increased $422,000 over the
prior year period to $2,496,000. The increase was primarily attributable to
additional sales commissions based on higher gross profits. In addition, this
increase resulted, to a lesser extent, from expenses relating to the hiring of
additional account executives and technical recruiting professionals to expand
the Company's client base and recruit additional technical consultants in
connection with the continuation of the Company's planned expansion.
In the quarter ended November 30, 1997, approximately $593,000 in selling,
general and administrative expenses were attributable to the Year 2000 business.
These expenses consisted primarily of marketing, advertising and facilities
expenses. Comparable Year 2000 selling, general and administrative expenses in
the quarter ended November 30, 1996 were $38,000.
Other Income
- ------------
The change in other income occurred primarily due to a net loss of $5,000 in
marketable securities in 1996 versus a gain of $4,000 in the quarter ended
November 30, 1997.
Income Taxes
- ------------
The effective income tax rate decreased to 44.5% in the quarter ended November
30, 1997 from 45.3% in the quarter ended November 30, 1996 because the profits
from the Year 2000 business, operated out of the Company's Hauppauge, New York
location, were not subject to state and local income taxes other than for New
York State.
Page 8
<PAGE>
Six months ended November 30, 1997 compared with six months ended November 30,
1996.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
6 Months Ended
November 30,
--------------------------------------------------------
1997 1996
------------------------- ------------------------
% of % of
Amount Revenues Amount Revenues
------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Revenues ....................................................... $33,294 100.0 $21,699 100.0
Cost of Sales .................................................. 24,618 74.0 16,306 75.2
------- ----- ------- -----
Gross Profit ................................................... 8,676 26.0 5,393 24.8
Research and Development ....................................... 377 1.1 94 0.4
Selling, General, and Administrative Expenses .................. 5,903 17.7 4,125 19.0
------- ----- ------- -----
Income from Operations ......................................... 2,396 7.2 1,174 5.4
Other Income ................................................... 88 0.3 174 0.8
------- ----- ------- -----
Income Before Income Taxes ..................................... 2,484 7.5 1,348 6.2
Provision for Income Taxes ..................................... 1,134 3.4 598 2.7
------- ----- ------- -----
Net Income ..................................................... $ 1,350 4.1 $ 750 3.5
======= ===== ======= =====
</TABLE>
Revenues
- --------
Revenues consist primarily of revenues from contract computer programming
services. In addition, the Company's revenues for the six months ended November
30, 1997 included revenues from its Year 2000 business which was commenced in
fiscal 1997. Revenues for the six months ended November 30, 1997 increased
$11,595,000 or 53.4% over the comparable period in fiscal 1997.
Contract computer programming services revenues increased $9,480,000 from
$21,616,000 in the six months ended November 30, 1996 to $31,096,000 in the six
months ended November 30, 1997. This increase resulted from an overall increase
in the number of programmers on billing with clients from approximately 392 at
November 30, 1996 to approximately 468 at November 30, 1997.
Revenues from the Company's Year 2000 business, which was commenced in fiscal
1997, were $2,165,000 for the six months ended November 30, 1997. During the
current period the Company used its proprietary Catch/21 Software Solution on
conversion projects to remediate approximately 10,000,000 lines of code for
client software applications for a total of fifteen customers. These projects
are in various stages and the Company expects, assuming successful completion of
these projects, to receive additional conversion projects from many of these
companies.
The agreements under which the revenues were recognized provide that all
payments under the agreements are subject to satisfactory conversion of the
applications. Revenues include amounts billed or paid prior to the final
acceptance by the customer based upon management's belief that acceptance is
probable.
Page 9
<PAGE>
Cost of Sales
- -------------
Cost of sales as a percentage of revenues decreased from 75.2% in the six months
ended November 30, 1996 to 74.0% in the six months ended November 30, 1997. This
decrease is primarily attributable to the cost of sales as a percentage of
revenues in the Year 2000 business being less than the contract computer
programming business.
In the contract computer programming services business, cost of sales as a
percentage of sales increased from 75.4% in the six months ended November 30,
1996 to 76.2% in the comparable period ended November 30, 1997. This increase is
attributable to increases in amounts being paid to qualified programming
professionals outpacing the Company's ability to pass these increases on to
customers due to competitive market pressures in the industry.
The Year 2000 business incurred cost of sales of $908,000 or 41.9% of revenues
in the six months ended November 30, 1997. These costs consisted primarily of
salaries of software analysts and quality assurance personnel. The Company
expects cost of sales from the Year 2000 business to continue to increase due to
the hiring and training of additional personnel in anticipation of future
conversion projects. There were no cost of sales for the Year 2000 business in
the period ended November 30, 1996.
Research and Development
- ------------------------
Research and development costs of $377,000 in the six months ended November 30,
1997 represent amounts expended by the Company to develop and enhance its
Catch/21 Software Solution. Currently, the Catch/21 Software Solution can
convert IBM mainframe COBOL and RPG applications. The development expenditures
are expected to continue during fiscal 1998 as the Company seeks to expand its
product offerings to enable it to convert software applications which run on
additional computer platforms and are written in other languages such as PL/1,
Assembler and several fourth generation language platforms which the Company
expects to complete, subject to customer demand, during the next year. Research
and development expenses in the period ended November 30, 1996 were $94,000.
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 $1,778,000 or 43.1%
from $4,125,000 in the six months ended November 30, 1996 to $5,903,000 in the
six months ended November 30, 1997. Selling, general and administrative expenses
related to contract computer programming services increased $834,000 over the
prior year period to $4,756,000. The increase was primarily attributable to
additional sales commissions based on higher gross profits. In addition, this
increase resulted, to a lesser extent, from expenses relating to the hiring of
additional account executives and technical recruiting professionals to expand
the Company's client base and recruit additional technical consultants in
connection with the continuation of the Company's planned expansion.
In the six months ended November 30, 1997, approximately $1,147,000 in selling,
general and administrative expenses were attributable to the Year 2000 business.
These expenses consisted primarily of marketing, advertising and facilities
expenses. Comparable Year 2000 selling, general and administrative expenses in
the period ended November 30, 1996 were $52,000.
Other Income
- ------------
The change in other income occurred primarily due to the sale of the Company's
customer database from its construction specification subsidiary for $77,000 in
the first quarter of fiscal 1997.
Income Taxes
- ------------
The effective income tax rate increased to 45.6% in the six months ended
November 30, 1997 from 44.4% in the six months ended November 30, 1996 because
the losses incurred by the Year 2000 business, operated out of the Company's
Hauppauge, New York location, were not available to offset state and local
income taxes other than for New York State.
Page 10
<PAGE>
Liquidity, Capital Resources and Changes in Financial Condition
- ---------------------------------------------------------------
The Company expects that cash flow generated from operations together with its
cash and marketable securities and available credit facilities will be
sufficient to provide the Company with adequate resources to meet its
requirements. The Company also expects its cash flow from operations, cash and
short-term marketable securities to be sufficient for the foreseeable future to
meet its cash requirements, including further acquisition of fixed assets and
other investments in the Year 2000 business.
At November 30, 1997, the Company had working capital of $10,685,000 and cash
and cash equivalents of $1,152,000 as compared to working capital of $9,884,000
and cash and cash equivalents of $2,931,000 at May 31, 1997. Working capital
increased due to the Company's net income in the six months ended November 30,
1997. Cash and equivalents declined from May 31, 1997 to November 30, 1997
primarily due to an increase in accounts receivable and the purchase of fixed
assets.
The Company had negative net cash flow of $944,000 from operations during the
six months ended November 30, 1997 as compared to negative net cash flow from
operations of $2,688,000 in the six months ended November 30, 1996. The rate of
negative cash flow declined in the six months ended November 30, 1997 from the
six months ended November 30, 1996 because the rate of revenue growth in fiscal
1998 was less than fiscal 1997 while income from operations was higher. The
Company had net income of $1,350,000, in the six months ended November 30, 1997.
However, the Company had an increase in accounts receivable of $2,419,000 from
$10,409,000 at May 31, 1997 to $12,828,000 at November 30, 1997. The increase in
accounts receivable resulted primarily from the increase in revenues for the
period.
Cash flow used in investing activities resulted primarily from the increase in
the purchase of fixed assets in the six month period from $142,000 in fiscal
1997 to $739,000 in fiscal 1998. The significant increase was required for
equipment to emulate client computer environments to enable sufficient testing
and quality assurance of the Catch/21 Software Solution.
The Company's capital resource commitments at November 30, 1997 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.
William Connor, the developer of the Catch/21 Software Solution owned 20% of the
Common Stock of the Company's subsidiary which engages in the Year 2000
business. The Company has purchased Mr. Connor's interest in this subsidiary for
$100,000 payable over a one year period and has entered into a new employment
agreement with Mr. Connor under which he will be entitled to a salary and a
bonus based on a percentage of the Company's revenues from the Catch/21 Software
Solution in excess of $5,000,000 per year.
Although the Company's cash and marketable securities were sufficient to enable
it to meet its cash requirements during the six months ended November 30, 1997,
the Company may require a credit facility to finance its accounts receivable if
its accounts receivable continue to grow as a result of continued increases in
revenues. The Company has established a revolving line of credit of $5,000,000
with a major money center bank.
Forward-Looking Statements
- --------------------------
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations", including statements concerning
the development of the Company's Catch/21 software solution, future prospects
and the Company's future cash flow requirements are forward looking statements,
as defined in the Private Securities Litigation Reform Act of 1995. Actual
results may differ materially from those projections in the forward looking
statements which statements involve risks and uncertainties, including but not
limited to the following: risks relating to the competitive nature of the
markets for contract computer programming services and the Year 2000 business,
concentration of the Company's business with certain customers and uncertainty
as to the Company's ability to bring in new customers and the risk that the
Catch/21 software solution will not achieve increased commercial acceptance.
Page 11
<PAGE>
TSR, INC. AND SUBSIDIARIES
Part II. Other Information
Item 6. Exhibits and Reports on Form 8K
(a). Exhibit 27: Financial Data Schedule
(b). Reports on Form 8K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TSR, INC.
-----------------------------------
(Registrant)
Date: January 9, 1998 /s/ J.F. HUGHES
---------------------------------------------
J.F. Hughes, Chairman, President and Treasurer
Date: January 9, 1998 /s/ JOHN G. SHARKEY
---------------------------------------------
John G. Sharkey, Vice President, Finance
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TSR, INC. AND SUBSIDIARIES
Exhibit 27, Financial Data Schedule to Report
on Form 10Q, November 30, 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
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