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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, 1998
[ ] 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.
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(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
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(Address of principal executive offices)
516-231-0333
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(Registrant's telephone number)
NONE
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(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
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5,998,276 shares of common stock, par value $.01 per share,
as of December 31, 1998
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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, 1998 and May 31, 1998.................... 3
Consolidated Condensed Statements of Earnings --
For the three months and six months ended
November 30, 1998 and 1997 ............................ 4
Consolidated Condensed Statements of Cash Flows --
For the six months ended November 30, 1998 and 1997.... 5
Notes to Consolidated Condensed Financial Statements..... 6
Item 2. Management's Discussion and Analysis...................... 7
PART II. OTHER INFORMATION................................................. 12
SIGNATURES................................................................. 13
Page 2
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
November 30, May 31,
1998 1998
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Note 6) .............................. $ 4,724,772 $ 2,425,122
Marketable securities (Note 7) .................................. 2,527,694 1,575,945
Accounts receivable (net of allowance for
doubtful accounts of $173,000) .............................. 15,327,932 15,037,995
Other receivables ............................................... 152,885 86,772
Prepaid expenses ................................................ 9,383 67,449
Prepaid and recoverable income taxes ............................ 80,857 90,823
Deferred income taxes ........................................... 59,000 59,000
----------- -----------
Total current assets ........................................ 22,882,523 19,343,106
Equipment and leasehold improvements, at cost (net of accumulated
depreciation and amortization of $1,326,000 and $952,000) ....... 652,822 1,008,776
Other assets ......................................................... 102,428 90,995
Deferred income taxes ................................................ 97,000 73,000
----------- -----------
$23,734,773 $20,515,877
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts and other payables ..................................... $ 232,469 $ 278,410
Accrued and other liabilities ................................... 4,011,865 2,950,986
Income taxes payable ............................................ 35,436 173,377
Advances from customers ......................................... 909,518 946,257
----------- -----------
Total current liabilities ................................... 5,189,288 4,349,030
----------- -----------
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 5,988,276 shares ............................. 59,883 59,883
Additional paid-in capital ...................................... 3,183,246 3,183,246
Retained earnings ............................................... 15,302,356 12,923,718
----------- -----------
18,545,485 16,166,847
----------- -----------
$23,734,773 $20,515,877
=========== ===========
The accompanying notes are an integral part of these consolidated
condensed financial statements.
</TABLE>
Page 3
<PAGE>
<TABLE>
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 1998 AND 1997
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues ............................................. $21,682,375 $17,515,674 $42,147,906 $33,294,519
Cost of sales ........................................ 15,887,756 12,671,061 30,948,128 24,618,079
Selling, general and administrative expenses ......... 3,526,087 3,088,822 6,885,351 5,903,037
Research and development ............................. 80,310 211,930 228,481 377,184
----------- ----------- ----------- ------------
19,494,153 15,971,813 38,061,960 30,898,300
----------- ----------- ----------- ------------
Income from operations ............................... 2,188,222 1,543,861 4,085,946 2,396,219
Other income:
Interest and dividend income .................... 78,687 41,075 146,573 72,270
Gain (loss) from marketable
securities, net .............................. 23,901 3,410 (3,881) 7,360
Gain from sales of assets ....................... -- -- -- 8,600
----------- ----------- ----------- ------------
Income before income taxes ........................... 2,290,810 1,588,346 4,228,638 2,484,449
Provision for income taxes ........................... 1,000,000 707,000 1,850,000 1,134,000
----------- ----------- ----------- ------------
Net income ...................................... $ 1,290,810 $ 881,346 $ 2,378,638 $ 1,350,449
=========== =========== =========== ============
Basic net income per common share .................... $ 0.22 $ 0.15 $ 0.40 $ 0.23
=========== =========== =========== ============
Weighted average number of
common shares outstanding ......................... 5,988,276 5,966,704 5,988,276 5,942,206
=========== =========== =========== ============
Diluted net income per common share .................. $ 0.22 $ 0.15 $ 0.40 $ 0.23
=========== =========== =========== ============
Weighted average number of
diluted common shares outstanding ................. 5,988,276 5,966,704 5,988,276 5,942,206
=========== =========== =========== ============
The accompanying notes are an integral part of these consolidated
condensed financial statements.
</TABLE>
Page 4
<PAGE>
<TABLE>
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1998 AND 1997
(unaudited)
<CAPTION>
Six Months Ended
November 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................................ $ 2,378,638 $ 1,350,449
----------- -----------
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization ................................. 431,500 188,097
Loss (gain) from marketable securities, net ................... 3,881 (7,360)
Deferred income taxes ......................................... (24,000) (20,000)
Gain on sales of assets ....................................... -- (8,600)
Changes in assets and liabilities:
Accounts receivable ....................................... (289,937) (2,419,092)
Other receivables ......................................... (66,113) (50,937)
Prepaid expenses .......................................... 58,066 3,860
Prepaid and recoverable income taxes ...................... 9,966 (39,805)
Other assets .............................................. (28,100) 20,952
Accounts payable and accrued expenses ..................... 1,014,938 171,566
Income taxes payable ...................................... (137,941) (124,701)
Advances from customers ................................... (36,739) (8,528)
----------- -----------
Total adjustments ............................................. 935,521 (2,294,548)
----------- -----------
Net cash provided by (used in) operating activities ............... 3,314,159 (944,099)
----------- -----------
Cash flows from investing activities:
Proceeds from maturities and sales of marketable securities ... 974,054 --
Purchase of marketable securities ............................. (1,929,684) (105,002)
Purchase of fixed assets ...................................... (58,879) (738,601)
Proceeds from sales of assets ................................. -- 8,600
----------- -----------
Net cash used in investing activities ............................. (1,014,509) (835,003)
----------- -----------
Net increase (decrease) in cash and cash equivalents ................... 2,299,650 (1,779,102)
Cash and cash equivalents at beginning of period ....................... 2,425,122 2,931,180
----------- -----------
Cash and cash equivalents at end of period ............................. $ 4,724,772 $ 1,152,078
=========== ===========
Supplemental Disclosures:
Income tax payments ............................................... $ 2,002,000 $ 1,319,000
=========== ===========
Interest paid ..................................................... $ -- $ --
=========== ===========
The accompanying notes are an integral part of these consolidated
condensed financial statements.
</TABLE>
Page 5
<PAGE>
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
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, 1998.
2. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the consolidated
financial position, the consolidated results of operations, and
consolidated cash flows for the periods presented.
3. The Company is primarily engaged in the business of providing computer
programming consulting services. The Company provides technical computer
personnel to companies to supplement their in-house information technology
capabilities. In addition, during fiscal 1997, the Company developed
Catch/21, a Year 2000 compliance software solution which enables the
Company to correct, on a substantially automated basis, problems which may
occur in computer software as a result of the century change in the year
2000. Toward the end of fiscal 1997 the Company commenced providing
services to customers to make applications Year 2000 compliant.
4. The consolidated condensed financial statements include the accounts of
TSR, Inc. and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
5. The Company recognizes computer programming consulting services revenues as
services are provided. 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 Catch/21 code
conversion is recognized when the converted code is delivered.
6. The Company considers short-term highly liquid investments with maturities
of three months or less at the time of purchase to be cash equivalents.
Cash and cash equivalents were comprised of the following as of November
30, 1998:
Cash in banks ............................. $1,091,914
Money Market Funds......................... 2,643,668
United States Treasury Bills............... 989,190
----------
$4,724,772
==========
7. Marketable securities consists of United States Treasury Bills and equity
securities. The treasury bills with maturities at acquisition in excess of
90 days, are classified as held to maturity investments. The Company's
equity securities are classified as trading securities. The amortized
cost, gross unrealized holding gains, gross unrealized holding losses and
fair value for marketable securities by major security type at November
30, 1998 are as follows:
Gross Gross
Unrealized Unrealized
Amortized Holding Holding
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
United States Treasury Bills.. $2,403,775 -- -- $2,403,775
Equity Securities............. 133,289 12,632 (22,002) 123,919
---------- ------- -------- ----------
$2,537,064 $12,632 $(22,002) $2,527,694
========== ======= ======== ==========
8. On January 30, 1998, the Company sold 160,000 shares of common stock at
$16 per share in a private placement. The net proceeds to the Company
after expenses were $2,306,400.
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, 1998 compared with three months ended November
30, 1997
<TABLE>
<CAPTION>
3 Months Ended November 30,
----------------------------------------
1998 1997
------------------ ------------------
% of % of
Amount Revenues Amount Revenues
------- -------- ------- --------
(Dollar amounts in Thousands)
<S> <C> <C> <C> <C>
Revenues ........................................ $21,682 100.0 $17,516 100.0
Cost of Sales ................................... 15,887 73.3 12,671 72.3
------- ----- ------- -----
Gross Profit .................................... 5,795 26.7 4,845 27.7
Selling, General, and Administrative Expenses ... 3,526 16.2 3,089 17.7
Research and Development ........................ 80 0.4 212 1.2
------- ----- ------- -----
Income from Operations .......................... 2,189 10.1 1,544 8.8
Other Income .................................... 102 0.5 44 0.2
------- ----- ------- -----
Income Before Income Taxes ...................... 2,291 10.6 1,588 9.0
Provision for Income Taxes ...................... 1,000 4.6 707 4.0
------- ----- ------- -----
Net Income ...................................... $ 1,291 6.0 $ 881 5.0
======= ===== ======= =====
</TABLE>
REVENUES
Revenues consist primarily of revenues from computer programming consulting
services. In addition, the Company's revenues for the quarter ended November 30,
1998 included revenues from its Year 2000 business which was commenced in fiscal
1997. Revenues for the quarter ended November 30, 1998 increased $4,166,000 or
23.8% over the comparable period in fiscal 1998.
Computer programming consulting services revenues increased $3,539,000 from
$15,921,000 in the quarter ended November 30, 1997 to $19,460,000 in the quarter
ended November 30, 1998. This increase resulted from an overall increase in the
number of programmers on billing with clients from an average of approximately
467 in the quarter ended November 30, 1997 to approximately 514 in the quarter
ended November 30, 1998.
Revenues from the Company's Year 2000 business, were $2,222,000 for the quarter
ended November 30, 1998 as compared to $1,580,000 for the quarter ended November
30, 1998. During the current quarter the Company used its proprietary Catch/21
Software Solution on conversion projects to remediate approximately 7,500,000
lines of code for client software applications for a total of sixteen customers.
The Company's Year 2000 revenues during the second quarter of fiscal 1999 were
slightly less than the first quarter revenues and the Company expects these
revenues may decline more rapidly during the remainder of fiscal 1999. The
Company has received less code from customers than it had expected based on
customers' original estimates. In addition, the Company is experiencing more
intense competition which has impacted obtaining new customers. As a result, the
Company has reduced its marketing efforts and sales force in the Year 2000 area.
The agreements under which the Year 2000 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 only for conversion projects where management
believes that acceptance is probable.
Page 7
<PAGE>
COST OF SALES
Cost of sales as a percentage of revenues increased from 72.3% in the quarter
ended November 30, 1997 to 73.3% in the quarter ended November 30, 1998. This
increase is attributable to increases in cost of sales as a percentage of
revenues in both the computer programming consulting services business and the
Year 2000 business.
In the computer programming consulting services business, cost of sales as a
percentage of sales increased from 76.3% in the quarter ended November 30, 1997
to 77.0% in the quarter ended November 30, 1998. 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 $1,908,000 in the quarter ended
November 30, 1998 versus $522,000 in the prior year quarter. 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
decrease in the coming quarters due to a significant decrease in the number of
analysts working in this area.
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 $437,000 or 14.1%
from $3,089,000 in the quarter ended November 30, 1997 to $3,526,000 in the
quarter ended November 30, 1998. Selling, general and administrative expenses
related to computer programming consulting services increased $305,000 over the
prior year period to $2,801,000. The increase was primarily attributable to
additional commission based compensation based on higher gross profits. In
addition, this increase resulted from expenses relating to the hiring of
additional account executives and technical recruiting professionals to broaden
the Company's client base and recruit additional technical consultants in
connection with the continuation of the Company's planned expansion.
In the quarter ended November 30, 1998, approximately $725,000 in selling,
general and administrative expenses were attributable to the Year 2000 business.
These expenses consisted primarily of marketing, management, and facilities
expenses. Such expenses are expected to decline due to lower demand for Year
2000 remediation services. Comparable Year 2000 selling, general and
administrative expenses in the quarter ended November 30, 1997 were $593,000.
RESEARCH AND DEVELOPMENT
Research and development costs of $80,000 in the quarter ended November 30, 1998
represent amounts expended by the Company on the Company's Year 2000 compliance
solution product offerings primarily related to XRAY/2000 which stands for
Examination, Repair, and Audit for Year 2000 Compliance, and various testing
utilities. Research and development expenses in the quarter ended November 30,
1997 were $212,000. The Company expects to continue to reduce research and
development expenditures.
INCOME FROM OPERATIONS
In the quarter ended November 30, 1998, the computer programming consulting
service business contributed $1,680,000 or 76.7% of the income from operations,
while the Year 2000 business contributed the remaining $509,000 or 23.3%. In the
prior year quarter, the computer programming consulting service business
contributed $1,276,000 or 82.6% of income from operations, the Year 2000
business contributed $253,000 or 16.4%, and there was $15,000 or 1.0% from other
sources.
OTHER INCOME
Other income resulted primarily from interest and dividend income which
increased by $58,000 to $102,000 due to higher average available investable
funds in the quarter ended November 30, 1998. There was also an unrealized gain
of $24,000 on the Company's equity securities.
INCOME TAXES
The effective income tax rate decreased to 43.7% in the quarter ended November
30, 1998 from 44.5% in the quarter ended November 30, 1997 because of a lower
percentage of non-deductible expenses.
Page 8
<PAGE>
<TABLE>
<CAPTION>
Six months ended November 30, 1998 compared with six months ended November 30,
1997.
(Dollar amounts in Thousands) 6 Months Ended
November 30,
1998 1997
---- ----
% of % of
Amount Revenues Amount Revenues
------ -------- ------ --------
<S> <C> <C> <C> <C>
Revenues ................................................................... $42,148 100.0 $33,294 100.0
Cost of Sales .............................................................. 30,948 73.4 24,618 74.0
------- ------- ------- -------
Gross Profit ............................................................... 11,200 26.6 8,676 26.0
Selling, General, and Administrative Expenses .............................. 6,885 16.3 5,903 17.7
Research and Development ................................................... 228 0.6 377 1.1
------- ------- ------- -------
Income from Operations ..................................................... 4,087 9.7 2,396 7.2
Other Income ............................................................... 142 0.3 88 0.3
------- ------- ------- -------
Income Before Income Taxes ................................................. 4,229 10.0 2,484 7.5
Provision for Income Taxes ................................................. 1,850 4.4 1,134 3.4
------- ------- ------- -------
Net Income ................................................................. $ 2,379 5.6 $ 1,350 4.1
======= ======= ======= =======
</TABLE>
Revenues
Revenues consist primarily of revenues from computer programming consulting
services. In addition, the Company's revenues for the six months ended November
30, 1998 included revenues from its Year 2000 business which was commenced in
fiscal 1997. Revenues for the six months ended November 30, 1998 increased
$8,854,000 or 26.6% over the comparable period in fiscal 1998.
Computer programming consulting services revenues increased $6,499,000 from
$31,096,000 in the six months ended November 30, 1997 to $37,595,000 in the six
months ended November 30, 1998. This increase resulted from an overall increase
in the number of programmers on billing with clients from an average of
approximately 458 in the six months ended November 30, 1997 to approximately 496
in the six months ended November 30, 1998.
Revenues from the Company's Year 2000 business, were $4,553,000 for the six
months ended November 30, 1998 as compared to $2,165,000 in the six months ended
November 30, 1998. During the current six month period the Company used its
proprietary Catch/21 Software Solution on conversion projects to remediate
approximately 16,500,000 lines of code for client software applications for a
total of sixteen customers. While the Company's revenues for Year 2000 services
increased over the comparable six month period in fiscal 1998, the Company
expects its Year 2000 revenues to decline during the remainder of fiscal 1999.
Page 9
<PAGE>
Cost of Sales
Cost of sales as a percentage of revenues decreased from 74.0% in the six months
ended November 30, 1997 to 73.4% in the six months ended November 30, 1998. This
decrease is primarily attributable to the increase in Year 2000 revenues for
which cost of sales as a percentage of revenues is less than the computer
programming consulting services business.
In the computer programming consulting services business, cost of sales as a
percentage of sales increased from 76.2% in the six months ended November 30,
1997 to 77.1% in the six months ended November 30, 1998. 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 $1,988,000 in the six months
ended November 30, 1998 versus $908,000 in the prior year period. 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
decrease in the coming quarters due to a significant decrease in the number of
analysts working in this area.
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 $982,000 or 16.6%
from $5,903,000 in the six months ended November 30, 1997 to $6,885,000 in the
six months ended November 30, 1998. Selling, general and administrative expenses
related to computer programming consulting services increased $766,000 over the
prior year period to $5,522,000. The increase was primarily attributable to
additional sales commissions based on higher gross profits. In addition, this
increase resulted from expenses relating to the hiring of additional account
executives and technical recruiting professionals to broaden the Company's
client base and recruit additional technical consultants in connection with the
continuation of the Company's planned expansion.
In the six months ended November 30, 1998, approximately $1,363,000 in selling,
general and administrative expenses were attributable to the Year 2000 business.
These expenses consisted primarily of marketing, management, and facilities
expenses. Comparable Year 2000 selling, general and administrative expenses in
the six months ended November 30, 1997 were $1,147,000.
Research and Development
Research and development costs of $228,000 in the six months ended November 30,
1998 represent amounts expended by the Company on the Company's Year 2000
compliance solution product offerings primarily related to XRAY/2000 which
stands for Examination, Repair, and Audit for Year 2000 Compliance, and various
testing utilities. Research and development expenses in the six months ended
November 30, 1997 were $377,000.
Income from Operations
In the six months ended November 30, 1998, the computer programming consulting
service business contributed $3,113,000 or 76.2% of the income from operations,
while the Year 2000 business contributed the remaining $974,000 or 23.8%. In the
prior year period, the computer programming consulting service business
contributed $2,629,000 of income from operations, the Year 2000 business
incurred a loss of $267,000, and there was $34,000 from other sources.
Other Income
Other income resulted primarily from interest and dividend income which
increased by $54,000 to $142,000 due to higher average available investable
funds in the six months ended November 30, 1998. This interest and dividend
increase was offset, to some extent, by an unrealized loss of $4,000 on the
Company's equity securities.
Income Taxes
The effective income tax rate decreased to 43.7% in the six months ended
November 30, 1998 from 45.6% in the period ended November 30, 1997 because the
losses incurred in the prior year period 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 cash
requirements.
At November 30, 1998, the Company had working capital of $17,693,000 and cash
and cash equivalents of $4,725,000 as compared to working capital of $14,994,000
and cash and cash equivalents of $2,425,000 at May 31, 1998. Working capital and
cash and cash equivalents increased primarily due to the Company's net income in
the six months ended November 30, 1998.
The Company had positive net cash flow of $3,314,000 from operations during the
six months ended November 30, 1998 as compared to negative net cash flow from
operations of $944,000 in the six months ended November 30, 1997. The Company
had net income of $2,379,000, in the six month ended November 30, 1998 as
compared to $1,350,000 in the six months ended November 30, 1997. Cash flow also
benefited from a small increase in accounts receivable despite the significant
increase in revenues because the rate of increase in collections on accounts
receivable exceeded the rate of growth in revenues during the six months ended
November 30, 1998. The Company also had additional cash flow as a result of the
increase in the accounts payable and accrued expenses of $1,015,000. The
increase in accounts payable and accrued expense resulted primarily from the
increase in cost of sales.
Cash flow used in investing activities resulted primarily from the purchase of
US Treasury Bills with a maturity in excess of three months and the purchase of
fixed assets in the current period of $59,000. The fixed asset additions were
$739,000 in the prior year period. The significant decrease occurred due to
equipment purchased in the prior year period 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, 1998 consisted of
lease obligations on its branch and corporate facilities. The Company intends to
finance these lease commitments from cash flow provided by operations, available
cash and short-term marketable securities.
The Company's cash and marketable securities were sufficient to enable it to
meet its cash requirements during the six months ended November 30, 1998. The
Company believes that it would require financing for its accounts receivable if
its accounts receivable grow significantly as a result of a significant increase
in the rate of revenue growth. The Company has available a revolving line of
credit of $5,000,000 with a major money center bank which the Company believes
provides sufficient available financing if this need arose. As of November 30,
1998 no amounts were outstanding under this line of credit.
Year 2000 Information
Readiness for Year 2000
The Company has only limited internal systems which it believes could be
affected by Year 2000 issues. The Company's principal information technology
(IT) systems are its resume search (which contains its databases of IT
professionals), payroll, billing and general ledger systems. The Company
believes that its search, payroll and billing software systems are written in a
language which should be Year 2000 compliant. The Company's general ledger
system will require an upgrade to be Year 2000 compliant and the Company is
currently in the process of testing the upgrade. The Company does not expect the
cost of the upgrade to be material. The Company's management is engaged in an
assessment of the readiness of its systems for handling the Year 2000 and
intends to conduct more extensive tests of its software systems. The Company is
not currently aware of any non-IT systems which are material to the Company and
contain embedded chip systems which have Year 2000 issues. Although the
assessment of the Company's IT and non-IT systems is in the early stages,
management does not believe that it will have material Year 2000 problems
relating to its IT and non-IT systems. The Company's management currently
believes that it will be successful in identifying and resolving any potential
deficiencies in its systems with respect to Year 2000 issues, that all material
systems will be compliant by the Year 2000 and that the cost to address the Year
2000 issues will not be material.
Page 11
<PAGE>
The Company does not materially rely on individual third party vendors and
suppliers and accordingly does not believe that the Year 2000 readiness of third
party vendors or suppliers will have a material impact on its business.
Nonetheless, the Company's business is dependent on third parties, such as
public utilities, electric systems, telecommunication systems, mail and
overnight delivery services. The Company's business could be materially
adversely affected by disruption in services provided by such entities, or by
conditions resulting from Year 2000 issues generally affecting companies with
which it does business.
The Company's management believes the impact of the Year 2000 will not cause any
material disruptions in the Company's operations. However, the impact of such
potential disruptions is difficult to assess and accordingly there is a risk
that there will be disruptions which could have a material adverse effect on the
Company.
As discussed above, the Company is engage in an ongoing Year 2000 assessment.
Following the completion of the assessment, the Company plans to conduct a
full-scale Year 2000 simulation of its IT systems. The results of this
simulation and the Company's assessment will be taken into account in
determining the nature and extent of any contingency plans.
Forward-Looking Statements
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations", including statements concerning
the development of the Company's Catch/21 solution, future prospects and the
Company's future cash flow requirements are forward looking statements, as
defined in the Private Securities Litigation Reform Act of 1995. Actual results
may differ materially from those projections in the forward looking statements
which statements involve risks and uncertainties, including but not limited to
the following: risks relating to the competitive nature of the markets for
computer programming consulting services and the Year 2000 compliance solution
market, 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.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8K
(a). Exhibit 27: Financial Data Schedule
(b). Reports on Form 8K: None
Page 12
<PAGE>
TSR, INC. AND SUBSIDIARIES
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 8, 1999 /s/ J.F. Hughes
----------------------------------------------
J.F. Hughes, Chairman, President and Treasurer
Date: January 8, 1999 /s/ John G. Sharkey
----------------------------------------------
John G. Sharkey, Vice President, Finance
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TSR, INC. AND SUBSIDIARIES
EXHIBIT 27
FINANCIAL DATA SCHEDULE TO REPORT ON FORM 10-Q
SIX MONTHS ENDED NOVEMBER 30, 1998
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 4,724,772
<SECURITIES> 2,527,694
<RECEIVABLES> 15,501,196
<ALLOWANCES> 173,264
<INVENTORY> 0
<CURRENT-ASSETS> 22,882,523
<PP&E> 1,979,133
<DEPRECIATION> 1,326,311
<TOTAL-ASSETS> 23,734,773
<CURRENT-LIABILITIES> 5,189,288
<BONDS> 0
0
0
<COMMON> 59,883
<OTHER-SE> 18,485,602
<TOTAL-LIABILITY-AND-EQUITY> 23,734,773
<SALES> 0
<TOTAL-REVENUES> 42,147,906
<CGS> 0
<TOTAL-COSTS> 30,948,128
<OTHER-EXPENSES> 7,113,832
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,228,638
<INCOME-TAX> 1,850,000
<INCOME-CONTINUING> 2,378,638
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,372,638
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
