UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the period ended August 31, 2000
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the transition period from ________ to _______
Commission File Number: 0-8656
TSR, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-2635899
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Oser Avenue, Hauppauge, NY 11788
(Address of principal executive offices)
631-231-0333
(Registrant's telephone number)
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
4,530,912 shares of common stock, par value $.01 per share,
as of September 30, 2000
Page 1
<PAGE>
TSR, INC. AND SUBSIDIARIES
INDEX
Page
Number
------
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets --
August 31, 2000 and May 31, 2000............................ 3
Consolidated Condensed Statements of Earnings --
For the three months ended August 31, 2000 and 1999......... 4
Consolidated Condensed Statements of Cash Flows --
For the three months ended August 31, 2000 and 1999......... 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 SHEETS
<TABLE>
<CAPTION>
August 31, May 31,
2000 2000
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Note 6) ........................................... $ 3,764,897 $ 4,110,283
Marketable securities (Note 7) ............................................... 2,831,226 3,279,232
Accounts receivable (net of allowance for
doubtful accounts of $173,000) ............................................. 15,136,766 12,816,762
Other receivables ............................................................ 85,832 146,318
Prepaid expenses ............................................................. 36,590 39,700
Prepaid and recoverable income taxes ......................................... 21,700 39,158
Deferred income taxes ........................................................ 59,000 59,000
----------- -----------
Total current assets ..................................................... 21,936,011 20,490,453
Equipment and leasehold improvements, at cost (net of accumulated
depreciation and amortization of $608,000 and $577,000) ...................... 154,684 183,356
Other assets ................................................................... 53,122 40,302
Deferred income taxes .......................................................... 227,000 231,000
----------- -----------
$22,370,817 $20,945,111
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts and other payables .................................................. $ 165,444 $ 178,077
Accrued and other liabilities ................................................ 3,982,112 3,563,024
Advances from customers ...................................................... 1,304,146 1,234,660
Income taxes payable ......................................................... 758,879 220,823
----------- -----------
Total current liabilities ................................................ 6,210,581 5,196,584
----------- -----------
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 6,078,326 shares ................................. 60,783 60,783
Additional paid-in capital ................................................... 4,134,053 4,134,053
Retained earnings ............................................................ 23,224,040 22,165,851
----------- -----------
27,418,876 26,360,687
Less: Treasury Stock, 1,514,514 and 1,397,914 shares at cost ................. 11,258,640 10,612,160
----------- -----------
16,160,236 15,748,527
----------- -----------
$22,370,817 $20,945,111
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated condensed financial statements.
Page 3
<PAGE>
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED AUGUST 31, 2000 AND 1999
<TABLE>
<CAPTION>
Three Months Ended
August 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues .......................................................... $19,901,230 $20,954,694
Cost of sales ..................................................... 15,395,033 16,161,693
Selling, general and administrative expenses ...................... 2,774,763 2,864,087
----------- -----------
18,169,796 19,025,780
Income from operations ............................................ 1,731,434 1,928,914
Other income:
Interest and dividend income .................................... 100,816 92,041
Unrealized gain from marketable securities, net ................. 41,939 11,351
----------- -----------
Income before income taxes ........................................ 1,874,189 2,032,306
Provision for income taxes ........................................ 816,000 877,000
----------- -----------
Net income ...................................................... $ 1,058,189 $ 1,155,306
=========== ===========
Basic net income per common share ................................. $ 0.23 $ 0.22
=========== ===========
Weighted average number of common shares outstanding .............. 4,613,179 5,276,976
=========== ===========
Diluted net income per common share ............................... $ 0.23 $ 0.22
=========== ===========
Weighted average number of diluted common shares outstanding ...... 4,613,179 5,276,976
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated condensed financial statements.
Page 4
<PAGE>
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 2000 AND 1999
<TABLE>
<CAPTION>
Three Months Ended
August 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ....................................................... $ 1,058,189 $ 1,155,306
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization ................................ 31,483 35,907
Deferred income taxes ........................................ 4,000 3,000
Unrealized gain from marketable securities, net .............. (41,939) (11,351)
Changes in assets and liabilities:
Accounts receivable ............................................ (2,320,004) 1,125,144
Other receivables .............................................. 60,486 (7,505)
Prepaid expenses ............................................... 3,110 3,598
Prepaid and recoverable income taxes ........................... 17,458 86,239
Other assets ................................................... (12,820) 876
Accounts payable and accrued expenses .......................... 406,455 332,909
Income taxes payable ........................................... 538,056 578,602
Advances from customers ........................................ 69,486 1,178,751
----------- -----------
Net cash provided by (used in) operating activities .............. (186,040) 4,481,476
----------- -----------
Cash flows from investing activities:
Proceeds from maturities and sales of marketable securities ...... 1,459,560 1,451,349
Purchases of marketable securities ............................... (969,615) --
Purchases of fixed assets ........................................ (2,811) (2,310)
----------- -----------
Net cash provided by investing activities ........................ 487,134 1,449,039
----------- -----------
Cash flows from financing activities:
Purchase of treasury stock ....................................... (646,480) (2,508,724)
----------- -----------
Net cash used in financing activities ............................ (646,480) (2,508,724)
----------- -----------
Net increase ( decrease) in cash and cash equivalents .............. (345,386) 3,421,791
Cash and cash equivalents at beginning of period ................... 4,110,283 2,234,723
----------- -----------
Cash and cash equivalents at end of period ......................... $ 3,764,897 $ 5,656,514
=========== ===========
Supplemental Disclosures:
Income tax payments ........................................... $ 256,000 $ 212,000
=========== ===========
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
AUGUST 31, 2000
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, 2000.
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, the Company provided services converting
software applications to be Year 2000 compliant utilizing Catch/21 a Year
2000 software solution which automated, to a significant extent, the
conversion process.
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 services revenues as services
are provided. Provided that acceptance was probable, revenue from Catch/21
code conversion was recognized when the converted code was 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 August 31,
2000:
Cash in banks ................... $ --
Money Market Funds............... 2,780,047
US Treasury Bills................ 984,850
------------
$ 3,764,897
============
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 August 31,
2000 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding
Cost Gains Losses Fair Value
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
United States Treasury Bills........... $ 2,650,378 -- -- $ 2,650,378
Equity Securities...................... 133,289 47,559 -- 180,848
----------- -------- --------- -----------
$ 2,783,667 $ 47,559 $ -- $ 2,831,226
=========== ======== ========= ===========
</TABLE>
8. During the quarter ended August 31, 2000, the Company repurchased 116,600
shares of its common stock at a cost of $646,480. To date, the Company has
repurchased a total of 1,514,514 shares at a cost of $11,258,640.
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:
<TABLE>
<CAPTION>
3 Months Ended
August 31,
(Dollar Amounts in Thousands)
2000 1999
-------------------- -------------------
% of % of
Amount Revenues Amount Revenues
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues .......................................... $ 19,901 100.0 $ 20,955 100.0
Cost of Sales ..................................... 15,395 77.4 16,162 77.1
-------- ----- -------- -----
Gross Profit ...................................... 4,506 22.6 4,793 22.9
Selling, General, and Administrative expenses ..... 2,775 13.9 2,864 13.7
-------- ----- -------- -----
Income from Operations ............................ 1,731 8.7 1,929 9.2
Other Income ...................................... 143 0.7 103 0.5
-------- ----- -------- -----
Income Before Income Taxes ........................ 1,874 9.4 2,032 9.7
Provision for Income Taxes ........................ 816 4.1 877 4.2
-------- ----- -------- -----
Net Income ........................................ $ 1,058 5.3 $ 1,155 5.5
======== ===== ======== =====
</TABLE>
Revenues
Revenues consist primarily of revenues from computer programming consulting
services. Revenues for the quarter ended August 31, 2000 decreased $1,054,000 or
5.0% from the comparable period in fiscal 2000. For the current quarter 99.7% of
revenues were derived from computer programming consulting services and 0.3%
from Year 2000 services, as compared with 96.9% and 3.1% respectively in fiscal
2000.
Computer programming consulting services revenues decreased $480,000 or 2.4%
from $20,314,000 in the quarter ended August 31, 1999 to $19,834,000 in the
quarter ended August 31, 2000. This decrease resulted from an overall decrease
in the number of programmers on billing with clients from approximately 550 at
August 31, 1999 to approximately 500 at August 31, 2000. The Company believes
that this decrease is attributable, in part, to a delay in new IT projects
because customers devoted substantial resources to Year 2000 testing and have
been slow to commence new projects in calendar year 2000. The Company
experienced a low-point in the number of consultants on billing of approximately
440 in March 2000 and since April 2000 the Company has experienced an increase
in new business. The Company believes that the consulting business will continue
to strengthen during the remainder of the 2000 calendar year, although no
assurance can be made as to the timing of such strengthening. Additionally, the
decrease in revenues resulted from a significant decrease in business with its
largest customer, AT&T, which decreased from 19% of revenues in the quarter
ended August 31, 1999 to 13% in the quarter ended August 31, 2000. The Company
believes that this decrease in revenues resulted, in part, from a reorganization
of AT&T's IT department and AT&T outsourcing more of its IT functions. The
decrease was offset by increased business from other existing customers.
Revenues from the Company's Catch/21 Year 2000 compliance services, were $67,000
for the current quarter versus $641,000 in the fiscal 2000 first quarter. The
Company's Year 2000 projects have been completed and the Company expects these
revenues will further decline and are not likely to represent a material portion
of the Company's revenues in the future.
Page 7
<PAGE>
Cost of Sales
Cost of sales as a percentage of revenues increased from 77.1% in the quarter
ended August 31, 1999 to 77.4% in the quarter ended August 31, 2000. This
increase is primarily attributable to the decrease 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 decreased from 78.3% in the quarter ended August 31, 1999 to
77.5% in the quarter ended August 31, 2000. This decrease is attributable to a
change in the Company's business mix. The number of consultants on billing with
a major customer has decreased. This customer has traditionally yielded lower
margins than our overall business.
The Year 2000 business incurred cost of sales of $30,000 in the quarter ended
August 31, 2000 versus $260,000 in the prior year quarter. The Company
significantly reduced the number of employees in its Year 2000 Services during
fiscal 1999 and subsequently provided such services through contractual
arrangements with certain former employees.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of expenses
relating to account executives, technical recruiters, facilities costs,
management and corporate overhead. These expenses decreased $89,000 or 3.1% from
$2,864,000 in the quarter ended August 31, 1999 to $2,775,000 in the quarter
ended August 31, 2000. Selling, general and administrative expenses related to
computer programming consulting services decreased $53,000 from the prior year
period to $2,759,000. This decrease was primarily attributable to lower
commission based compensation.
In the quarter ended August 31, 2000, approximately $16,000 in selling, general
and administrative expenses were attributable to Year 2000 services. These
expenses consist primarily of general overhead, and facilities expenses.
Comparable Year 2000 selling, general and administrative expenses in the quarter
ended August 31, 1999 were $52,000.
Income from Operations
In the quarter ended August 31, 2000, the computer programming consulting
service business contributed $1,710,000 or 98.8% of the income from operations,
while the Year 2000 business contributed the remaining $21,000 or 1.2%. In the
prior year quarter, the computer programming consulting service business
contributed $1,600,000 or 82.9% of income from operations and the Year 2000
business $329,000 or 17.1%. The Company believes that continued growth in
contract computer programming services will, over time, offset the loss of
income from operations from Year 2000 services.
Other Income
Other income resulted primarily from interest and dividend income which
increased by $9,000 to $101,000 due to higher average interest rates on
investable funds in the quarter ended August 31, 2000. Additionally, the Company
also had a net unrealized gain of $42,000 from marketable securities due to mark
to market adjustments of its equity portfolio.
Income Taxes
The effective income tax rate increased to 43.5% in the quarter ended August 31,
2000 from 43.2% in the quarter ended August 31, 1999 because of higher state and
local taxes.
Page 8
<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 will be sufficient to provide the Company with
adequate resources to meet its cash requirements.
At August 31, 2000, the Company had working capital of $15,725,000 and cash and
cash equivalents of $3,765,000 as compared to working capital of $15,294,000 and
cash and cash equivalents of $4,110,000 at May 31, 2000. Working capital
increased primarily due to the Company's net income of $1,058,000 in the quarter
ended August 31, 2000.
The Company had negative net cash flow of $186,000 from operations during the
quarter ended August 31, 2000 as compared to positive net cash flow from
operations of $4,481,000 in the quarter ended August 31, 1999. The Company had
net income of $1,058,000 in the quarter ended August 31, 2000. However, the
Company used cash to support an increase in accounts receivable of $2,320,000.
The increase in accounts receivable occurred primarily because of a temporary
slowness in collections due to system changes at several customers. The increase
in accounts payable and accrued expenses resulted primarily from an increase in
accrued payroll at the end of the quarter. The increase in income taxes payable
occurred because the federal income tax payment for the quarter was due after
the end of the quarter.
Cash flow provided by investing activities resulted primarily from the maturity
of United States Treasury Bills in the current quarter.
Cash flow used in financing activities of $646,000 in the quarter ended August
31, 2000 resulted from the repurchase of 116,600 shares of common stock. As of
August 31, 2000, the Company has repurchased a total of 1,514,514 shares at an
average price of $7.43 or a total cost of $11,258,640. The Company has
substantially completed the buy back authorizations totaling 1,600,000 shares
and the Company's board of directors has recently authorized the repurchase of
up to an additional 250,000 shares of its common stock. No time limit has been
placed on the duration of the share repurchases. Subject to applicable
securities laws, such purchases will be at times and in amounts as the Company
deems appropriate and may be discontinued at any time. The Company has no
obligation or commitment to repurchase all or any portion of the shares covered
by the authorization.
The Company's capital resource commitments at August 31, 2000 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 quarter ended August 31, 2000. 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 financing if the need
arose. As of August 31, 2000 no amounts were outstanding under this line of
credit.
Page 9
<PAGE>
Forward-Looking Statements
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations", including statements concerning
the Company's future prospects, the anticipated increase in consulting projects
in 2000, 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, the extent to which
growth in the Company's contract computer programming services will offset the
anticipated loss of Year 2000 profits, concentration of the Company's business
with certain customers and uncertainty as to the Company's ability to bring in
new customers.
TSR, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company's earnings and cash flows are subject to fluctuations due to changes
in interest rates primarily from its investment of available cash balances in
money market funds and marketable securities. Under its current policies, the
Company does not use interest rate derivative instruments to manage exposure to
interest rate changes.
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: October 4, 2000
/s/ J.F. Hughes
-----------------------------
J.F. Hughes, Chairman,
President and Treasurer
Date: October 4, 2000
/s/ John G. Sharkey
-----------------------------
John G. Sharkey, Vice President, Finance
Page 10