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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 February 28, 2009
[_] 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.
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(Exact name of registrant as specified in its charter)
Delaware 13-2635899
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(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)
631-231-0333
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(Registrant's telephone number)
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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
Indicate by check mark whether the registrant is large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer [_] Accelerated Filer [_]
Non-Accelerated filer [_] Smaller Reporting Company [X]
(Do not check if a
smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [_] Yes [X] No
SHARES OUTSTANDING
4,050,488 shares of common stock, par value $.01 per share, as of March 31, 2009
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Page 1
TSR, INC. AND SUBSIDIARIES
INDEX
Page
Part I. Financial Information: Number
------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
February 28, 2009 and May 31, 2008 3
Condensed Consolidated Statements of Income -
For the three months and nine months ended February
28, 2009 and February 29, 2008 4
Condensed Consolidated Statements of Cash Flows -
For the nine months ended February 28, 2009 and
February 29, 2008 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 4T. Controls and Procedures 15
Part II. Other Information. 15
Item 2(c). Unregistered Sales of Equity Securities and Use
of Proceeds 15
Item 6. Exhibits 16
Signatures 16
Page 2
Part I. Financial Information
Item 1. Financial Statements
TSR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
February 28, May 31,
2009 2008
------------ ------------
(Unaudited) (Note 1)
Current Assets:
Cash and cash equivalents $ 4,561,078 $ 1,588,443
Marketable securities 3,747,985 6,459,832
Accounts receivable, net of allowance for doubtful accounts of $302,000 and $326,000 6,651,557 8,176,936
Other receivables 22,778 52,375
Prepaid expenses 69,395 53,788
Prepaid and recoverable income taxes 102,991 48,015
Deferred income taxes 124,000 135,000
------------ ------------
Total Current Assets 15,279,784 16,514,389
Marketable securities -- 999,648
Equipment and leasehold improvements, net of accumulated depreciation
and amortization of $411,583 and $396,963 18,300 23,285
Other assets 49,653 49,653
Deferred income taxes 52,000 55,000
------------ ------------
Total Assets $ 15,399,737 $ 17,641,975
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts and other payables $ 216,573 $ 313,157
Accrued expenses and other current liabilities 1,348,894 1,919,564
Advances from customers 1,513,141 1,589,087
------------ ------------
Total Liabilities 3,078,608 3,821,808
------------ ------------
Minority Interest 13,583 53,533
------------ ------------
Stockholders' Equity:
Preferred stock, $1 par value, authorized 1,000,000 shares; none issued -- --
Common stock, $.01 par value, authorized 25,000,000 shares; issued 6,228,326 shares 62,283 62,283
Additional paid-in capital 5,071,727 5,071,727
Retained earnings 20,424,767 20,663,925
------------ ------------
25,558,777 25,797,935
Less: Treasury stock, 2,177,838 and 1,660,314 shares, at cost 13,251,231 12,031,301
------------ ------------
Total Stockholders' Equity 12,307,546 13,766,634
------------ ------------
Total Liabilities and Stockholders' Equity $ 15,399,737 $ 17,641,975
============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 3
TSR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For The Three Months and Nine Months Ended February
28, 2009 and February 29, 2008
(UNAUDITED)
Three Months Ended Nine Months Ended
February 28, February 29, February 28, February 29,
2009 2008 2009 2008
------------ ------------ ------------ ------------
Revenue, net $ 9,750,770 $ 12,411,619 $ 33,436,750 $ 39,178,822
------------ ------------ ------------ ------------
Cost of sales 7,957,769 10,227,614 27,452,845 31,996,418
Selling, general and administrative expenses 1,636,279 1,866,485 5,131,853 5,587,002
------------ ------------ ------------ ------------
9,594,048 12,094,099 32,584,698 37,583,420
------------ ------------ ------------ ------------
Income from operations 156,722 317,520 852,052 1,595,402
Other income (expense):
Interest and dividend income 29,826 89,457 132,091 300,922
Unrealized loss on marketable securities, net (848) (4,889) (8,352) (1,769)
Minority interest in subsidiary operating profits (12,456) (16,622) (37,339) (70,577)
------------ ------------ ------------ ------------
Income before income taxes 173,244 385,466 938,452 1,823,978
Provision for income taxes 80,000 171,000 410,000 784,000
------------ ------------ ------------ ------------
Net income $ 93,244 $ 214,466 $ 528,452 $ 1,039,978
============ ============ ============ ============
Basic and diluted net income per common share $ 0.02 $ 0.05 $ 0.12 $ 0.23
============ ============ ============ ============
Weighted average number of basic and diluted common
shares outstanding 4,050,488 4,568,012 4,297,468 4,568,012
============ ============ ============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 4
TSR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Nine Months Ended February 28, 2009 and February 29, 2008
(UNAUDITED)
Nine Months Ended
February 28, February 29,
2009 2008
------------ ------------
Cash flows from operating activities:
Net income $ 528,452 $ 1,039,978
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 14,620 18,984
Unrealized loss on marketable securities, net 8,352 1,769
Minority interest in subsidiary operating profits 37,339 70,577
Deferred income taxes 14,000 13,000
Changes in operating assets and liabilities:
Accounts receivable 1,525,379 (1,648,220)
Other receivables 29,597 40,517
Prepaid expenses (15,607) (2,950)
Prepaid and recoverable income taxes (54,976) 87,676
Accounts payable and accrued expenses (667,254) (350,716)
Income taxes payable -- 7,927
Advances from customers (75,946) (42,012)
------------ ------------
Net cash provided by (used in) operating activities 1,343,956 (763,470)
------------ ------------
Cash flows from investing activities:
Proceeds from maturities of marketable securities 8,915,637 8,818,667
Purchases of marketable securities (5,212,494) (8,366,270)
Purchase of fixed assets (9,635) (1,441)
------------ ------------
Net cash provided by investing activities 3,693,508 450,956
------------ ------------
Cash flows from financing activities:
Purchases of treasury stock (1,219,930) --
Cash dividends paid (767,610) (1,096,323)
Distribution to minority interest (77,289) (42,246)
------------ ------------
Net cash used in financing activities (2,064,829) (1,138,569)
------------ ------------
Net increase (decrease) in cash and cash equivalents 2,972,635 (1,451,083)
Cash and cash equivalents at beginning of period 1,588,443 1,900,264
------------ ------------
Cash and cash equivalents at end of period $ 4,561,078 $ 449,181
============ ============
Supplemental disclosures of cash flow data:
Income taxes paid $ 451,000 $ 675,000
============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 5
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2009
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying condensed consolidated interim financial statements
include the accounts of TSR, Inc. and its subsidiaries (the "Company"). All
significant inter-company balances and transactions have been eliminated in
consolidation. These interim financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America applying to interim financial information and with the
instructions to Form 10-Q of Regulation S-X of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures
required by accounting principles generally accepted in the United States
of America and normally included in the Company's annual financial
statements have been condensed or omitted. These interim financial
statements as of and for the three months and nine months ended February
28, 2009 are unaudited; however, in the opinion of management, such
statements include all adjustments (consisting of normal recurring
accruals) necessary to present fairly the consolidated financial position,
results of operations and cash flows of the Company for the periods
presented. The results of operations for the interim periods presented are
not necessarily indicative of the results that might be expected for future
interim periods or for the full year ending May 31, 2009. The balance sheet
at May 31, 2008 has been derived from the audited financial statements at
that date. These interim financial statements should be read in conjunction
with the Company's consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended May
31, 2008.
2. Net Income Per Common Share
---------------------------
Basic net income per common share is computed by dividing income available
to common stockholders (which for the Company equals its net income) by the
weighted average number of common shares outstanding, and diluted net
income per common share adds the dilutive effect of stock options and other
common stock equivalents. The Company has had no stock options or other
common stock equivalents outstanding during any of the periods presented.
3. Cash and Cash Equivalents
-------------------------
The Company considers short-term highly liquid investments with maturities
of three months or less at the time of purchase to be cash equivalents.
Several of the Company's account balances are in excess of the depository
insurance provided by the Federal Deposit Insurance Corporation or the
Securities Investor Protection Corporation. Cash and cash equivalents were
comprised of the following as of February 28, 2009 and May 31, 2008:
February 28, May 31,
2009 2008
------------ ------------
Cash in banks $ 2,254,843 $ 394,987
Money market funds 2,306,235 1,193,456
------------ ------------
$ 4,561,078 $ 1,588,443
============ ============
4. Revenue Recognition
-------------------
The Company's contract computer programming services are generally provided
under time and materials agreements with customers. Revenue is recognized
in accordance with Staff Accounting Bulletin (SAB) 104, "Revenue
Recognition," when persuasive evidence of an arrangement exists, the
services have been rendered, the price is fixed or determinable, and
collectability is reasonably assured. These conditions occur when a
customer agreement is effected and the consultant performs the authorized
services. Advances from customers represent amounts received from customers
prior to the Company's provision of the related services and credit
balances from overpayments.
Reimbursements received by the Company for out-of-pocket expenses are
characterized as revenue in accordance with Emerging Issues Task Force
(EITF) Issue 01-14 "Income Statement of Characterization of Reimbursements
Received for `Out-of-Pocket' Expenses Incurred."
Page 6
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
February 28, 2009
(Unaudited)
5. Marketable Securities
---------------------
The Company accounts for its marketable securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting
for Certain Investments in Debt and Equity Securities." Accordingly, the
Company classifies its marketable securities at acquisition as either (i)
held-to-maturity, (ii) trading or (iii) available-for-sale. Based upon the
Company's intent and ability to hold its US Treasury securities to maturity
(which maturities range up to 24 months), such securities have been
classified as held-to-maturity and are carried at amortized cost, which
approximates market value. The Company's equity securities are classified
as trading securities, which are carried at fair value, as determined by
quoted market price, which is Level 1 input, as established by the fair
value hierarchy under SFAS No. 157, "Fair Value Measurements" ("SFAS No.
157"). The related unrealized gains and losses are included in earnings.
The Company's marketable securities at February 28, 2009 and May 31, 2008
are summarized as follows:
Gross Gross
February 28, 2009 Unrealized Unrealized
----------------- Amortized Holding Holding Recorded
Current Cost Gains Losses Value
------- ---------- ---------- ---------- ----------
United States Treasury Securities $2,487,793 $ -- $ -- $2,487,793
Certificates of Deposit 1,250,000 -- -- 1,250,000
Equity Securities 16,866 -- 6,674 10,192
---------- ---------- ---------- ----------
$3,754,659 $ -- $ 6,674 $3,747,985
========== ========== ========== ==========
Gross Gross
May 31, 2008 Unrealized Unrealized
------------ Amortized Holding Holding Recorded
Current Cost Gains Losses Value
------- ---------- ---------- ---------- ----------
United States Treasury Securities $6,441,288 $ -- $ -- $6,441,288
Equity Securities 16,866 1,678 -- 18,544
---------- ---------- ---------- ----------
$6,458,154 $ 1,678 $ -- $6,459,832
========== ========== ========== ==========
Long - Term
-----------
United States Treasury Securities $ 999,648 $ -- $ -- $ 999,648
========== ========== ========== ==========
6. Stockholders' Equity
--------------------
During the nine months ended February 28, 2009, the Company purchased a
total of 517,524 shares of its common stock for $1,219,930. This consisted
of 61,001 shares purchased in various transactions on the open market for
$169,927 under a previously announced repurchase plan of 300,000 shares and
an additional 456,523 shares purchased in a private transaction for
$1,050,003 in October 2008. The Company has not made any purchases under
its repurchase plan since September 2008.
Page 7
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
February 28, 2009
(Unaudited)
7. Recent Accounting Pronouncements
--------------------------------
On September 15, 2006, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 157. SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years.
SFAS No. 157 provides guidance related to estimating fair value and
requires expanded disclosures. SFAS No. 157 applies whenever other
standards require (or permit) assets or liabilities to be measured at fair
value. SFAS No. 157 does not expand the use of fair value in any new
circumstances. The adoption of SFAS No. 157 did not have a material impact
on the Company's condensed consolidated financial statements.
The Company adopted the methods of fair value measurement as described in
SFAS No. 157 to value its financial assets and liabilities. As described in
SFAS No. 157, fair value is based on the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. In order to increase
consistency and comparability in fair value measurements, SFAS No. 157
establishes a fair value hierarchy that prioritizes observable and
unobservable inputs used to measure fair value into three broad levels,
which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible
at the measurement date for identical assets or liabilities. The fair value
hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable inputs other than Level 1 prices such as quoted prices
for similar assets or liabilities; quoted prices in inactive markets; or
model-derived valuations in which all significant inputs are observable or
can be derived principally from or corroborated with observable market
data.
Level 3: Unobservable inputs are used when little or no market data is
available. The fair value hierarchy gives the lowest priority to Level 3
inputs.
In determining fair value, the Company utilizes valuation techniques that
maximize the use of observable inputs and minimize the use of unobservable
inputs to the extent possible as well as counterparty credit risks in its
assessment of fair value.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment to FASB
Statement No. 115" ("SFAS No. 159"). SFAS No. 159 permits entities to elect
to measure many financial instruments and certain other items at fair
value. Upon adoption of SFAS No. 159, an entity may elect the fair value
option for eligible items that exist at the adoption date. Subsequent to
the initial adoption, the election of the fair value option should only be
made at initial recognition of the asset or liability or upon a
re-measurement event that gives rise to new-basis accounting. SFAS No. 159
does not affect any existing accounting literature that requires certain
assets and liabilities to be carried at fair value nor does it eliminate
disclosure requirements included in other accounting standards. SFAS No.
159 is effective for fiscal years beginning after November 15, 2007. The
adoption of SFAS No. 159 did not have a material impact on the Company's
condensed consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (R), "Business Combinations"
("SFAS No.141(R)"), and SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements" ("SFAS No.160"). SFAS No.141 (R)
requires an acquirer to measure the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the acquiree at
their fair values on the acquisition date, with goodwill being the excess
value over the net identifiable assets acquired. SFAS No. 160 clarifies
that a noncontrolling interest in a subsidiary should be reported as equity
in the consolidated financial statements. The calculation of earnings per
share will continue to be based on income amounts attributable to the
parent. SFAS No. 141 (R) and SFAS No. 160 are effective for financial
statements issued for fiscal years beginning after December 15, 2008. Early
adoption is prohibited. The Company does not expect the adoption of SFAS
No.141 (R) and SFAS No. 160 to have a material impact on its condensed
consolidated financial statements.
Page 8
Part I. Financial Information
Item 2.
TSR, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and the notes to such financial
statements.
Forward-Looking Statements
--------------------------
Certain statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations, including statements concerning
the Company's future prospects and the Company's future cash flow requirements
are forward looking statements, as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projections
in the forward looking statements which statements involve risks and
uncertainties, including but not limited to the following: the impact of current
adverse conditions in the credit markets and current adverse economic conditions
on the Company's business; risks relating to the competitive nature of the
markets for contract computer programming services; the extent to which market
conditions for the Company's contract computer consulting services will continue
to adversely affect the Company's business; the concentration of the Company's
business with certain customers; uncertainty as to the Company's ability to
maintain its relations with existing customers and expand its contract computer
consulting services business; the impact of changes in the industry, such as the
use of vendor management companies in connection with the consulting procurement
process, the increase in customers moving IT operations offshore and other risks
and uncertainties set forth in the Company's filings with the Securities and
Exchange Commission. The Company is under no obligation to publicly update or
revise forward looking statements.
Results of Operations
---------------------
The following table sets forth, for the periods indicated, certain financial
information derived from the Company's condensed consolidated statements of
income. There can be no assurance that trends in operating results will continue
in the future:
Three months ended February 28, 2009 compared with three months ended February
------------------------------------------------------------------------------
29, 2008
--------
(Dollar amounts in thousands)
Three Months Ended
February 28, February 29,
2009 2008
---- ----
% of % of
Amount Revenue Amount Revenue
-------- -------- -------- --------
Revenue, net $ 9,751 100.0% $ 12,412 100.0%
Cost of sales 7,958 81.6% 10,228 82.4%
-------- -------- -------- --------
Gross profit 1,793 18.4% 2,184 17.6%
Selling, general and administrative expenses 1,636 16.8% 1,867 15.0%
-------- -------- -------- --------
Income from operations 157 1.6% 317 2.6%
Other income, net 16 0.2% 68 0.5%
-------- -------- -------- --------
Income before income taxes 173 1.8% 385 3.1%
Provision for income taxes 80 0.8% 171 1.4%
-------- -------- -------- --------
Net income $ 93 1.0% $ 214 1.7%
======== ======== ======== ========
Page 9
TSR, INC. AND SUBSIDIARIES
Revenue
-------
Revenue consists primarily of revenue from computer programming consulting
services. Revenue for the quarter ended February 28, 2009 decreased $2,661,000
or 21.4% from the quarter ended February 29, 2008. The average number of
consultants on billing with customers decreased from 329 for the quarter ended
February 29, 2008 to 250 for the quarter ended February 28, 2009. The decrease
in revenue resulted primarily from the continued reduction in consultants placed
with AT&T, additional reductions in consultants on billing with other customers
which the Company attributes to current economic conditions and decreases in
revenue due to lower billing rates caused by discounts and other rate reductions
instituted by customers.
As a result of the current economic downturn and, specifically, the impact of
the adverse conditions in the credit markets on the financial services industry,
the Company expects that IT spending will continue to decrease and that the
impact is likely to be greater in the financial services industry. These
economic conditions have reduced the opportunities to place new consultants on
billing with clients and have caused early termination of some existing
assignments. The Company derived approximately 20% of its revenue from banking
and brokerage clients in fiscal 2008. The Company expects that these conditions
will continue to affect the number of consultants on billing with customers and
the Company's revenue.
As a result of the merger of AT&T with SBC Communications, Inc., the Company
experienced a decrease in new placements with AT&T beginning in the second
quarter of fiscal 2007. This has reduced the number of consultants on billing
with AT&T from 79 at February 28, 2007 to 50 at February 29, 2008 and 20 at
February 28, 2009. The Company expects this change in relationship will continue
to impact the Company's business relationship with AT&T, resulting in
significantly fewer opportunities to place new consultants with AT&T.
The Company provided services to Lehman Brothers Holdings, Inc. ("LBHI") through
its contract with Beeline.com, Inc. ("Beeline"), a vendor management company.
LBHI filed a petition under Chapter 11 of the U.S. Bankruptcy Code on September
15, 2008. The Company has received payment in full for amounts due for services
rendered through the date of the bankruptcy filing. Following the bankruptcy
filing, the consultants on billing with LBHI decreased from 13 as of August 31,
2008 to 5 as of February 28, 2009. The Company cannot determine the impact that
the bankruptcy filing and purchase of Lehman Brothers, Inc. ("LBI") by Barclays
Capital, Inc. will have on the remaining consultants on billing with LBI and its
affiliates. LBHI and its subsidiaries constituted approximately 6% of the
Company's revenue in fiscal 2008 and 2% of the Company's revenue for the quarter
ended February 28, 2009.
Cost of Sales
-------------
Cost of sales for the quarter ended February 28, 2009, decreased $2,270,000 or
22.2% to $7,958,000 from $10,228,000 in the prior year period. The decrease in
cost of sales resulted primarily from the decrease in the number of consultants
on billing with clients. Cost of sales as a percentage of revenue decreased from
82.4% in the quarter ended February 29, 2008 to 81.6% in the quarter ended
February 28, 2009. The decrease in cost of sales as a percentage of revenue was
primarily attributable to the significant reduction of consultants on billing
with AT&T, which has historically been the Company's lowest margin (highest cost
of sales as a percentage of revenue) business.
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 $231,000 or 12.4%
from $1,867,000 in the quarter ended February 29, 2008 to $1,636,000 in the
quarter ended February 28, 2009. This decrease was primarily attributable to a
reduction in the number of sales and recruiting personnel and lower commissions
paid to the remaining sales and recruiting personnel due to lower revenue.
However, while selling, general and administrative expenses decreased, these
expenses as a percentage of revenue increased from 15.0% in the quarter ended
February 29, 2008 to 16.8% in the quarter ended February 28, 2009 as a result of
lower sales.
Page 10
TSR, INC. AND SUBSIDIARIES
Income from Operations
----------------------
Income from operations decreased $160,000 or 50.5% from $317,000 in the quarter
ended February 29, 2008 to $157,000 in the quarter ended February 28, 2009. The
decrease was primarily attributable to the reduced revenue from the decrease in
the number of consultants on billing with customers.
Other Income
------------
Other income for the quarter ended February 28, 2009 resulted primarily from
interest and dividend income of $30,000, which decreased by $60,000 from the
level realized in the quarter ended February 29, 2008 due to lower interest
rates earned on the Company's US Treasury securities, certificates of deposit
and money market accounts as well as lower average investable assets.
Nine months ended February 28, 2009 compared with nine months ended February 29,
--------------------------------------------------------------------------------
2008
----
(Dollar amounts in thousands)
Nine Months Ended
February 28, February 29,
2009 2008
---- ----
% of % of
Amount Revenue Amount Revenue
-------- -------- -------- --------
Revenue, net $ 33,437 100.0% $ 39,179 100.0%
Cost of sales 27,453 82.1% 31,997 81.7%
-------- -------- -------- --------
Gross profit 5,984 17.9% 7,182 18.3%
Selling, general and administrative expenses 5,132 15.3% 5,587 14.2%
-------- -------- -------- --------
Income from operations 852 2.6% 1,595 4.1%
Other income, net 86 0.2% 229 0.6%
-------- -------- -------- --------
Income before income taxes 938 2.8% 1,824 4.7%
Provision for income taxes 410 1.2% 784 2.0%
-------- -------- -------- --------
Net income $ 528 1.6% $ 1,040 2.7%
======== ======== ======== ========
Revenue
-------
Revenue consists primarily of revenue from computer programming consulting
services. Revenue for the nine months ended February 28, 2009 decreased
$5,742,000 or 14.7% from the nine months ended February 29, 2008. The average
number of consultants on billing with customers decreased from 338 for the nine
months ended February 29, 2008 to 276 for the nine months ended February 28,
2009. The decrease in revenue resulted primarily from the continued reduction in
consultants placed with AT&T, additional reductions in consultants on billing
with other customers which the Company attributes to current economic conditions
and decreases in revenue due to lower billing rates caused by discounts and
other rate reductions instituted by customers. The decline was also impacted by
the decrease in consultants on billing with LBHI.
Page 11
TSR, INC. AND SUBSIDIARIES
Cost of Sales
-------------
Cost of sales for the nine months ended February 28, 2009, decreased $4,544,000
or 14.2% to $27,453,000 from $31,997,000 in the prior year period. The decrease
in cost of sales resulted primarily from the decrease in the number of
consultants on billing with clients. Cost of sales as a percentage of revenue
increased from 81.7% in the nine months ended February 29, 2008 to 82.1% in the
nine months ended February 28, 2009. The increase in cost of sales as a
percentage of revenue was primarily attributable to discount programs instituted
or expanded by customers and other customer required rate reductions. These
discount programs and other billing rate reduction initiatives decrease revenue
without allowing the Company to reduce costs sufficiently to completely offset
the decrease in revenue. These required rate reductions have accelerated as a
result of the current economic conditions.
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 $455,000 or 8.1%
from $5,587,000 in the nine months ended February 29, 2008 to $5,132,000 in the
nine ended February 28, 2009. This decrease was primarily attributable to a
reduction in the number of sales and recruiting personnel and lower commissions
paid to the remaining sales and recruiting personnel due to lower revenue.
However, while selling, general and administrative expenses decreased, these
expenses as a percentage of revenue increased from 14.2% in the nine months
ended February 29, 2008 to 15.3% in the nine months ended February 28, 2009 as a
result of lower sales.
Income from Operations
----------------------
Income from operations decreased $743,000 or 46.6% from $1,595,000 in the nine
months ended February 29, 2008 to $852,000 in the nine months ended February 28,
2009. The combination of reduced revenue and reduced gross margins had a
significant negative impact on income from operations.
Other Income
------------
Other income for the nine months ended February 28, 2009 resulted primarily from
interest and dividend income of $132,000, which decreased by $169,000 from the
level realized in the nine months ended February 29, 2008 due to lower interest
rates earned on the Company's US Treasury securities, certificates of deposit
and money market accounts as well as lower average investable assets.
Page 12
TSR, INC. AND SUBSIDIARIES
Liquidity and Capital Resources
-------------------------------
The Company expects that cash flow generated from operations together with its
cash and marketable securities will be sufficient to provide the Company with
adequate resources to meet its liquidity requirements for at least the next 12
months.
At February 28, 2009, the Company had working capital of $12,201,000 including
cash and cash equivalents of $4,561,000 as compared to working capital of
$12,693,000 including cash and cash equivalents of $1,588,000 at May 31, 2008.
The Company's working capital also included $3,748,000 and $6,460,000 of
marketable securities with maturities of less than one year at February 28, 2009
and May 31, 2008, respectively.
For the nine months ended February 28, 2009, net cash provided by operating
activities was $1,344,000 compared to cash used of $763,000 for the nine months
ended February 29, 2008, or an increase of $2,107,000. The cash provided by
operating activities primarily resulted from net income and a decrease in
accounts receivable of $1,525,000 offset by a decrease in accounts payable and
accrued expenses of $667,000. The cash used by operating activities in the nine
months ended February 29, 2008, resulted primarily from an increase in accounts
receivable.
Net cash provided by investing activities of $3,694,000 for the nine months
ended February 28, 2009 primarily resulted from not reinvesting all of the
proceeds of maturing US Treasury Securities and offset by the purchase of fixed
assets.
Net cash used in financing activities resulted from the purchases of treasury
stock amounting to $1,220,000, cash dividends paid of $768,000 and distributions
to the minority interest of $77,000. The purchases of treasury stock consisted
of $1,050,000 in a private transaction and $170,000 in open market transactions.
The Board of Directors of the Company approved a plan in December 2007
authorizing the repurchase of shares of Common Stock and approximately 239,000
shares remain available for purchase under this previously announced plan. The
Company has not made any purchases under this plan since September 2008. The
Company does not intend to make further purchases under this plan unless there
is a change in the market for the Company's common stock. The Board of Directors
determined to suspend the payment of further dividends effective after the
dividend paid on February 9, 2009 for the second quarter of fiscal 2009. The
Board of Directors may reevaluate the Company's dividend policy once the
economic conditions stabilize.
The Company's capital resource commitments at February 28, 2009 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 nine months ended February 28, 2009. The
Company has available a revolving line of credit of $5,000,000 with a major
money center bank through October 31, 2009. As of February 28, 2009, no amounts
were outstanding under this line of credit.
Tabular Disclosure of Contractual Obligations
---------------------------------------------
Payments Due By Period
Contractual Obligations Less than More than
----------------------- Total 1 Year 1-3 Years 3-5 Years 5 Years
---------- ---------- ---------- ---------- ----------
Operating Leases $1,303,000 $ 363,000 $ 646,000 $ 294,000 $ --
Employment Agreements 943,000 499,000 444,000 -- --
---------- ---------- ---------- ---------- ----------
Total. $2,246,000 $ 862,000 $1,090,000 $ 294,000 $ --
========== ========== ========== ========== ==========
Page 13
TSR, INC. AND SUBSIDIARIES
Recent Accounting Pronouncements
----------------------------------------
On September 15, 2006, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. SFAS No. 157 provides guidance related to
estimating fair value and requires expanded disclosures. SFAS No. 157 applies
whenever other standards require (or permit) assets or liabilities to be
measured at fair value. SFAS No. 157 does not expand the use of fair value in
any new circumstances. The adoption of SFAS No. 157 did not have a material
impact on the Company's condensed consolidated financial statements.
The Company adopted the methods of fair value measurement as described in SFAS
No. 157 to value its financial assets and liabilities. As described in SFAS No.
157, fair value is based on the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. In order to increase consistency and
comparability in fair value measurements, SFAS No. 157 establishes a fair value
hierarchy that prioritizes observable and unobservable inputs used to measure
fair value into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the
measurement date for identical assets or liabilities. The fair value hierarchy
gives the highest priority to Level 1 inputs.
Level 2: Observable inputs other than Level 1 prices such as quoted prices for
similar assets or liabilities; quoted prices in inactive markets; or
model-derived valuations in which all significant inputs are observable or can
be derived principally from or corroborated with observable market data.
Level 3: Unobservable inputs are used when little or no market data is
available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques that
maximize the use of observable inputs and minimize the use of unobservable
inputs to the extent possible as well as counterparty credit risks in its
assessment of fair value.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment of FASB
Statement No. 115" ("SFAS No. 159"). SFAS No. 159 permits entities to elect to
measure many financial instruments and certain other items at fair value. Upon
adoption of SFAS No. 159, an entity may elect the fair value option for eligible
items that exist at the adoption date. Subsequent to the initial adoption, the
election of the fair value option should only be made at initial recognition of
the asset or liability or upon a re-measurement event that gives rise to
new-basis accounting. SFAS No. 159 does not affect any existing accounting
literature that requires certain assets and liabilities to be carried at fair
value nor does it eliminate disclosure requirements included in other accounting
standards. SFAS No. 159 is effective for fiscal years beginning after November
15, 2007. The adoption of SFAS No. 159 did not have a material impact on the
Company's condensed consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (R), "Business Combinations"
("SFAS No. 141(R)"), and SFAS No. 160, "Noncontrolling Interests in Consolidated
Financial Statements" ("SFAS No. 160"). SFAS No. 141 (R) requires an acquirer to
measure the identifiable assets acquired, the liabilities assumed and any
noncontrolling interest in the acquiree at their fair values on the acquisition
date, with goodwill being the excess value over the net identifiable assets
acquired. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary
should be reported as equity in the consolidated financial statements. The
calculation of earnings per share will continue to be based on income amounts
attributable to the parent. SFAS No. 141 (R) and SFAS No. 160 are effective for
financial statements issued for fiscal years beginning after December 15, 2008.
Early adoption is prohibited. The Company does not expect the adoption of SFAS
No. 141 (R) and SFAS No. 160 to have a material impact on its condensed
consolidated financial statements.
Page 14
Critical Accounting Policies
----------------------------
The SEC defines "critical accounting policies" as those that require the
application of management's most difficult subjective or complex judgments,
often as a result of the need to make estimates about the effect of matters that
are inherently uncertain and may change in subsequent periods.
The Company's significant accounting policies are described in Note 1 to the
Company's consolidated financial statements, contained in its May 31, 2008
Annual Report on Form10-K, as filed with the SEC. The Company believes that
those accounting policies require the application of management's most
difficult, subjective or complex judgments. There have been no changes in the
Company's significant accounting policies as of February 28, 2009.
Item 4T. Controls and Procedures
Disclosure Controls and Procedures. The Company conducted an evaluation, under
the supervision and with the participation of the principal executive officer
and principal accounting officer, of the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation, the
principal executive officer and principal accounting officer concluded that, as
of the end of the period covered by this report, the Company's disclosure
controls and procedures are effective.
Internal Control Over Financial Reporting. There was no change in the Company's
internal control over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the Company's most
recently reported completed fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
Part II. Other Information
Item 2(c). Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth information concerning any purchase of the
Company's common stock made by or on behalf of the Company or any "affiliated
purchaser," as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of
1934 during the Company's second fiscal quarter:
ISSUER PURCHASES OF EQUITY SECURITIES
Maximum Number (or
Total Number of Shares Approximate Dollar
(or Units) Purchased as Value) of Shares (or
Total Number of Average Price Part of Publicly Units) that May Yet Be
Shares (or Units) Paid per Share Announced Plans or Purchase Under the
Period Purchased (or Unit) Programs (1) Plans or Programs
------ --------- --------- ------------ -----------------
Quarter ended
August 31, 2008 37,900 $2.75 37,900 262,100
============ ============
November 30, 2008 479,624 2.33 23,101 238,999
============ ============
December, 2008 0 n/a 0 238,999
January, 2009 0 n/a 0 238,999
February, 2009 0 n/a 0 238,999
----------------- ------------ ------------
Total 0 n/a 0 238,999
(1) The repurchase plan was authorized by the Board of Directors and
publicly announced on December 17, 2007. The plan does not have an
expiration date.
Page 15
Item 6. Exhibits
(a). Exhibit 31.1 - Certification by J.F. Hughes pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 31.2 - Certification by John G. Sharkey pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.1 - Certification by J.F. Hughes pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.2 - Certification by John G. Sharkey pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
TSR Inc.
--------------------------------------------
(Registrant)
Date: April 6, 2009 /s/ J.F. Hughes
--------------------------------------------
J.F. Hughes, Chairman and President
Date: April 6, 2009 /s/ John G. Sharkey
--------------------------------------------
John G. Sharkey, Vice President Finance and
Chief Financial Officer
Page 16