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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
For the fiscal year ended May 31, 2008
or
[_] Transition Report Under Section 13 or 15(d) of The
Securities Exchange Act of 1934
For the transition period from _______ to _______
Commission File Number: 0-8656
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)
Registrant's telephone number: 631-231-0333
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
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Common Stock, par value, The NASDAQ Global Market
$0.01 per share
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
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(Title of Class)
Indicate by check mark if the Registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
[_] Yes [X] No
Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15 (d) of the Exchange Act.
[_] Yes [X] No
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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 if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-K contained in this form, and no disclosure
will be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or smaller reporting company. See the
definitions of "large accelerated filer", "accelerated filer", "non-accelerated
filer" or "smaller reporting company" in Rule 12b-2 of the Exchange Act.
[_] Large accelerated filer [_] Accelerated filer
[_] Non-accelerated filer [X] Smaller Reporting Company
Indicate by check mark whether the Registrant is a shell Company (as defined in
Rule 12b-2 of the Act). Yes [_] No [X]
The aggregate market value of voting and non-voting common equity held by
non-affiliates of the Registrant based upon the closing price of $4.08 at
November 30, 2007 was $11,072,000.
The number of shares of the Registrant's common stock outstanding as of July 31,
2008 was 4,568,012.
Documents incorporated by Reference:
The information required in Part III, Items 10, 11, 12, 13 and 14 is
incorporated by reference to the Registrant's Proxy Statement in connection with
the 2008 Annual Meeting of Stockholders, which will be filed by the Registrant
within 120 days after the close of its fiscal year.
Page 2
PART I
Item 1. Business.
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General
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TSR, Inc. (the "Company") is primarily engaged in the business of providing
contract computer programming services to its clients. The Company provides its
clients with technical computer personnel to supplement their in-house
information technology ("IT") capabilities. The Company's clients for its
contract computer programming services consist primarily of Fortune 1000
companies with significant technology budgets. In the year ended May 31, 2008,
the Company provided IT staffing services to approximately 85 clients.
The Company was incorporated in Delaware in 1969. The Company's executive
offices are located at 400 Oser Avenue, Hauppauge, NY 11788, and its telephone
number is (631) 231-0333. This annual report, and each of our other periodic and
current reports, including any amendments, are available, free of charge, on our
website, www.tsrconsulting.com, as soon as reasonably practicable after such
material is electronically filed with, or furnished to, the Securities and
Exchange Commission. The information contained on our website is not
incorporated by reference into this annual report on Form 10-K and should not be
considered part of this report.
Contract Computer Programming Services
--------------------------------------
STAFFING SERVICES
The Company's contract computer programming services involve the provision of
technical staff to clients to meet the specialized requirements of their IT
operations. The technical personnel provided by the Company generally supplement
the in-house capabilities of the Company's clients. The Company's approach is to
make available to its clients a broad range of technical personnel to meet their
requirements rather than focusing on specific specialized areas. The Company has
staffing capabilities in the areas of mainframe and mid-range computer
operations, personal computers and client-server support, internet and
e-commerce operations, voice and data communications (including local and wide
area networks) and help desk support. The Company's services provide clients
with flexibility in staffing their day -to-day operations, as well as special
projects, on a short-term or long-term basis.
The Company provides technical employees for projects, which usually range from
three months to one year. Generally, clients may terminate projects at any time.
Staffing services are provided at the client's facility and are billed primarily
on an hourly basis based on the actual hours worked by technical personnel
provided by the Company and with reimbursement for out-of-pocket expenses. The
Company pays its technical personnel on a semi-monthly basis and invoices its
clients, not less frequently than monthly.
The Company's success is dependent upon, among other things, its ability to
attract and retain qualified professional computer personnel. The Company
believes that there is significant competition for software professionals with
the skills and experience necessary to perform the services offered by the
Company. Although the Company generally has been successful in attracting
employees with the skills needed to fulfill customer engagements, demand for
qualified professionals conversant with certain technologies may outstrip supply
as new and additional skills are required to keep pace with evolving computer
technology or as competition for technical personnel increase. Increasing demand
for qualified personnel could also result in increased expenses to hire and
retain qualified technical personnel and could adversely affect the Company's
profit margins.
In the past few years, an increasing number of companies are using or are
considering using low cost offshore outsourcing centers, particularly in India,
to perform technology related work and projects. This trend has contributed to
the decline in domestic IT staffing revenue. There can be no assurance that this
trend will not continue to adversely impact the Company's IT staffing revenue.
Page 3
OPERATIONS
The Company provides contract computer programming services in the New York
metropolitan area, New England, and the Mid-Atlantic region. The Company
provides its services principally through offices located in New York, New York,
Edison, New Jersey and Long Island, New York. The Company does not currently
intend to open additional offices. The Company is in the process of hiring
additional account executives and technical recruiters in its existing offices
to address increased competition and to promote revenue growth. The hiring
process has been taking longer than expected due to a combination of limited
qualified candidates and increased compensation expectations of qualified
candidates. As of May 31, 2008, the Company employed 14 persons who are
responsible for recruiting technical personnel and 16 persons who are account
executives. As of May 31, 2007 the Company had employed 14 technical personnel
recruiters and 14 account executives.
MARKETING AND CLIENTS
The Company focuses its marketing efforts on large businesses and institutions
with significant IT budgets and recurring staffing and software development
needs. The Company provided services to approximately 85 clients during the year
ended May 31, 2008 as compared to 90 in the prior fiscal year. The Company has
historically derived a significant percentage of its total revenue from a
relatively small number of clients. In the fiscal year ended May 31, 2008, the
Company had two clients which constituted more than 10% of consolidated revenue
(Procurestaff Ltd., 13.5% and The McGraw Hill Companies 12.2%). Procurestaff
Ltd. is a vendor management services provider. In excess of 90% of the revenue
generated from Procurestaff, Ltd. was from AT&T as the end client. Additionally,
the Company's top ten clients accounted for 66% of consolidated revenue in
fiscal 2008 and 71% in fiscal 2007. While continuing its efforts to expand
further its client base, the Company's marketing efforts are focused primarily
on increasing business from its existing accounts.
Additionally, Ensemble-Chimes, a vendor management company which had accounted
for approximately 11.3% of the Company's consolidated revenue in the fiscal year
ended May 31, 2007 filed for bankruptcy in January 2008. In excess of 90% of the
consolidated revenue from Ensemble-Chimes was derived from McGraw Hill and
another client. The Company did not suffer a material reduction in consolidated
revenue from these clients as a result of Ensemble-Chimes' bankruptcy filing.
The Company's marketing is conducted through account executives that are
responsible for customers in an assigned territory. Account executives call on
potential new customers and are also responsible for maintaining existing client
contacts within an assigned territory. Instead of utilizing technical managers
to oversee the services provided by technical personnel to each client, the
account executives are responsible for this role. As a result of the cost
savings due to the combined functions of the account executives, the Company is
able to provide its account executives with significantly higher incentive-based
compensation. In addition, the Company generally pairs each account executive
with a recruiter of technical personnel, who also receives incentive-based
compensation. The Company believes that this approach allows the Company to more
effectively serve its clients' needs for technical personnel, as well as
providing its account executives and recruiters with incentives to maximize
revenue in their territories.
The Company's marketing has been affected because some major customers have
retained a third party to provide vendor management services and centralize the
consultant hiring process. Under this system, the third party retains the
Company to provide contract computer programming services, the Company bills the
third party and the third party bills the ultimate customer. This process
weakens the relationship the Company has built with its client contacts, the
project managers, who the Company would normally work directly with to place
consultants. Instead, the Company is required to interface with the vendor
management provider, making it more difficult to maintain its relationships with
its customers and preserve and expand its business. These changes have also
reduced the Company's profit margins because the vendor management company is
retained for the purpose of keeping costs down for the end client and receives a
processing fee which is deducted from the payment to the Company.
In accordance with industry practice, most of the Company's contracts for
contract computer programming services are terminable by either the client or
the Company on short notice. The Company does not believe that backlog is
material to its business.
Page 4
PROFESSIONAL STAFF AND RECRUITMENT
In addition to using internet based job boards such as Dice, Net Temps and
Monster, the Company maintains a database of over 100,000 technical personnel
with a wide range of skills. The Company uses a sophisticated proprietary
computer system to match potential employee's skills and experience with client
requirements. The Company periodically contacts personnel within its database to
update their availability, skills, employment interests and other matters and
continually updates its database. This database is made available to the account
executives and recruiters at each of the Company's offices. The Company
considers its database to be a valuable asset.
The Company employs technical personnel primarily on an hourly basis, as
required in order to meet the staffing requirements under particular contracts
or for particular projects. The Company recruits technical personnel by posting
jobs on the Internet, publishing advertisements in local newspapers and
attending job fairs on a periodic basis. The Company devotes significant
resources to recruiting technical personnel, maintaining 14 recruiters based in
the U.S. and contracting with an India based company for 5 recruiters in India
to help locate U.S. based technical consultants. Potential applicants are
generally interviewed and tested by the Company's recruiting personnel, by third
parties that have the required technical backgrounds to review the
qualifications of the applicants, or by on-line testing services. In some cases,
instead of employing technical personnel directly, the Company uses
subcontractors who employ the technical personnel who are provided to the
Company's customers.
Competition
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The technical staffing industry is highly competitive and fragmented and has low
barriers to entry. The Company competes for potential clients with providers of
outsourcing services, systems integrators, computer systems consultants, other
providers of technical staffing services and, to a lesser extent, temporary
personnel agencies. Many of the Company's competitors are significantly larger
and have greater financial resources than the Company. The Company believes that
the principal competitive factors in obtaining and retaining clients are
accurate assessment of clients' requirements, timely assignment of technical
employees with appropriate skills and the price of services. The principal
competitive factors in attracting qualified technical personnel are
compensation, availability, quality and variety of projects and schedule
flexibility. The Company believes that many of the technical personnel included
in its database may also be pursuing other employment opportunities. Therefore,
the Company believes that its responsiveness to the needs of technical personnel
is an important factor in the Company's ability to fill projects. Although the
Company believes it competes favorably with respect to these factors, it expects
competition to increase and there can be no assurance that the Company will
remain competitive.
Intellectual Property Rights
----------------------------
The Company relies primarily upon a combination of trade secret, nondisclosure
and other contractual arrangements to protect its proprietary rights. The
Company generally enters into confidentiality agreements with its employees,
consultants, clients and potential clients and limits access to and distribution
of its proprietary information. There can be no assurance that the steps taken
by the Company in this regard will be adequate to deter misappropriation of its
proprietary information or that the Company will be able to detect unauthorized
use and take appropriate steps to enforce its intellectual property rights.
Personnel
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As of May 31, 2008, the Company employs 194 people including its 2 executive
officers. Of such employees 16 are engaged in sales, 14 are recruiters for
programmers, 151 are technical and programming consultants, and 11 are in
administrative and clerical functions. None of the Company's employees belong to
unions.
Page 5
Item 1A. Risk Factors
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Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business", 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 factors set
forth below.
Dependence Upon Key Personnel.
The Company is dependent on its Chairman of the Board, Chief Executive Officer
and President, Joseph Hughes. The Company has employment agreement with Mr.
Hughes which expires May 31, 2009. The Company is also dependent on certain of
its account executives who are responsible for servicing its principal customers
and attracting new customers. The Company does not have employment contracts
with these persons. There can be no assurance that the Company will be able to
retain its existing personnel or find and attract additional qualified
employees. The loss of the service of any of these personnel could have a
material adverse effect on the Company.
Dependence on Significant Customers.
In the fiscal year, ended May 31, 2008, the Company's largest clients,
Procurestaff Ltd. and The McGraw Hill Companies accounted for 13.5% and 12.2% of
the Company's consolidated revenue, respectively. Procurestaff is a vendor
management company. In excess of 90% of the revenue received from Procurestaff
relate to a single customer, AT&T. Client contract terms vary depending on the
nature of the engagement, and there can be no assurance that a client will renew
a contract when it terminates. In addition, the Company's contracts are
generally cancelable by the client at any time on short notice, and clients may
unilaterally reduce their use of the Company's services under such contracts
without penalty. See "Rapidly Changing Industry" below.
In addition, because of the amount of outstanding receivables that the Company
may have with its larger clients at any one time, if a client filed for
bankruptcy protection, it could prevent the Company from collecting on the
receivables and have an adverse effect on the Company's results of operations.
Competitive Market for Technical Personnel.
The Company's success is dependent upon its ability to attract and retain
qualified computer professionals to provide as temporary personnel to its
clients. Competition for the limited number of qualified professionals with a
working knowledge of certain sophisticated computer languages, which the Company
requires for its contract computer services business, is intense. The Company
believes that there is a shortage of, and significant competition for, software
professionals with the skills and experience necessary to perform the services
offered by the Company.
The Company's ability to maintain and renew existing engagements and obtain new
business in its contract computer programming business depends, in large part,
on its ability to hire and retain technical personnel with the IT skills that
keep pace with continuing changes in software evolution, industry standards and
technologies, and client preferences. Although the Company generally has been
successful in attracting employees with the skills needed to fulfill customer
engagements, demand for qualified professionals conversant with certain
technologies may outstrip supply as new and additional skills are required to
keep pace with evolving computer technology or as competition for technical
personnel increases. Increasing demand for qualified personnel could also result
in increased expenses to hire and retain qualified technical personnel and could
adversely affect the Company's profit margins.
Competitive Market for Account Executives and Technical Recruiters
The Company has been seeking to increase the number of qualified account
executives and technical recruiters for several years to meet competition and
promote growth. The Company faces a highly competitive market for the limited
number of qualified personnel and to date, the Company has had limited success
in hiring such personnel. While the Company is continuing to seek to hire such
personnel, there can be no assurance that the Company will be successful in
hiring such personnel.
Page 6
Rapidly Changing Industry
The computer industry is characterized by rapidly changing technology and
evolving industry standards. These include the overall increase in the
sophistication and interdependency of computer technology and a focus by IT
managers on cost-efficient solutions. Recently, there has been an increased
focus on the Internet and e-Commerce and there has been a shift away from
mainframe legacy systems. Historically, much of the Company's staffing services
has related to mainframe legacy systems. There can be no assurance that these
changes will not adversely affect demand for technical staffing services.
Organizations may elect to perform such services in-house or outsource such
functions to companies that do not utilize temporary staffing, such as that
provided by the Company.
Additionally, a number of companies have begun limiting the number of companies
on their approved vendor lists, and in some cases this has required the Company
to sub-contract with a company on the approved vendor list to provide services
to customers. The staffing industry has also experienced margin erosion caused
by this increased competition, and customers leveraging their buying power by
consolidating the number of vendors with which they deal.
In addition to these factors, there has been intense price competition in the
area of IT staffing, pressure on billing rates and pressure by customers for
discounts.
The Company cannot predict at this time what long-term effect these changes will
have on the Company's business and results of operations.
Vendor Management Companies
There have been recent changes in the industry, which could potentially affect
the Company's operating results. Many customers have begun retaining third
parties to provide vendor management services. The third party is then
responsible for retaining companies to provide temporary IT personnel. This
results in the Company contracting with such third parties and not directly with
the ultimate customer. This change weakens the Company's relationship with its
customer, which makes it more difficult for the Company to maintain and expand
its business. It also reduces the Company's profit margins.
In addition, the agreement with the vendor management companies are frequently
structured as subcontracting agreements with the vendor management company
entering into a services agreement directly with the end clients. As a result,
in the event of a bankruptcy of a vendor management company, the Company's
ability to collect its outstanding receivables and continue to provide services
could be adversely affected. However, in connection with the bankruptcy of
Ensemble-Chimes, the Company was able to collect its outstanding receivables and
continue its relationship with the end clients. See. Item 1 Business-Marketing
and Clients.
Effect of Current Economic Uncertainties
Demand for the Company's IT staffing services is significantly affected by the
general economic environment. During periods of slowing economic activity,
customers may reduce their IT projects and their demand for outside consultants.
As a result, any significant economic downturn could have material adverse
affect on the Company's results of operations. 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 decrease in the short term 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. The
Company derived approximately 20 percent of its revenue from banking and
brokerage clients in fiscal 2008.
Effect of Offshore Outsourcing
The current trend of companies moving technology jobs and projects offshore has
caused and could continue to cause revenue to decline. In the past few years,
more companies are using or are considering using low cost offshore outsourcing
centers, particularly in India, to perform technology related work and projects.
This trend has contributed to the decline in domestic IT staffing revenue for
the industry. There can be no assurance that this trend will not continue to
adversely impact the Company's IT staffing revenue.
Page 7
Fluctuations in Quarterly Operating Results.
The Company's revenue and operating results are subject to significant
variations from quarter to quarter. Revenue is subject to fluctuation based upon
a number of factors, including the timing and number of client projects
commenced and completed during the quarter, delays incurred in connection with
projects, the growth rate of the market for contract computer programming
services and general economic conditions. Unanticipated termination of a project
or the decision by a client not to proceed to the next stage of a project
anticipated by the Company could result in decreased revenue and lower
utilization rates which could have a material adverse effect on the Company's
business, operating results and financial condition. Compensation levels can be
impacted by a variety of factors, including competition for highly skilled
employees and inflation. The Company's operating results are also subject to
fluctuation as a result of other factors.
Intellectual Property Rights.
The Company relies primarily upon a combination of trade secret, nondisclosure
and other contractual agreements to protect its proprietary rights. The Company
generally enters into confidentiality agreements with its employees,
consultants, clients and potential clients and limits access to and distribution
of its proprietary information. There can be no assurance that the steps taken
by the Company in this regard will be adequate to deter misappropriation of its
proprietary information or that the Company will be able to detect unauthorized
use and take appropriate steps to enforce its intellectual property rights.
Competition.
The technical staffing industry is highly competitive and fragmented and has low
barriers to entry. The Company competes for potential clients with providers of
outsourcing services, systems integrators, computer systems consultants, other
providers of technical staffing services and, to a lesser extent, temporary
personnel agencies. The Company competes for technical personnel with other
providers of technical staffing services, systems integrators, providers of
outsourcing services, computer systems consultants, clients and temporary
personnel agencies. Many of the Company's competitors are significantly larger
and have greater financial resources than the Company. The Company believes that
the principal competitive factors in obtaining and retaining clients are
accurate assessment of clients' requirements, timely assignment of technical
employees with appropriate skills and the price of services. The principal
competitive factors in attracting qualified technical personnel are
compensation, availability, quality and variety of projects and schedule
flexibility. The Company believes that many of the technical personnel included
in its database may also be pursuing other employment opportunities. Therefore,
the Company believes that its responsiveness to the needs of technical personnel
is an important factor in the Company's ability to fill projects. Although the
Company believes it competes favorably with respect to these factors, it expects
competition to increase, and there can be no assurance that the Company will
remain competitive.
Potential for Contract and Other Liability.
The personnel provided by the Company to clients provide services involving key
aspects of its clients' software applications. A failure in providing these
services could result in a claim for substantial damages against the Company,
regardless of the Company's responsibility for such failure. The Company
attempts to limit, contractually, its liability for damages arising from
negligence or omissions in rendering services, but it is not always successful
in negotiating such limits. Despite this precaution, there can be no assurance
that the limitations of liability set forth in its contracts would be
enforceable or would otherwise protect the Company from liability for damages.
The Company's contract computer programming services business involves assigning
technical personnel to the workplace of the client, typically under the client's
supervision. Although the Company has little control over the client's
workplace, the Company may be exposed to claims of discrimination and harassment
and other similar claims as a result of inappropriate actions allegedly taken
against technical personnel by clients. As an employer, the Company is also
exposed to other possible employment-related claims. The Company is exposed to
liability with respect to actions taken by its technical personnel while on a
project, such as damages caused by technical personnel, errors, and misuse of
client proprietary information or theft of client property. To reduce such
exposures, the Company maintains insurance policies and a fidelity bond covering
general liability, worker's compensation claims, errors and omissions and
employee theft. In certain instances, the Company indemnifies its clients from
the foregoing and claims have been made against the Company. Certain of these
cost and liabilities are not covered by insurance. There can be no assurance
that insurance coverage will continue to be available and at its current price
or that it will be adequate to, or will, cover any such liability.
Page 8
Voting Power of Major Shareholder
Joseph F. Hughes and members of his family own Common Stock, representing
approximately 40% of the Company's voting power as of July 31, 2008. As such,
Joseph Hughes has significant voting power on all matters submitted to a vote of
the Company's common shareholders.
Certain Anti-Takeover Provisions May Inhibit a Change of Control
In addition to the significant ownership of Common Stock by Joseph F. Hughes,
certain provisions of the Company's charter and by-laws may have the effect of
discouraging a third party from making an acquisition proposal for the Company
and may thereby inhibit a change in control of the Company under circumstances
that could give the holders of Common Stock the opportunity to realize a premium
over the then-prevailing market prices. Such provisions include a classified
Board of Directors, advance notice requirements for nomination of directors and
certain shareholder proposals set forth in the Company's Certificate of
Incorporation and by-laws.
New Classes and Series of Stock
The Company's charter authorizes the Board of Directors to create new classes
and series of preferred stock and to establish the preferences and rights of any
such classes and series without further action of the shareholders. The issuance
of additional classes and series of Capital Stock may have the effect of
delaying, deferring or preventing a change in control of the Company.
The Company's Stock Price Could Be Extremely Volatile And, As A Result,
Investors May Not Be Able To Resell Their Shares At Or Above The Price They Paid
For Them.
Among the factors that could affect the Company's stock price are:
- limited float and a low average daily trading volume;
- industry trends and the performance of the Company's customers;
- fluctuations in the Company's results of operations;
- litigation; and
- general market conditions.
The stock market has and may in the future experience extreme volatility that
has often been unrelated to the operating performance of particular companies.
These broad market fluctuations may adversely affect the market price of the
Company's common stock.
Item 1B. Unresolved Staff Comments
-------------------------
None
Item 2. Properties.
-----------
The Company leases 8,000 square feet of space in Hauppauge, New York for a term
expiring November 30, 2010, with annual rentals of approximately $70,000. This
space is used as executive and administrative offices for the Company and the
Company's operating subsidiary. The Company also leases sales and technical
recruiting offices in New York City (lease expires July, 2012) and Edison, New
Jersey (lease expires August, 2013), with aggregate monthly rentals of
approximately $24,000.
The Company believes the present locations are adequate for its current needs as
well as for the future expansion of its existing business.
Page 9
Item 3. Legal Proceedings.
------------------
There are no material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
Not Applicable
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
---------------------------------------------------------
The Company's shares of Common Stock trade on the NASDAQ Global Market under the
symbol TSRI. The following are the high and low sales prices for each quarter
during the fiscal years ended May 31, 2008 and 2007:
JUNE 1, 2007 - MAY 31, 2008
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
High Sales Price . . . . 4.15 4.72 4.49 4.24
Low Sales Price . . . . . 3.75 4.01 3.86 3.54
JUNE 1, 2006 - MAY 31, 2007
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
High Sales Price. . . . . 5.50 4.75 4.79 4.53
Low Sales Price . . . . . 3.55 3.80 3.85 3.80
There were 117 holders of record of the Company's Common Stock as of July 31,
2008. Additionally, the Company estimates that there were approximately 1,700
beneficial holders as of that date. The Company paid a dividend of $0.08 per
quarter for fiscal 2007 and 2008. The Company has not determined its dividend
policy for fiscal 2009. There can be no assurance that the Company will continue
to pay dividends.
Securities authorized for issuance under equity compensation plans.
The 1997 Employee Stock Option Plan, the Company's lone equity compensation
plan, expired on April 30, 2007.
Page 10
Item 6. Selected Financial Data
-----------------------
(Amounts in Thousands, Except Per Share Data)
May 31, May 31, May 31, May 31, May 31,
2008 2007 2006 2005 2004
------ ------ ------ ------ ------
Revenue . . . . . . . . . . . . . . . . . . . . . . . $51,723 $49,689 $48,109 $51,444 $51,725
Income From Operations . . . . . . . . . . . . . . . 1,971 1,925 1,709 3,635 3,696
Net Income . . . . . . . . . . . . . . . . . . . . . . 1,276 1,393 1,214 2,145 2,124
Basic and Diluted Net Income Per Common Share . . . . 0.28 0.30 0.27 0.47 0.47
Working Capital . . . . . . . . . . . . . . . . . . . 12,693 12,815 12,368 14,391 14,976
Total Assets . . . . . . . . . . . . . . . . . . . . 17,642 18,059 18,635 18,531 19,203
Stockholders' Equity . . . . . . . . . . . . . . . . 13,767 13,952 14,021 14,589 15,192
Book Value Per Common Share . . . . . . . . . . . . . 3.01 3.05 3.07 3.19 3.33
(Total Shareholders' Equity Divided by Shares
Outstanding)
Cash Dividends Declared Per Common Share . . . . . . . $ 0.32 $ 0.32 $ 0.32 $ 0.60 $ 2.60
Page 11
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
----------------------
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and notes thereto presented
elsewhere in this report.
Results of Operations
---------------------
The following table sets forth for the periods indicated certain financial
information derived from the Company's consolidated statements of income. There
can be no assurance that historical trends in operating results will continue in
the future:
Year Ended May 31,
(Dollar Amounts in Thousands)
2008 2007
------------------- -------------------
% of % of
Amount Revenue Amount Revenue
-------- -------- -------- --------
Revenue . . . . . . . . . . . . . . $ 51,723 100.0 $ 49,689 100.0
Cost of Sales . . . . . . . . . . . 42,305 81.8 40,534 81.6
-------- -------- -------- --------
Gross Profit . . . . . . . . . . . 9,418 18.2 9,155 18.4
Selling, General and
Administrative Expenses . . . . 7,447 14.4 7,230 14.5
-------- -------- -------- --------
Income from Operations . . . . . . 1,971 3.8 1,925 3.9
Other Income, Net . . . . . . . . . 276 0.6 409 0.8
-------- -------- -------- --------
Income Before Income Taxes . . . . 2,247 4.4 2,334 4.7
Provision for Income Taxes . . . . 971 1.9 941 1.9
-------- -------- -------- --------
Net Income . . . . . . . . . . . . $ 1,276 2.5 $ 1,393 2.8
======== ======== ======== ========
Revenue
-------
Revenue consists primarily of revenue from computer programming consulting
services. Revenue for the fiscal year ended May 31, 2008 increased $2,034,000 or
4.1% from fiscal 2007. The average number of consultants on billing with
customers decreased from approximately 335 for the fiscal year ended May 31,
2007 to 332 for the fiscal year ended May 31, 2008. Changes in the business mix
toward higher level skills allowed the Company to increase its average billing
rates to customers, offsetting the slight decrease in the average number of
consultants on billing with customers.
More than 90% of the revenue received from Procurestaff, which accounted for
more than 10% of the Company's revenue, was related to AT&T. Procurestaff, which
had been the sole vender management company for AT&T prior to its merger with
SBC Communication, Inc., is currently one of many vendors to the new AT&T. Due
to these changes, 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 100 at August 31, 2006 to 72 at May 31,
2007 and to 45 at May 31, 2008. The Company expects that these changes will
continue to impact the Company's business relationship with AT&T, resulting in
fewer opportunities to place new consultants at AT&T.
Page 12
The Company's revenue from programmers on billing continue to be affected by
discounts, such as prompt payment and volume discounts, required by major
customers as a condition to remaining on their approved vendor lists and the
reduction in the number of vendors on the approval vendor lists to increase
pricing competition among the remaining vendors. In addition, some major
customers have retained third parties to provide vendor management services and
centralize the consultant hiring process. Under this system, the third party
retains the Company to provide contract computer programming services, the
Company bills the third party and the third party bills the ultimate customer.
This process weakens the relationship the Company has built with its client
contacts, the project managers, who the Company would normally work directly
with to place consultants. Instead, the Company is required to interface with
the vendor management provider, making it more difficult to maintain its
relationships with its customers and preserve and expand its business. These
changes have also reduced the Company's profit margins because the vendor
management company is retained for the purpose of keeping costs down for the end
client and receives a processing fee which is deducted from the payment to the
Company. Revenue has also been impacted by the increased use of offshore
development companies, particularly in India, over the past few years to provide
technology related work and projects. The Company is unable to predict the
long-term effects of these changes.
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 in the short term
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. The Company derived approximately 20
percent of its revenue from banking and brokerage clients in fiscal 2008.
Although there had been some improvement in market conditions during the past
few years prior to the recent economic downturn, the Company's revenue has not
improved significantly. The Company has not yet fully adapted its business model
to more effectively deal with changing market factors such as vendor management
and off-shore IT operations. A focus of the Company's plan has been to hire
additional experienced account executives and technical recruiters to address
increased competition and to promote revenue growth. This process has taken
longer than expected due to a combination of limited qualified candidates and
increased compensation expectations of qualified candidates.
Cost of Sales
-------------
Cost of sales increased by $1,771,000 or 4.4%, in fiscal 2008 from fiscal 2007.
Cost of sales as a percentage of revenue increased to 81.8% in fiscal 2008 from
81.6% in fiscal 2007. The increase in cost of sales resulted primarily from
increased revenue. The increase in cost of sales also resulted from increased
amounts paid to consultants due to an increase in the skill level mix. The
increase in cost of sales as a percentage of revenue is due to additional
mandatory discount programs, as discussed above under "Revenue".
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 $217,000, or 3.0%,
to $7,447,000 in fiscal 2008 from $7,230,000 in fiscal 2007. This increase was
primarily attributable to an increase in the number of account executives.
Additional account executives have been hired to bring about future growth.
Selling, general and administrative expenses are expected to continue to
increase going forward as the Company plans to continue hiring additional
account executives and technical recruiters to address increasing competition,
especially at accounts with third party vendor management organizations in
place.
Other Income
------------
Fiscal 2008 other income resulted primarily from interest and dividend income of
$361,000, which decreased by $100,000 from the level realized in 2007 due to
lower rates of interest earned on the Company's US Treasury securities and money
market accounts.
Page 13
Income Taxes
------------
The effective income tax rate increased to 43.2% in fiscal 2008 from 40.3% in
fiscal 2007 because of higher state and local taxes.
Net Income
----------
Net income decreased $117,000 or 8.4% in fiscal 2008 from fiscal 2007. Net
income decreased primarily due to lower interest income earned on the Company's
US Treasury securities and money market accounts and a higher effective income
tax rate.
Page 14
Liquidity, Capital Resources and Changes in Financial Condition
---------------------------------------------------------------
The Company expects that cash flow generated from operations together with its
available cash and marketable securities and available credit facilities will be
sufficient to provide the Company with adequate resources to meet its liquidity
requirements for the foreseeable future.
At May 31, 2008, the Company had working capital (total current assets in excess
of total current liabilities) of $12,693,000 including cash and cash equivalents
of $1,588,000 as compared to working capital of $12,815,000 including cash and
cash equivalents of $1,900,000 at May 31, 2007. The Company's working capital
also included $6,460,000 and $6,395,000 of marketable securities with maturities
of less than one year at May 31, 2008 and 2007, respectively. The majority of
the decrease in working capital occurred due to the payment of cash dividends
which exceeded net income by $186,000.
Net cash flow of $1,268,000 was provided by operations during fiscal 2008 as
compared to $1,298,000 of net cash flow from operations in fiscal 2007. The cash
provided by operations for fiscal 2008 primarily resulted from net income of
$1,276,000 and a decrease in accounts payable and accrued expenses of $265,000.
The cash provided by operations for fiscal 2007 primarily resulted from net
income of $1,393,000 and a decrease in accounts payable and accrued expenses of
$442,000.
Net cash used in investing activities amounted to $69,000 for fiscal 2008,
compared to $527,000 in net cash used in investing activities in fiscal 2007.
The net cash used in investing activities in fiscal 2008 primarily resulted from
higher prices paid for treasury securities. The net cash used in investing
activities in fiscal 2007 primarily resulted from the purchase of marketable
securities.
Net cash used in financing activities during the fiscal year ended May 31, 2008
resulted from cash dividends paid of $1,462,000 and distributions of $49,000 to
the minority interest. Net cash used in financing activities during the fiscal
year ended May 31, 2007 resulted primarily from cash dividends paid of
$1,462,000 and distributions of $70,000 to the minority interest.
The Company's capital resource commitments at May 31, 2008 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 liquidity requirements during fiscal 2008. 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 May 31, 2008, no amounts were outstanding under this
line of credit.
Tabular Disclosure of Contractual Obligations
---------------------------------------------
Payments Due by Period
----------------------------------------------------
Less than More than
Contractual Obligations Total 1 Year 1-3 Years 3-5 Years 5 Years
----------------------- ---------- ---------- ---------- ---------- ----------
Operating Leases . . . . . . $1,568,000 $ 355,000 $ 696,000 $ 478,000 $ 39,000
Employment Agreements . . . 1,598,000 873,000 575,000 150,000 --
---------- ---------- ---------- ---------- ----------
Total . . . . . . . . . . . $3,166,000 $1,228,000 $1,271,000 $ 628,000 $ 39,000
========== ========== ========== ========== ==========
Page 15
Impact of New Accounting Standards
----------------------------------
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48 - "Accounting for Uncertainty in Income Taxes" (FIN 48).
This guidance is intended to provide increased consistency in the application of
FASB Statement No. 109 - "Accounting for Income Taxes" by providing guidance
with regard to the recognition and measurement of tax positions, and provide
increased disclosure requirements. In particular, FIN 48 requires uncertain tax
positions to be recognized only if they are "more-likely-than-not" to be upheld
based on their technical merits. Additionally, the measurement of the tax
position will be based on the largest amount that is determined to have greater
than a 50% likelihood of realization upon ultimate settlement. Any resulting
cumulative effect of applying the provisions of FIN 48 upon adoption would be
reported as an adjustment to the beginning balance of retained earnings
(deficit) in the period of adoption. The adoption of FIN 48 at the beginning of
fiscal 2008 did not have a material effect on the Company's consolidated
financial statements.
The Company may from time to time be assessed interest and/or penalties by major
taxing jurisdictions, although any such assessments historically have been
minimal and immaterial to the Company's financial results. In the event the
Company has received an assessment for interest and/or penalties, it has been
classified in the statement of income in selling, general and administrative
expenses.
On September 15, 2006, the 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 does not expand the use of fair value in any new
circumstances. The Company is evaluating SFAS No. 157 and its impact on the
Company's consolidated financial statements.
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 Company is currently assessing the impact of SFAS No. 159 on its
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (R), "Business Combinations"
("SFAS 141(R)"), and SFAS No. 160, "Noncontrolling Interests in Consolidated
Financial Statements" ("SFAS 160"). SFAS 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
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 141 (R) and SFAS 160 are effective for consolidated financial
statements issued for fiscal years beginning after December 15, 2008. Early
adoption is prohibited. The Company does not expect the adoption of SFAS 141 (R)
and SFAS 160 to have a material impact on its consolidated financial statements.
Page 16
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 its
consolidated financial statements, contained elsewhere in this report. The
Company believes that the following accounting policies require the application
of management's most difficult, subjective or complex judgments:
Estimating Allowances for Doubtful Accounts Receivable
We perform ongoing credit evaluations of our customers and adjust credit limits
based upon payment history and the customer's current credit worthiness, as
determined by our review of their current credit information. We continuously
monitor collections and payments from our customers and maintain a provision for
estimated credit losses based on our historical experience, customer types,
credit worthiness, economic trends and any specific customer collection issues
that we have identified. While such credit losses have historically been within
our expectations and the provisions established, we cannot guarantee that we
will continue to experience the same credit loss rates that we have in the past.
A significant change in the liquidity or financial position of any of our
significant customers, or in their willingness to pay, could have a material
adverse effect on the collectibility of our accounts receivable and our future
operating results.
Valuation of 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 twenty-four months), such securities have been classified as
held-to-maturity and are carried at amortized cost. The Company's equity
securities are classified as trading securities, which are carried at fair
value, with unrealized gains and losses included in earnings.
Valuation of Deferred Tax Assets
We regularly evaluate our ability to recover the reported amount of our deferred
income taxes considering several factors, including our estimate of the
likelihood of the Company generating sufficient taxable income in future years
during the period over which temporary differences reverse. Presently, the
Company believes that it is more likely than not that it will realize the
benefits of its deferred tax assets based primarily on the Company's history of
and projections for taxable income in the future. In the event that actual
results differ from our estimates or we adjust these estimates in future
periods, we may need to establish a valuation allowance against a portion or all
of our deferred tax assets, which could materially impact our financial position
or results of operations.
Page 17
Item 8. Financial Statements.
---------------------
Index to Consolidated Financial Statements
Page
------
Reports of Independent Registered Public Accounting Firms. . . . . . . . . . . . . . . . . . 19
Consolidated Financial Statements:
Consolidated Balance Sheets as of May 31, 2008 and 2007. . . . . . . . . . . . . . . . . . . 21
Consolidated Statements of Income for the years ended May 31, 2008 and 2007. . . . . . . . . 23
Consolidated Statements of Stockholders' Equity for the years ended May 31, 2008 and 2007. . 24
Consolidated Statements of Cash Flows for the years ended May 31, 2008 and 2007. . . . . . . 25
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 26
Page 18
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
TSR, Inc.
Hauppauge, New York
We have audited the accompanying consolidated balance sheet of TSR, Inc. and
subsidiaries as of May 31, 2008 and the related consolidated statements of
income, stockholders' equity, and cash flows for the year then ended. We have
also audited the financial statement schedule for the year ended May 31, 2008 as
listed on Item 15(a)2. These consolidated financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and schedule are free of material misstatement. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and schedule, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements and schedule. We
believe that our audit provides a reasonable basis of our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of TSR,
Inc. and subsidiaries as of May 31, 2008, and their consolidated results of
operations and cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
/s/ J.H. Cohn LLP
Jericho, New York
August 15, 2008
Page 19
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
TSR, Inc.
Hauppauge, New York
We have audited the accompanying consolidated balance sheet of TSR, Inc. and
subsidiaries as of May 31, 2007 and the related consolidated statements of
income, stockholders' equity, and cash flows for the year ended May 31, 2007. We
have also audited the financial statement schedule for the year ended May 31,
2007 as listed on Item 15(a)2. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and schedule are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and schedule, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our audit
provides a reasonable basis of our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TSR, Inc. and
subsidiaries at May 31, 2007, and the results of their operations and their cash
flows for the year ended May 31, 2007 in conformity with accounting principles
generally accepted in the United States of America.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
/s/ BDO SEIDMAN, LLP
Melville, New York
July 31, 2007
Page 20
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, 2008 and 2007
ASSETS
2008 2007
----------- -----------
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 1,588,443 $ 1,900,264
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . 6,459,832 6,395,131
Accounts receivable:
Trade, net of allowance for doubtful accounts of $326,000
in 2008 and $355,000 in 2007 . . . . . . . . . . . . . . . . . . 8,176,936 8,156,651
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,375 99,015
----------- -----------
8,229,311 8,255,666
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,788 54,928
Prepaid and recoverable income taxes . . . . . . . . . . . . . . . . . 48,015 153,618
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 135,000 145,000
----------- -----------
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . 16,514,389 16,904,607
----------- -----------
Equipment and leasehold improvements, at cost:
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,329 226,888
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . 112,196 112,196
Automobiles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,665 19,665
Leasehold Improvements . . . . . . . . . . . . . . . . . . . . . . . . 60,058 68,379
----------- -----------
420,248 427,128
Less accumulated depreciation and amortization . . . . . . . . . . . . 396,963 380,838
----------- -----------
23,285 46,290
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 999,648 996,445
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,653 49,653
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000 62,000
----------- -----------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . $17,641,975 $18,058,995
=========== ===========
See accompanying notes to consolidated financial statements.
(Continued)
Page 21
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, 2008 and 2007
LIABILITIES AND STOCKHOLDERS' EQUITY
2008 2007
----------- -----------
Current Liabilities:
Accounts and other payables . . . . . . . . . . . . . . . . . . . . . $ 313,157 $ 306,695
Accrued and other current liabilities:
Salaries, wages and commissions . . . . . . . . . . . . . . . . . 1,736,285 1,942,462
Legal and professional fees . . . . . . . . . . . . . . . . . . . 88,921 82,094
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,358 166,656
----------- -----------
1,919,564 2,191,212
Advances from customers . . . . . . . . . . . . . . . . . . . . . . . 1,589,087 1,591,324
----------- -----------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . 3,821,808 4,089,231
----------- -----------
Minority Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,533 17,500
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $1.00 par value,
Authorized 1,000,000 shares; none issued . . . . . . . . . . . . . . . -- --
Common stock, $.01 par value, authorized 25,000,000 shares;
issued 6,228,326 shares; 4,568,012 outstanding. . . . . . . . 62,283 62,283
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . 5,071,727 5,071,727
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . 20,663,925 20,849,555
----------- -----------
25,797,935 25,983,565
Less: Treasury stock, 1,660,314 shares, at cost. . . . . . . . . . . . 12,031,301 12,031,301
----------- -----------
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . 13,766,634 13,952,264
----------- -----------
Total Liabilities and Stockholders' Equity . . . . . . . . . . . $17,641,975 $18,058,995
=========== ===========
See accompanying notes to consolidated financial statements.
Page 22
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended May 31, 2008 and 2007
2008 2007
------------ ------------
Revenue, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,722,850 $ 49,688,576
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,305,271 40,533,746
Selling, general and administrative expenses . . . . . . . . . . . . . . . 7,447,048 7,229,832
------------ ------------
49,752,319 47,763,578
------------ ------------
Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,970,531 1,924,998
------------ ------------
Other income (expense):
Interest and dividend income . . . . . . . . . . . . . . . . . . . . . 361,082 460,794
Realized and unrealized gain from marketable securities, net . . . . . 800 3,328
Minority interest in subsidiary operating profits . . . . . . . . . . (85,279) (55,327)
------------ ------------
276,603 408,795
------------ ------------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . 2,247,134 2,333,793
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . 971,000 941,000
------------ ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,276,134 $ 1,392,793
============ ============
Basic and diluted net income per common share . . . . . . . . . . . . . . . $ 0.28 $ 0.30
============ ============
Weighted average number of basic and diluted common shares outstanding. . . 4,568,012 4,568,012
============ ============
See accompanying notes to consolidated financial statements.
Page 23
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended May 31, 2008 and 2007
Shares of Additional Total stock-
common Common paid-in Retained Treasury holders'
stock stock capital earnings stock equity
------------ ------------ ------------ ------------ ------------ ------------
Balance at May 31, 2006 . . . 6,228,326 $ 62,283 $ 5,071,727 $ 20,918,526 $(12,031,301) $ 14,021,235
Net Income . . . . . . . . . -- -- -- 1,392,793 -- 1,392,793
Cash Dividends Paid . . . . . -- -- -- (1,461,764) -- (1,461,764)
------------ ------------ ------------ ------------ ------------ ------------
Balance at May 31, 2007 . . . 6,228,326 62,283 5,071,727 20,849,555 (12,031,301) 13,952,264
Net Income . . . . . . . . . -- -- -- 1,276,134 -- 1,276,134
Cash Dividends Paid . . . . . -- -- -- (1,461,764) -- (1,461,764)
------------ ------------ ------------ ------------ ------------ ------------
Balance at May 31, 2008 . . . 6,228,326 $ 62,283 $ 5,071,727 $ 20,663,925 $(12,031,301) $ 13,766,634
============ ============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
Page 24
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended May 31, 2008 and 2007
2008 2007
------------ ------------
Cash flows from operating activities:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,276,134 $ 1,392,793
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 24,446 26,066
Realized and unrealized gain from marketable securities, net . . . . . (800) (3,328)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 17,000 52,000
Minority interest in subsidiary operating profits . . . . . . . . . . . 85,279 55,327
Changes in operating assets and liabilities:
Accounts receivable-trade . . . . . . . . . . . . . . . . . . . . . (20,285) 116,312
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . 46,640 (8,843)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,140 (6,135)
Prepaid and recoverable income taxes . . . . . . . . . . . . . . . . 105,603 166,538
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Accounts payable and accrued expenses . . . . . . . . . . . . . . . (265,186) (442,135)
Advances from customers. . . . . . . . . . . . . . . . . . . . . . . (2,237) 52,339
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . -- (102,974)
------------ ------------
Net cash provided by operating activities. . . . . . . . . . . . . . . . . 1,267,734 1,297,960
------------ ------------
Cash flows from investing activities:
Proceeds from maturities and sales of marketable securities. . . . . . . . 10,777,957 9,779,044
Purchases of marketable securities . . . . . . . . . . . . . . . . . . . . (10,845,061) (10,269,915)
Purchases of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . (1,441) (36,222)
------------ ------------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . (68,545) (527,093)
------------ ------------
Cash flows from financing activities:
Distribution to minority interest . . . . . . . . . . . . . . . . . . . . (49,246) (69,578)
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,461,764) (1,461,764)
------------ ------------
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . (1,511,010) (1,531,342)
------------ ------------
Net decrease in cash and cash equivalents. . . . . . . . . . . . . . . . . . (311,821) (760,475)
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . 1,900,264 2,660,739
------------ ------------
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . . . . $ 1,588,443 $ 1,900,264
============ ============
Supplemental disclosures of cash flow:
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 848,000 $ 825,000
============ ============
See accompanying notes to consolidated financial statements.
Page 25
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2008 and 2007
(1) Summary of Significant Accounting Policies
(a) Business, Nature of Operations and Customer Concentrations
TSR, Inc. and subsidiaries ("the Company") are primarily engaged in
providing contract computer programming services to commercial
customers and state and local government agencies located primarily in
the Metropolitan New York area. The Company provides its clients with
technical computer personnel to supplement their in-house information
technology capabilities. In fiscal 2008, two customers accounted for
more than 10% of the Company's revenue constituting 13.5% and 12.2%,
respectively. In fiscal 2007, two customers accounted for more than 10%
of the Company's revenue, constituting 19.1% and 11.3%, respectively.
The accounts receivable associated with the Company's largest customer
was $1,368,000 and $1,610,000 at May 31, 2008 and 2007, respectively.
The accounts receivable associated with the Company's second largest
customer was $917,000 and $1,197,000 at May 31, 2008 and 2007,
respectively. The Company operates in one business segment, computer
programming services.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of TSR, Inc.
and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(c) Revenue Recognition
The Company's contract computer programming services are generally
provided under time and materials arrangements with its 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
completion 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 Characterization of Reimbursements
Received for `Out-of-Pocket' Expenses Incurred."
(d) 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. Cash and cash equivalents were comprised of the following
as of May 31, 2008 and 2007:
2008 2007
------------ ------------
Cash in banks. . . . . . . . . . . . . $ 394,987 $ 390,370
Money market funds . . . . . . . . . . 1,193,456 1,509,894
------------ ------------
$ 1,588,443 $ 1,900,264
============ ============
(Continued)
Page 26
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 31, 2008 and 2007
(e) 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
twenty-four months), such securities have been classified as
held-to-maturity and are carried at amortized cost. The Company's
equity securities are classified as trading securities, which are
carried at fair value, with unrealized gains and losses included in
earnings. The Company's marketable securities are summarized as
follows:
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Recorded
Cost Gains Losses Value
---------- ---------- ---------- ----------
Current
-------
2008: US 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
---------
US Treasury securities . . . . . . $ 999,648 $ -- $ -- $ 999,648
========== ========== ========== ==========
Current
-------
2007: US Treasury securities . . . . . . $6,377,387 $ -- $ -- $6,377,387
Equity securities . . . . . . . . 16,866 878 -- 17,744
---------- ---------- ---------- ----------
$6,394,253 $ 878 $ -- $6,395,131
========== ========== ========== ==========
Long Term
---------
US Treasury securities . . . . . . $ 996,445 $ -- $ -- $ 996,445
========== ========== ========== ==========
(f) Accounts Receivable and Credit Policies:
The carrying amount of accounts receivable is reduced by a valuation
allowance that reflects management's best estimate of the amounts that
will not be collected. In addition to reviewing delinquent accounts
receivable, management considers many factors in estimating its general
allowance, including historical data, experience, customer types,
credit worthiness and economic trends. From time to time, management
may adjust its assumptions for anticipated changes in any of those or
other factors expected to affect collectability.
(g) Depreciation and Amortization
Depreciation and amortization of equipment and leasehold improvements
has been computed using the straight-line method over the following
useful lives:
Equipment. . . . . . . . . 3 years
Furniture and fixtures . . 3 years
Automobiles . . . . . . . 3 years
Leasehold improvements . . Lesser of lease term or useful life
(Continued)
Page 27
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 31, 2008 and 2007
(h) 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, if any. The Company
had no stock options or other common stock equivalents outstanding
during the fiscal years ended May 31, 2008 and 2007.
(i) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the
financial reporting and tax bases of the Company's assets and
liabilities at enacted rates expected to be in effect when such amounts
are realized or settled. The effect of enacted tax law or rate changes
is reflected in income in the period of enactment.
(j) Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments"
requires disclosure of the fair value of certain financial instruments.
For cash and cash equivalents, accounts receivable, accounts and other
payables, accrued liabilities and advances from customers, the amounts
presented in the consolidated financial statements approximate fair
value because of the short-term maturities of these instruments. The
fair value of marketable securities is based upon quoted market values
at the end of a period.
(k) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of revenue and expenses during the reporting period.
Such estimates include, but are not limited to provisions for doubtful
accounts receivable, valuation of marketable securities and assessments
of the recoverability of the Company's deferred tax assets. Actual
results could differ from those estimates.
(l) Long-Lived Assets
The Company reviews its long-lived assets for possible impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If the sum of the expected
cash flows undiscounted and without interest, is less than the carrying
amount of the asset, an impairment loss is recognized for the amount by
which the carrying amount of the asset exceeds its fair value.
(m) Comprehensive Income
The Company's net income equaled comprehensive income in fiscal 2008
and 2007.
(n) Stock Options
The Company had one stock-based employee compensation plan which
expired on April 30, 2007. Effective June 1, 2006, the Company
accounted for all transactions under which employees receive shares of
stock or other equity instruments in the Company in accordance with the
revised provisions of SFAS No. 123, "Statement of Financial Accounting
Standards No. 123 (FAS123 (R))," which requires that the fair market
value of all share based payment transactions be recognized in the
financial statements. FAS 123 (R) establishes fair value as the
measurement objective in accounting for share based payment
arrangements and requires all entities to apply a fair value based
measurement method in accounting for share based transactions with
employees except for equity instruments held by employee share
ownership plans. The Company adopted FAS 123(R) at the beginning of
fiscal 2007. The Company has not issued any share based payments in
fiscal 2008 or 2007.
(Continued)
Page 28
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 31, 2008 and 2007
(o) Impact of New Accounting Standards
In July 2006, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 48 - "Accounting for Uncertainty in Income
Taxes" (FIN 48). This guidance is intended to provide increased
consistency in the application of FASB Statement No. 109 - "Accounting
for Income Taxes" by providing guidance with regard to the recognition
and measurement of tax positions, and provide increased disclosure
requirements. In particular, FIN 48 requires uncertain tax positions to
be recognized only if they are "more-likely-than-not" to be upheld
based on their technical merits. Additionally, the measurement of the
tax position will be based on the largest amount that is determined to
have greater than a 50% likelihood of realization upon ultimate
settlement. Any resulting cumulative effect of applying the provisions
of FIN 48 upon adoption would be reported as an adjustment to the
beginning balance of retained earnings (deficit) in the period of
adoption. The adoption of FIN 48 at the beginning of fiscal 2008 did
not have a material effect on the Company's consolidated financial
statements.
The Company may from time to time be assessed interest and/or penalties
by major taxing jurisdictions, although any such assessments
historically have been minimal and immaterial to the Company's
financial results. In the event the Company has received an assessment
for interest and/or penalties, it has been classified in the statement
of income in selling, general and administrative expenses.
On September 15, 2006, the 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
does not expand the use of fair value in any new circumstances. The
Company is evaluating SFAS No. 157 and its impact on the Company's
consolidated financial statements.
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 Company is
currently assessing the impact of SFAS No. 159 on its consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 141 (R), "Business
Combinations" ("SFAS 141(R)"), and SFAS No. 160, "Noncontrolling
Interests in Consolidated Financial Statements" ("SFAS 160"). SFAS 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 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 141 (R) and SFAS 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 141 (R) and SFAS 160 to have a material
impact on its consolidated financial statements.
(Continued)
Page 29
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 31, 2008 and 2007
(p) Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents, marketable securities and accounts receivable. The Company
places its cash equivalents with financial institutions and brokerage
houses. The Company has substantially all of its cash in three bank
accounts. The balances are insured by FDIC up to $100,000. Such cash
balances, at times, may exceed FDIC limits. The Company holds its
marketable securities, which consist primarily of United States
Treasury Securities, directly with the Treasury and in brokerage
accounts. The Company has not experienced losses in any such accounts.
The Company's accounts receivable represent approximately 65 accounts
with open balances of which, the top 2 customers, as a percentage of
revenue, consisted of 16.7% and 11.2% of the net accounts receivable
balance at May 31, 2008, respectively.
(2) Income Taxes
A reconciliation of the provisions for income taxes computed at the
Federal statutory rates for fiscal 2008 and 2007 to the reported
amounts is as follows:
2008 2007
Amount % Amount %
---------- ------ ---------- ------
Amounts at statutory Federal tax rate . . . $ 764,000 34.0% $ 793,000 34.0%
State and local taxes, net of Federal
income tax effect . . . . . . . . 168,000 7.5 160,000 6.8
Non-deductible expenses, and other. . . . . 39,000 1.7 (12,000) (0.5)
---------- ------ ---------- ------
$ 971,000 43.2% $ 941,000 40.3%
========== ====== ========== ======
The components of the provision for income taxes are as follows:
Federal State Total
--------- --------- ---------
2008: Current . . . . . . . . . . . . . $ 704,000 $ 250,000 $ 954,000
Deferred . . . . . . . . . . . . . 12,000 5,000 17,000
--------- --------- ---------
$ 716,000 $ 255,000 $ 971,000
========= ========= =========
2007: Current . . . . . . . . . . . . . $ 660,000 $ 229,000 $ 889,000
Deferred . . . . . . . . . . . . . 39,000 13,000 52,000
--------- --------- ---------
$ 699,000 $ 242,000 $ 941,000
========= ========= =========
(Continued)
Page 30
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 31, 2008 and 2007
The tax effects of temporary differences that give rise to significant portions
of the deferred income tax assets at May 31, 2008 and 2007 are as follows:
2008 2007
-------- --------
Allowance for doubtful accounts receivable . . $ 135,000 $145,000
Equipment and leasehold improvement
depreciation and amortization . . . . . . . 15,000 14,000
Acquired client relationships . . . . . . . . 40,000 48,000
-------- --------
$190,000 $207,000
Total deferred income tax assets . . . ======== ========
The Company believes that it is more likely than not that it will realize the
benefits of its deferred tax assets based primarily on the Company's history of
and projections for taxable income in the future.
(3) Line of Credit
The Company has an available line of credit of $5,000,000 with a major
money center bank through October 31, 2009. As of May 31, 2008, no
amounts were outstanding under this line of credit. The rate of
interest on amounts drawn against the line of credit will be either the
Eurodollar Rate plus 1% or the Prime Rate, determined at the time of
the advance.
(4) Commitments and Contingencies
A summary of noncancellable long-term operating lease commitments for
facilities as of May 31, 2008 follows:
Fiscal Year Amount
--------------- ----------
2009. . . . . . $ 355,000
2010. . . . . . 364,000
2011. . . . . . 332,000
2012. . . . . . 297,000
2013. . . . . . 181,000
2014. . . . . . 39,000
----------
Total $1,568,000
==========
Total rent expenses under all lease agreements amounted to $353,000 and
$340,000 in fiscal 2008 and 2007.
From time to time, the Company is party to various lawsuits, some
involving substantial amounts. Management is not aware of any lawsuits
that would have a material adverse impact on the consolidated financial
position of the Company.
(5) Subsequent Event
On August 6, 2008, the Board of Directors of the Company announced that
a regular quarterly cash dividend of $0.08 per share will be paid on
September 18, 2008 to shareholders of record as of August 27, 2008.
This dividend will amount to approximately $365,000 and will be paid
from the Company's cash and marketable securities.
(Continued)
Page 31
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None
Item 9A(T). 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 financial 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, as amended (the "Exchange Act")). Based on this
evaluation, the principal executive officer and principal financial 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.
Management's Report on Internal Control Over Financial Reporting. The Company's
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Under the supervision and with the participation of the
Company's management, including its principal executive officer and principal
financial officer, the Company conducted an evaluation of the effectiveness of
its internal control over financial reporting based on criteria established in
the framework in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, the Company's management concluded that its internal controls over
financial reporting was effective as of May 31, 2008.
Internal controls over financial reporting, no matter how well designed, have
inherent limitations. Therefore, internal control over financial reporting
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and may not prevent or detect all misstatements.
Moreover, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
This annual report does not include an attestation report of the Company's
independent registered accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
independent registered public accounting firm pursuant to rules of the
Securities and Exchange Commission that permit the Company to provide only
management's report in this annual report.
Item 9B. Other Information
-----------------
None
PART III
Item 10. Directors and Executive Officers of the Company.
------------------------------------------------
The information required by this Item 10 is incorporated by reference to the
Company's definitive proxy statement in connection with the 2008 Annual Meeting
of Stockholders.
Item 11. Executive Compensation.
-----------------------
The information required by this Item 11 is incorporated by reference to the
Company's definitive proxy statement in connection with the 2008 Annual Meeting
of Stockholders.
Page 32
Item 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
The information required by this Item 12 is incorporated by reference to the
Company's definitive proxy statement in connection with the 2008 Annual Meeting
of Stockholders.
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
The information required by this Item 13 is incorporated by reference to the
Company's definitive proxy statement in connection with the 2008 Annual Meeting
of Stockholders.
Item 14. Principal Accountant Fees and Services.
---------------------------------------
The information required by this Item 14 is incorporated by reference to the
Company's definitive proxy statement in connection with the 2008 Annual Meeting
of Stockholders.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
-------------------------------------------
(a) The following documents are filed as part of this report:
1. The consolidated financial statements as indicated in the index set
forth on page 18.
2. Consolidated financial statement schedule:
Schedule supporting consolidated financial statements: Page
Schedule II - Valuation and Qualifying Accounts. . . . 33
Schedules other than those listed above have been omitted, since they are
either not applicable, not required or the information is included elsewhere
herein.
3. Exhibits as listed in Exhibit Index on page 35.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Charged to
Balance at Cost and
Beginning Expense Deductions/ Balance at
Of Period (Recovery) Write-Offs End of Period
------------- ------------- ------------- -------------
Year ended May 31, 2008:
Allowance for doubtful accounts. . . . $ 355,000 $ -- $ 29,000 $ 326,000
============= ============= ============= =============
Year ended May 31, 2007:
Allowance for doubtful accounts. . . . $ 355,000 $ -- $ -- $ 355,000
============= ============= ============= =============
Page 33
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the Undersigned, thereunto duly authorized.
TSR, INC.
By: /s/ J.F. Hughes
-------------------------------------------------------------------------
J. F. Hughes, Chairman
Dated: August 15, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
/s/ J.F. Hughes
-------------------------------------------------------------------------
J. F. Hughes, Chairman
/s/ John G. Sharkey
-------------------------------------------------------------------------
John G. Sharkey, Vice President, Finance, Controller and Secretary
/s/ John H. Hochuli, Jr.
-------------------------------------------------------------------------
John H. Hochuli, Jr., Director
/s/ James J. Hill
-------------------------------------------------------------------------
James J. Hill, Director
/s/ Christopher Hughes
-------------------------------------------------------------------------
Christopher Hughes, Senior Vice President and Director
/s/ Robert A. Esernio
-------------------------------------------------------------------------
Robert A. Esernio, Director
/s/ Raymond A. Roel
-------------------------------------------------------------------------
Raymond A. Roel, Director
Dated: August 15, 2008
Page 34
TSR, INC. AND SUBSIDIARIES
EXHIBIT INDEX
FORM 10-K, MAY 31, 2008
Exhibit Sequential
Number Exhibit Page #
------- ----------
3.1 Articles of Incorporation for the Company, as amended. Incorporated by reference to Exhibit 3.1 N/A
to the Annual Report on Form 10-K filed by the Company for the fiscal year ended May 31, 1998.
3.2 Bylaws of the Company, as amended incorporated by reference to Exhibit 3.2 to the Annual Report N/A
on Form 10-K filed by the Company for the fiscal year ended May 31, 1998.
10.1 Employment Agreement between TSR, Inc. and Christopher Hughes, dated as of March 1, 2007. N/A
Incorporated by reference to the Form 8-K filed by the Company on March 6, 2007.
10.2 Employment Agreement dated October 12, 2007 between the Company and Joseph F. Hughes, N/A
incorporated by reference to Exhibit 10.1 to the Report on Form 8-K filed by the Company on
October 16, 2007.
10.3 Revolving Credit Agreement dated October 6, 1997 among TSR Consulting Services, Inc., TSR, Inc., N/A
Catch/21 Enterprises Incorporated and the Chase Manhattan Bank, incorporated by reference to
Exhibit 10.3 to the Quarterly Report on Form 10-Q filed by the Company for the quarter ended
August 31, 1997.
10.4 Employment Agreement dated as of June 1, 2005 between the Company and John G. Sharkey N/A
incorporated by reference to Exhibit 10.1 to the Report on Form 8-K filed by the Company on July
26, 2005.
21 List of Subsidiaries 36
31.1 Certification by J.F. Hughes Pursuant to Securities Exchange Act Rule 13a-15(e) 37
31.2 Certification by John G. Sharkey Pursuant to Securities Exchange Act Rule 13a-15(e) 38
32.1 Certification of J.F. Hughes Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 39
906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of John G. Sharkey Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 40
Section 906 of the Sarbanes-Oxley Act of 2002.
Page 35