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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the period ended November 30, 1999
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the transition period from to
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Commission File Number: 0-8656
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TSR, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 13-2635899
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 Oser Avenue, Hauppauge, NY 11788
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(Address of principal executive offices)
516-231-0333
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(Registrant's telephone number)
None
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
SHARES OUTSTANDING
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5,022,612 shares of common stock, par value $.01 per share,
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as of December 31, 1999
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Page 1
TSR, INC. AND SUBSIDIARIES
INDEX
Page
Number
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
November 30, 1999 and May 31, 1999...................... 3
Consolidated Condensed Statements of Earnings -
For the three months and six months ended
November 30, 1999 and 1998.............................. 4
Consolidated Condensed Statements of Cash Flows -
For the six months ended November 30, 1999 and 1998..... 5
Notes to Consolidated Condensed Financial Statements......... 6
Item 2. Management's Discussion and Analysis........................ 7
Part II. Other Information............................................... 12
Signatures................................................................ 12
Page 2
Part I. Financial Information
Item 1. Financial Statements
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
November 30, May 31,
ASSETS 1999 1999
---- ----
Current Assets:
Cash and cash equivalents (Note 6) ............................... $ 3,226,030 $ 2,234,723
Marketable securities (Note 7) .................................... 4,943,992 5,898,272
Accounts receivable (net of allowance for
doubtful accounts of $173,000) .................................. 13,492,867 14,226,289
Other receivables ................................................. 209,385 167,415
Prepaid expenses .................................................. 2,831 44,731
Prepaid and recoverable income taxes ............................. 202,025 98,789
Deferred income taxes ............................................. 59,000 59,000
---------- ----------
Total current assets.......................................... 22,136,130 22,729,219
Equipment and leasehold improvements, at cost (net of accumulated
depreciation and amortization of $1,907,000 and $1,833,000) ..... 138,560 161,315
Other assets .......................................................... 42,236 35,276
Deferred income taxes ................................................. 253,000 265,000
---------- ----------
$22,569,926 $23,190,810
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts and other payables ....................................... $ 458,495 $ 305,067
Accrued and other liabilities ..................................... 3,367,649 3,774,513
Advances from customers ........................................... 1,664,761 1,206,137
Income taxes payable .............................................. 118,726 140,548
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Total current liabilities ................................... 5,609,631 5,426,265
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Shareholders' Equity:
Preferred stock, $1 par value, authorized
1,000,000 shares; none issued ................................ -- --
Common stock, $.01 par value, authorized
25,000,000 shares; issued 6,078,326 shares ................... 60,783 60,783
Additional paid-in capital ....................................... 4,134,053 4,134,053
Retained earnings ................................................ 20,133,277 17,764,087
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24,328,113 21,958,923
Less: Treasury Stock, 964,514 and 576,500 shares at cost ......... 7,367,818 4,194,378
---------- ----------
16,960,295 17,764,545
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$22,569,926 $23,190,810
========== ==========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 3
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998
Three Months Ended Six Months Ended
November 30, November 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenues ...................................................... $ 20,680,945 $ 21,682,375 $ 41,635,639 $ 42,147,906
Cost of sales .................................................. 15,637,241 15,887,756 31,798,934 30,948,128
Selling, general and administrative expenses .................. 3,037,298 3,526,087 5,901,385 6,885,351
Research and development expenses .............................. -- 80,310 -- 228,481
------------ ------------ ------------ ------------
18,674,539 19,494,153 37,700,319 38,061,960
------------ ------------ ------------ ------------
Income from operations ......................................... 2,006,406 2,188,222 3,935,320 4,085,946
Other income:
Interest and dividend income .............................. 117,906 78,687 209,947 146,573
Gain (loss) from marketable securities, net ............... (2,378) 23,901 8,973 (3,881)
Gain from sales of assets ................................. 1,950 -- 1,950 --
------------ ------------ ------------ ------------
Income before income taxes ..................................... 2,123,884 2,290,810 4,156,190 4,228,638
Provision for income taxes ..................................... 910,000 1,000,000 1,787,000 1,850,000
------------ ------------ ------------ ------------
Net income ................................................ $ 1,213,884 $ 1,290,810 $ 2,369,190 $ 2,378,638
============ ============ ============ ============
Basic and diluted net income per
common share .............................................. $ 0.23 $ 0.22 $ 0.45 $ 0.40
============ ============ ============ ============
Weighted average number of basic and diluted
common shares outstanding ................................. 5,181,657 5,988,276 5,229,317 5,988,276
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 4
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998
Six Months Ended
November 30,
1999 1998
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Cash flows from operating activities:
Net income ................................................... $2,369,190 $ 2,378,638
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ............................. 74,055 431,500
Loss (gain)from marketable securities, net ............... (8,973) 3,881
Deferred income taxes ..................................... 12,000 (24,000)
Gain on sales of assets ................................... (1,950) --
Changes in assets and liabilities:
Accounts receivable ...................................... 733,422 (289,937)
Other receivables ........................................ (41,970) (66,113)
Prepaid expenses .......................................... 41,900 58,066
Prepaid and recoverable income taxes ...................... (103,236) 9,966
Other assets .............................................. (6,960) (28,100)
Accounts payable and accrued expenses ..................... (253,436) 1,014,938
Income taxes payable ...................................... (21,822) (137,941)
Advances from customers ................................... 458,624 (36,739)
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Net cash provided by operating activities .................... 3,250,844 3,314,159
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Cash flows from investing activities:
Proceeds from maturities and sales of
marketable securities ................................... 2,892,956 974,054
Purchases of marketable securities ........................ (1,929,703) (1,929,684)
Purchases of fixed assets ................................. (51,300) (58,879)
Proceeds from sales of assets ............................. 1,950 --
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Net cash provided by (used in) investing activities ....... 913,903 (1,014,509)
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Cash flows from financing activities:
Purchases of treasury stock ............................... (3,173,440) --
---------- ----------
Net cash used in financing activities ..................... (3,173,440) --
---------- ----------
Net increase in cash and cash equivalents ........................ 991,307 2,299,650
Cash and cash equivalents at beginning of period ................. 2,234,723 2,425,122
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Cash and cash equivalents at end of period ........................ $3,226,030 $ 4,724,772
========= ==========
Supplemental Disclosures:
Income tax payments ........................................ $1,909,000 $ 2,002,000
========= ==========
Interest paid .............................................. $ -- $ --
========= =========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 5
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOVEMBER 30, 1999
1. The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions of Form 10-Q of
Regulation S-X. Accordingly, they do not include all the information and
notes required by generally accepted accounting principles for complete
financial statements. For further information refer to the Company's
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended May 31, 1999.
2. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the consolidated
financial position, the consolidated results of operations, and
consolidated cash flows for the periods presented.
3. The Company is primarily engaged in the business of providing computer
programming consulting services. The Company provides technical computer
personnel to companies to supplement their in-house information technology
capabilities. In addition, the Company provided services converting
software applications to be year 2000 compliant utilizing Catch/21 a year
2000 software solution which automates to a significant extent the
conversion process.
4. The consolidated condensed financial statements include the accounts of
TSR, Inc. and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
5. The Company recognizes computer programming consulting services revenues as
services are provided. Provided that acceptance is probable, revenue from
Catch/21 code conversion is recognized when the converted code is
delivered.
6. The Company considers short-term highly liquid investments with maturities
of three months or less at the time of purchase to be cash equivalents.
Cash and cash equivalents were comprised of the following as of November
30, 1999:
Cash in banks ...................................$ --
Money Market Funds............................... 2,238,035
United States Treasury Bills..................... 987,995
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$ 3,226,030
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7. Marketable securities consists of United States Treasury Bills and equity
securities. The treasury bills with maturities at acquisition in excess of
90 days, are classified as held to maturity investments. The Company's
equity securities are classified as trading securities. The amortized cost,
gross unrealized holding gains, gross unrealized holding losses and
carrying value for marketable securities by major security type at November
30, 1999 are as follows:
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Carrying
Cost Gains Losses Value
---------- --------- --------- -----------
United States Treasury Bills......... $ 4,803,919 -- -- 4,803,919
Equity Securities.................... 133,289 29,660 (22,876) 140,073
---------- --------- --------- -----------
$ 4,937,208 $ 29,660 $ (22,876) $ 4,943,992
========== ========= ========= ===========
8. During fiscal 1999, under a buy-back plan authorized by the Board of
Directors to repurchase up to 600,000 shares of the Company's common stock,
the Company purchased for $4,194,378, 576,500 shares of its common stock at
the market value of the stock on the purchase date. The remaining
authorization under the buy-back plan was completed after year end. In June
1999 the Board of Directors authorized an additional buy-back of up to
500,000 shares of common stock. During the six months ended November 30,
1999, the Company repurchased 388,014 shares of its common stock at a cost
of $3,173,440.
Page 6
Part I. Financial Information
Item 2.
TSR, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with the
consolidated condensed financial statements and the notes to the consolidated
condensed financial statements.
Results of Operations
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The following table sets forth for the periods indicated certain financial
information derived from the Company's consolidated statements of earnings.
There can be no assurance that trends in sales growth or operating results will
continue in the future:
Three months ended November 30, 1999 compared with three months ended November
30, 1998
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(Dollar amounts in Thousands) 3 Months Ended
November 30,
1999 1998
% of % of
Amount Revenues Amount Revenues
-------- -------- -------- --------
Revenues . . . . . . . . . . . . . . . . . . . . . $ 20,681 100.0 $ 21,682 100.0
Cost of Sales . . . . . . . . . . . . . . . . . . . 15,637 75.6 15,887 73.3
-------- ----- -------- -----
Gross Profit . . . . . . . . . . . . . . . . . . . 5,044 24.4 5,795 26.7
Selling, General, and Administrative expenses . . . 3,038 14.7 3,526 16.2
Research and Development expenses . . . . . . . . . -- -- 80 0.4
-------- ----- -------- -----
Income from Operations . . . . . . . . . . . . . . 2,006 9.7 2,189 10.1
Other Income . . . . . . . . . . . . . . . . . . . 118 0.6 102 0.5
-------- ----- -------- -----
Income Before Income Taxes . . . . . . . . . . . . 2,124 10.3 2,291 10.6
Provision for Income Taxes . . . . . . . . . . . . 910 4.4 1,000 4.6
-------- ----- -------- -----
Net Income . . . . . . . . . . . . . . . . . . . . $ 1,214 5.9 $ 1,291 6.0
======== ===== ======== =====
Revenues
- --------
Revenues consist primarily of revenues from computer programming consulting
services. In addition, the Company's revenues included revenues from its Year
2000 business which commenced in fiscal 1997. Revenues for the quarter ended
November 30, 1999 decreased $1,001,000 or 4.6% from the comparable period in
fiscal 1999. For the current quarter 96.6% of revenues were derived from
computer programming consulting services and 3.4% from Year 2000 services, as
compared with 89.8% and 10.2% respectively in fiscal 1999.
Computer programming consulting services revenues increased $515,000 or 2.6%
from $19,460,000 in the quarter ended November 30, 1998 to $19,975,000 in the
quarter ended November 30, 1999. This increase resulted from an overall increase
in the average number of programmers on billing with clients from approximately
505 for the quarter ended November 30, 1998 to approximately 537 for the current
quarter. Growth in consulting services revenues was at a slower rate than it had
been in the past. The Company believes that this slower growth was attributable
to a delay in new IT projects because customers were devoting their resources to
Year 2000 testing. While the Company anticipates an increase in new projects in
the current calendar year, the Company cannot predict when these new projects
will commence.
Revenues from the Company's Catch/21 Year 2000 compliance services, were
$705,000 for the current quarter versus $2,222,000 in the fiscal 1999 second
quarter. The Company's Year 2000 revenues have decreased significantly and the
Company expects these revenues will further decline and are not likely to
represent a material portion of the Companies revenues in the future.
Page 7
Cost of Sales
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Cost of sales as a percentage of revenues increased from 73.3% in the quarter
ended November 30, 1998 to 75.6% in the quarter ended November 30, 1999. This
increase is primarily attributable to the decrease in Year 2000 revenues for
which cost of sales as a percentage of revenues is less than the computer
programming consulting services business.
In the computer programming consulting services business, cost of sales as a
percentage of sales increased from 77.0% in the quarter ended November 30, 1998
to 77.1% in the quarter ended November 30, 1999. This increase is attributable
to increases in amounts being paid to qualified programming professionals
outpacing the Company's ability to pass these increases on to customers due to
competitive market pressures in the industry. Additional market pressures have
also created an environment where major customers are requiring discounts from
existing pricing.
The Year 2000 business incurred cost of sales of $241,000 in the quarter ended
November 30, 1999 versus $908,000 in the prior year quarter. The Company
significantly reduced the number of employees in its Year 2000 Services during
fiscal 1999 and is currently providing such services through contractual
arrangements with certain former employees.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses consist primarily of expenses
relating to account executives, technical recruiters, facilities costs,
management and corporate overhead. These expenses decreased $489,000 or 13.9%
from $3,526,000 in the quarter ended November 30, 1998 to $3,037,000 in the
quarter ended November 30, 1999. This decrease was primarily attributable to the
reduction in Year 2000 services. Selling, general and administrative expenses
related to computer programming consulting services increased $193,000 over the
prior year period to $2,994,000. This increase was primarily attributable to
expenses relating to the hiring of additional account executives and technical
recruiting professionals to broaden the Company's client base and recruit
additional technical consultants in connection with the continuation of the
Company's planned expansion.
In the quarter ended November 30, 1999, approximately $43,000 in selling,
general and administrative expenses were attributable to Year 2000 services.
These expenses consist primarily of management, and facilities expenses. Such
expenses significantly decreased from fiscal 1999. Comparable Year 2000 selling,
general and administrative expenses in the quarter ended November 30, 1998 were
$725,000.
Research and Development
- ------------------------
Research and development costs of $80,000 in the quarter ended November 30, 1998
represent amounts expended by the Company to expand Catch/21, the Company's Year
2000 compliance solution, product offerings including XRAY/2000 which stands for
Examination, Repair, and Audit for Year 2000 Compliance, and various testing
utilities. There were no research and development expenses in the quarter ended
November 30, 1999.
Income from Operations
- ----------------------
In the quarter ended November 30, 1999, the computer programming consulting
service business contributed $1,585,000 or 79.0% of the income from operations,
while the Year 2000 business contributed the remaining $421,000 or 21.0%. In the
prior year quarter, the computer programming consulting service business
contributed $1,680,000 or 76.7% of income from operations and the Year 2000
business $509,000 or 23.3%. The Company does not expect Year 2000 services to
materially contribute to income from operations for the balance of its 2000
fiscal year. The Company believes that growth in contract computer programming
services will, over time, offset the loss of income from operations from Year
2000 services.
Other Income
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Other income resulted primarily from interest and dividend income which
increased by $39,000 to $118,000 due to higher average available investable
funds in the quarter ended November 30, 1999. Additionally, the Company also had
a net loss of $2,000 from marketable securities due to mark to market
adjustments of its equity portfolio compared with a gain of $24,000 in the prior
year quarter.
Income Taxes
- ------------
The effective income tax rate decreased to 42.8% in the quarter ended November
30, 1999 from 43.7% in the quarter ended November 30, 1998 because of lower
state and local taxes.
Page 8
Six months ended November 30, 1999 compared with six months ended November 30,
1998.
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(Dollar amounts in Thousands) 6 Months Ended
November 30,
1999 1998
% of % of
Amount Revenues Amount Revenues
------ -------- ------ --------
Revenues . . . . . . . . . . . . . . . . . . . . . $ 41,636 100.0 $ 42,148 100.0
Cost of Sales . . . . . . . . . . . . . . . . . . . 31,799 76.4 30,948 73.4
-------- ----- -------- -----
Gross Profit . . . . . . . . . . . . . . . . . . . 9,837 23.6 11,200 26.6
Selling, General, and Administrative expenses . . . 5,902 14.2 6,885 16.3
Research and Development expenses . . . . . . . . . -- -- 228 0.6
-------- ----- -------- -----
Income from Operations . . . . . . . . . . . . . . 3,935 9.4 4,087 9.7
Other Income . . . . . . . . . . . . . . . . . . . 221 0.6 142 0.3
-------- ----- -------- -----
Income Before Income Taxes . . . . . . . . . . . . 4,156 10.0 4,229 10.0
Provision for Income Taxes . . . . . . . . . . . . 1,787 4.3 1,850 4.4
-------- ----- -------- -----
Net Income . . . . . . . . . . . . . . . . . . . . $ 2,369 5.7 $ 2,379 5.6
======== ===== ======== =====
Revenues
- --------
Revenues consist primarily of revenues from computer programming consulting
services. In addition, the Company's revenues included revenues from its Year
2000 business which commenced in fiscal 1997. Revenues for the six months ended
November 30, 1999 decreased $512,000 or 1.2% over the comparable period in
fiscal 1999. For the current six months 96.8% of revenues were derived from
computer programming consulting services and 3.2% from Year 2000 services, as
compared with 89.2% and 10.8% respectively in fiscal 1999.
Computer programming consulting services revenues increased $2,694,000 or 7.2%
from $37,595,000 in the six months ended November 30, 1998 to $40,289,000 in the
six months ended November 30, 1999. This increase resulted from an overall
increase in the average number of programmers on billing with clients from an
average of 490 for the six months ended November 30, 1998 to approximately 540
in the six months ended at November 30, 1999. Growth in consulting services
revenues was at a slower rate than it had been in the past. The Company believes
that this slower growth was attributable to a delay in new IT projects because
customers were devoting their resources to Year 2000 testing. While the Company
anticipates an increase in new projects in the current calendar year, the
Company cannot predict when these new projects will commence.
Revenues from the Company's Catch/21 Year 2000 compliance services, were
$1,346,000 for the current six months versus $4,553,000 in the prior year
period. The Company's Year 2000 revenues have decreased significantly and the
Company expects these revenues will further decline and are not likely to
represent a material portion of the Companies revenues in the future.
Page 9
Cost of Sales
- -------------
Cost of sales as a percentage of revenues increased from 73.4% in the six months
ended November 30, 1998 to 76.4% in the six months ended November 30, 1999. This
increase is primarily attributable to the decrease in Year 2000 revenues for
which cost of sales as a percentage of revenues is less than the computer
programming consulting services business.
In the computer programming consulting services business, cost of sales as a
percentage of sales increased from 77.1% in the six months ended November 30,
1998 to 77.7% in the six months ended November 30, 1999. This increase is
attributable to increases in amounts being paid to qualified programming
professionals outpacing the Company's ability to pass these increases on to
customers due to competitive market pressures in the industry. Additional market
pressures have also created an environment where major customers are requiring
discounts from existing pricing.
The Year 2000 business incurred cost of sales of $501,000 in the six months
ended November 30, 1999 versus $1,988,000 in the prior year period. The Company
significantly reduced the number of employees in its Year 2000 Services during
fiscal 1999 and is currently providing such services through contractual
arrangements with certain former employees.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses consist primarily of expenses
relating to account executives, technical recruiters, facilities costs,
management and corporate overhead. These expenses decreased $984,000 or 14.3%
from $6,885,000 in the six months ended November 30, 1998 to $5,901,000 in the
six months ended November 30, 1999. This decrease was primarily attributable to
the reduction in Year 2000 services. Selling, general and administrative
expenses related to computer programming consulting services increased $284,000
over the prior year period to $5,806,000. This increase was primarily
attributable to expenses relating to the hiring of additional account executives
and technical recruiting professionals to broaden the Company's client base and
recruit additional technical consultants in connection with the continuation of
the Company's planned expansion.
In the six months ended November 30, 1999, approximately $95,000 in selling,
general and administrative expenses were attributable to Year 2000 services.
These expenses consist primarily of management, and facilities expenses. Such
expenses significantly decreased from fiscal 1999. Comparable Year 2000 selling,
general and administrative expenses in the six months ended November 30, 1998
were $1,363,000.
Research and Development
- ------------------------
Research and development costs of $228,000 in the six months ended November 30,
1998 represent amounts expended by the Company to expand Catch/21, the Company's
Year 2000 compliance solution, product offerings including XRAY/2000 which
stands for Examination, Repair, and Audit for Year 2000 Compliance, and various
testing utilities. There were no research and development expenses in the six
months ended November 30, 1999.
Income from Operations
- ----------------------
In the six months ended November 30, 1999, the computer programming consulting
service business contributed $3,185,000 or 80.9% of the income from operations,
while the Year 2000 business contributed the remaining $750,000 or 19.1%. In the
prior year period, the computer programming consulting service business
contributed $3,113,000 or 76.2% of income from operations and the Year 2000
business $974,000 or 23.8%. The Company does not expect Year 2000 services to
materially contribute to income from operations for the balance of its 2000
fiscal year. The Company believes that growth in contract computer programming
services will, over time, offset the loss of income from operations from Year
2000 services.
Other Income
- ------------
Other income resulted primarily from interest and dividend income which
increased by $63,000 to $210,000 due to higher average available investable
funds in the six months ended November 30, 1999. Additionally, the Company also
had a net gain of $9,000 from marketable securities due to mark to market
adjustments of its equity portfolio as compared to a loss of $4,000 in the prior
year period.
Income Taxes
- ------------
The effective income tax rate decreased to 43.0% in the six months ended
November 30, 1999 from 43.7% in the six months ended November 30, 1998 because
of lower state and local taxes.
Page 10
Liquidity, Capital Resources and Changes in Financial Condition
- ---------------------------------------------------------------
The Company expects that cash flow generated from operations together with its
cash and marketable securities will be sufficient to provide the Company with
adequate resources to meet its cash requirements.
At November 30, 1999, the Company had working capital of $16,526,000 and cash
and cash equivalents of $3,226,000 as compared to working capital of $17,303,000
and cash and cash equivalents of $2,235,000 at May 31, 1999. Working capital
decreased primarily due to the Company's purchase of $3,173,000 of treasury
stock of the Company in the six months ended November 30, 1999.
The Company had positive net cash flow of $3,251,000 from operations during the
six months ended November 30, 1999 as compared to positive net cash flow from
operations of $3,314,000 in the six months ended November 30, 1998. The Company
had net income of $2,369,000, in the six months ended November 30, 1999. The
Company also had additional cash flow as a result of the decrease in the
accounts receivable of $733,000 and an increase in advances from customers of
$459,000. The decrease in accounts receivable occurred primarily because the
rate of collections exceeded the rate of revenue growth. The increase in
advances from customers resulted from a significant prepayment made by one
customer. Although it is likely this prepayment will be used in full, any unused
balances will be returned to the customer. The increase in accounts payable and
accrued expenses resulted primarily from the increase in cost of sales.
Cash flow provided by investing activities resulted primarily from the maturity
of United States Treasury Bills in the current period.
Cash flow used in financing activities of $3,173,000 in the six months ended
November 30, 1999 resulted from the repurchase of 388,000 shares of common stock
of the Company. As of November 30, 1999, the Company has repurchased a total of
965,000 shares at an average price of $7.64 or a total cost of $7,368,000. The
Company has completed the initial buy back authorization of 600,000 shares and
the Company's board of directors has authorized the repurchase of up to an
additional 500,000 shares of its common stock. No time limit has been placed on
the duration of the share repurchases. Subject to applicable securities laws,
such purchases will be at times and in amounts as the Company deems appropriate
and may be discontinued at any time. The Company has no obligation or commitment
to repurchase all or any portion of the shares covered by the authorization.
The Company's capital resource commitments at November 30, 1999 consisted of
lease obligations on its branch and corporate facilities. The Company intends to
finance these lease commitments from cash flow provided by operations, available
cash and short-term marketable securities.
The Company's cash and marketable securities were sufficient to enable it to
meet its cash requirements during the six months ended November 30, 1999. The
Company has available a revolving line of credit of $5,000,000 with a major
money center bank, which the Company believes provides sufficient financing if
the need arose. As of November 30, 1999 no amounts were outstanding under this
line of credit.
Year 2000 Information
- ---------------------
Readiness for Year 2000
The Company has only limited internal systems which it believes could be
affected by Year 2000 issues. The Company's principal information technology
(IT) systems are its resume search (which contains its databases of IT
professionals), payroll, billing, and general ledger systems. The Company
believes that its search, payroll and billing software systems were designed and
programmed to be Year 2000 compliant. The Company's general ledger system
required an upgrade to be Year 2000 compliant and the Company has implemented
the upgrade. The cost of the upgrade was not material. The Company is not
currently aware of any non-IT systems which are material to the Company and
contain embedded chip systems which have Year 2000 issues. Management does not
believe that it will have material Year 2000 problems relating to its IT and
non-IT systems. The Company's management currently believes that it was
successful in identifying and resolving any potential deficiencies in its
systems with respect to Year 2000 issues, that all material systems are
compliant and that the cost to address the Year 2000 issue was not material.
The Company does not materially rely on individual third party vendors and
suppliers and accordingly does not believe that the Year 2000 readiness of third
party vendors or suppliers will have a material impact on its business.
Nonetheless, the Company's business is dependent on third parties, such as
public utilities, electric systems, telecommunication systems, mail and
overnight delivery services. The Company's business could be materially
adversely affected by disruption in services provided by such entities, or by
conditions resulting from Year 2000 issues generally affecting companies with
which it does business.
Page 11
The Company's management believes the impact of the Year 2000 will not cause any
material disruptions in the Company's operations. However, the impact of such
potential disruptions is difficult to assess and accordingly there is a risk
that there will be disruptions which could have a material adverse effect on the
Company.
To date, the Company has not encountered any significant effects of the Year
2000 problem either internally or with third parties. This does not guarantee
that problems will not occur in the future or have not yet been detected.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------
The Company's earnings and cash flows are subject to fluctuations due to changes
in interest rates primarily from its investment of available cash balances in
money market funds and marketable securities. Under its current policies, the
Company does not use interest rate derivative instruments to manage exposure to
interest rate changes.
Forward-Looking Statements
- --------------------------
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations", including statements concerning
the development of the Company's Catch/21 solution, future prospects and the
Company's future cash flow requirements are forward looking statements, as
defined in the Private Securities Litigation Reform Act of 1995. Actual results
may differ materially from those projections in the forward looking statements
which statements involve risks and uncertainties, including but not limited to
the following: risks relating to the competitive nature of the markets for
computer programming consulting services, the extent to which growth in the
Company's contract computer programming services will offset the anticipated
loss of Year 2000 profits, concentration of the Company's business with certain
customers and uncertainty as to the Company's ability to bring in new customers
and the Company's readiness for the Year 2000.
TSR, INC. AND SUBSIDIARIES
Part II. Other Information
Item 6. Exhibits and Reports on Form 8K
(a). Exhibit 10.1: Employment Agreement dated January 1, 2000 between TSR,
Inc. and John G. Sharkey
(b). Exhibit 27: Financial Data Schedule
(c). Reports on Form 8K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TSR, INC.
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(Registrant)
Date: January 10, 2000 /s/ J.F. HUGHES
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J.F. Hughes, Chairman, President and Treasurer
Date: January 10, 2000 /s/ JOHN G. SHARKEY
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John G. Sharkey, Vice President, Finance