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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, 2001
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[ ] 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)
631-231-0333
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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
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SHARES OUTSTANDING
4,418,012 shares of common stock, par value $.01 per share,
as of December 31, 2001
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Page 1
TSR, INC. AND SUBSIDIARIES
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
November 30, 2001 and May 31, 2001....................... 3
Condensed Consolidated Statements of Earnings -
For the three months and six months ended
November 30, 2001 and 2000............................... 4
Condensed Consolidated Statements of Cash Flows -
For the six months ended November 30, 2001 and 2000...... 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk... 13
PART II. OTHER INFORMATION............................................... 13
Signatures................................................................ 13
Page 2
Part I. Financial Information
Item 1. Financial Statements
TSR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
November 30, May 31,
ASSETS 2001 2001
------------ -----------
(unaudited)
Current Assets:
Cash and cash equivalents (Note 6) ............................................. $ 4,797,095 $ 6,208,361
Marketable securities (Note 7) ................................................ 5,945,323 4,432,978
Accounts receivable (net of allowance for
doubtful accounts of $330,000 and $273,000) .............................. 12,667,865 11,935,795
Other receivables ............................................................. 69,218 59,016
Prepaid expenses ............................................................... 34,857 33,727
Prepaid and recoverable income taxes ........................................... 18,606 144,363
Deferred income taxes .......................................................... 139,000 93,000
----------- -----------
Total current assets ...................................................... 23,671,964 22,907,240
Equipment and leasehold improvements, at cost (net of accumulated
depreciation and amortization of $662,000 and $616,000) ........................ 111,957 141,513
Other assets ........................................................................ 46,145 46,145
Deferred income taxes ............................................................... 81,000 189,000
Acquired client relationships, net of accumulated amortization
of $14,301 (Note 9) ..................................................... 157,307 --
----------- -----------
$24,068,373 $23,283,898
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts and other payables .................................................... $ 138,979 $ 123,852
Accrued and other current liabilities .......................................... 2,476,639 3,070,908
Advances from customers ........................................................ 1,535,104 1,688,150
Income taxes payable ........................................................... 106,299 213,955
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Total current liabilities ................................................. 4,257,021 5,096,865
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Minority Interest ................................................................... 111 --
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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; issue 6,078,326 shares.................................. 60,783 60,783
Additional paid-in capital ..................................................... 4,134,053 4,134,053
Retained earnings .............................................................. 27,647,706 26,023,498
----------- -----------
31,842,542 30,218,334
Less: Treasury Stock, 1,660,314 shares at cost (Note 8)........................ 12,031,301 12,031,301
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19,811,241 18,187,033
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$24,068,373 $23,283,898
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The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 3
TSR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2001 AND 2000
(UNAUDITED)
Three Months Ended Six Months Ended
November 30, November 30,
------------------------- -------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues ......................................................... $15,334,801 $21,047,157 $32,752,693 $40,787,692
Cost of sales .................................................... 11,970,983 16,420,552 25,531,756 31,654,890
Selling, general and administrative expenses ..................... 2,186,629 2,828,035 4,591,753 5,602,798
----------- ----------- ----------- -----------
14,157,612 19,248,587 30,123,509 37,257,688
----------- ----------- ----------- -----------
Income from operations ........................................... 1,177,189 1,798,570 2,629,184 3,530,004
Other income:
Interest and dividend income ................................ 122,686 106,298 198,374 207,114
Unrealized gain from marketable securities, net ............ 2,950 1,118 761 43,057
Minority interest in subsidiary operating loss .............. 889 -- 889 --
----------- ----------- ----------- -----------
Income before income taxes ....................................... 1,303,714 1,905,986 2,829,208 3,780,175
Provision for income taxes ....................................... 541,000 830,000 1,205,000 1,646,000
----------- ----------- ----------- -----------
Net income .................................................. $ 762,714 $ 1,075,986 $ 1,624,208 $ 2,134,175
=========== =========== =========== ===========
Basic and diluted net income per
common share ................................................. $ 0.17 $ 0.24 $ 0.37 $ 0.47
=========== =========== =========== ===========
Weighted average number of basic and diluted
common shares outstanding .................................... 4,418,012 4,522,845 4,418,012 4,568,012
=========== =========== =========== ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 4
TSR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2001 AND 2000
(UNAUDITED)
Six Months Ended
November 30,
--------------------------
2001 2000
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Cash flows from operating activities:
Net income ....................................................................... $ 1,624,208 $ 2,134,175
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization ................................................. 60,092 62,524
Unrealized gain from marketable securities, net ............................... (761) (43,057)
Deferred income taxes ......................................................... 62,000 4,000
Provision for doubtful accounts ............................................... 100,000 --
Minority interest in subsidiary operating loss ................................ (889) --
Changes in assets and liabilities:
Accounts receivable ......................................................... (535,375) (3,232,949)
Other receivables ........................................................... (3,377) 94,622
Prepaid expenses ............................................................ (1,130) 5,831
Prepaid and recoverable income taxes ........................................ 125,757 18,368
Other assets ................................................................ -- (14,567)
Accounts payable and accrued expenses ....................................... (796,722) (113,212)
Income taxes payable ........................................................ (107,656) 15,201
Advances from customers ..................................................... (153,046) 72,057
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Net cash provided by (used in) operating activities .............................. 373,101 (997,007)
----------- -----------
Cash flows from investing activities:
Proceeds from maturities and sales of marketable securities ................... 4,400,221 3,140,322
Purchases of marketable securities ............................................ (5,911,805) (2,423,910)
Purchases of fixed assets ..................................................... 781 (59,488)
Purchases of net assets, net of cash acquired ................................. (274,564) --
----------- -----------
Net cash (used in) provided by operating activities ............................... (1,785,367) 656,924
----------- -----------
Cash flows from financing activities:
Purchases of treasury stock ................................................... -- (1,242,668)
Proceeds from sale of minority interest ....................................... 1,000 --
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Net cash provided by (used in) investing activities ............................... 1,000 (1,242,668)
----------- -----------
Net decrease in cash and cash equivalents ............................................. (1,411,266) (1,582,751)
Cash and cash equivalents at beginning of period ...................................... 6,208,361 4,110,283
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Cash and cash equivalents at end of period ............................................ $ 4,797,095 $ 2,527,532
=========== ===========
Supplemental Disclosures:
Income tax payments ............................................................ $ 1,125,000 $ 1,612,000
=========== ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 5
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2001
(UNAUDITED)
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to 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, 2001.
2. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of
normal recurring accruals) necessary to present fairly the consolidated
financial position, the results of operations, and 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.
4. The condensed consolidated financial statements include the accounts of
TSR, Inc. and its majority-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. Minority
interest represents a minority member's share of the net equity of a
majority owned subsidiary.
5 The Company's contract computer programming services are generally provided
under time and materials agreements with customers. Accordingly, the
Company recognizes such revenues as services are provided. Advances from
customers represent amounts received from customers prior to the Company's
provision of the related services. Such amounts are expected to be settled
within the next year.
Effective March 1, 2001, the Company adopted Emerging Issues Task Force
Issue No. 99-19, "Reporting Revenue Gross as a Principal Versus Net as an
Agent." Accordingly, prior year's revenues and cost of sales have been
revised to conform to the fiscal 2002 presentation.
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, 2001:
Cash in banks ............................. $ 501,587
Money Market Funds......................... 2,309,048
United States Treasury Bills............... 1,986,460
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$4,797,095
==========
7. Marketable securities consists of United States Treasury Bills and equity
securities. Treasury bills with maturities at acquisition in excess of 90
days are classified as held to maturity investments 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 amortized cost, gross unrealized holding
gains, gross unrealized holding losses and fair value for marketable
securities by major security type at November 30, 2001 are as follows:
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
United States Treasury Bills ................. $ 5,911,805 -- -- 5,911,805
Equity Securities ............................ 28,287 9,261 (4,030) 33,518
----------- ----------- ----------- -----------
$ 5,940,092 $ 9,261 $ (4,030) $ 5,945,323
=========== =========== =========== ===========
8. Options covering 190,000 shares of common stock have been omitted from the
calculations of diluted net income per common share for the three and six
month periods ended November 30, 2000 and 2001 respectively, as their
effect would have been antidilutive.
Page 6
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOVEMBER 30, 2001
(UNAUDITED)
9. During the six months ended November 30, 2000, the Company repurchased
226,800 shares of its common stock at a cost of $1,242,668. There were no
repurchases transacted in the six months ended November 30, 2001. To date,
the Company has repurchased a total of 1,660,314 shares at a cost of
$12,031,301.
10. In August 2001, the Company capitalized a newly formed subsidiary with
$4,000 and simultaneously sold a 20% interest to a third party for $1,000.
On August 14, 2001, this subsidiary acquired substantially all of the
assets and assumed certain liabilities of a computer consulting firm for
cash of $286,500 (including cash acquired of $11,936). In accordance with
SFAS No. 141, this transaction is being accounted for as a purchase
business combination. Accordingly, the purchase price has been allocated to
the assets acquired and liabilities assumed based on their estimated fair
value, summarized as follows:
Cash ..................................... $ 11,936
Other current assets ..................... 303,520
Equipment ................................ 17,016
Acquired client relationships ........... 171,608
Current liabilities ..................... (217,580)
---------
$ 286,500
=========
In connection with the acquisition, the Company acquired certain
contractual client relationships. The related intangible asset is being
amortized over a three-year period, reflecting the estimated average life
of the underlying client relationships.
The results of operations of the acquired business have been included in
the Company's consolidated financial statements from the date of
acquisition. Had the acquisition been completed as of June 1, 2001, pro
forma consolidated revenues, net income and net income per common share
would have been $33,236,000, $1,635,000, and $0.37, respectively, for the
six months ended November 30, 2001.
11. In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible
Assets" (SFAS No. 142)", which is effective for fiscal years beginning
after June 15, 2001. SFAS No. 142 establishes accounting and reporting
standards for goodwill and intangible assets. Under SFAS No. 142,
amortization of goodwill will be terminated. However, goodwill will be
subject to periodic assessments for impairment by applying a
fair-value-based test. Intangible assets must be separately recognized and
amortized over their useful lives. The Company does not expect the adoption
of SFAS No. 142 (effective, June 1, 2002) to have any impact on its
consolidated financial statements.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment of Disposal of Long-Lived Assets (SFAS No. 144), which will
become effective for the Company on June 1, 2002. As applicable to the
Company, SFAS No. 144 replaces SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and
provides guidelines on how long-lived assets should be evaluated for
impairment and establishes criteria for when long-lived assets are held for
sale, and prescribes the accounting for long-lived assets that will be
disposed of other than by sale. Unlike SFAS No. 121, an impairment
assessment under SFAS No. 144 will never result in a write-down of
goodwill. Rather goodwill will be evaluated for impairment under SFAS No.
142, Goodwill and Other Intangible Assets. The Company does not expect the
adoption of SFAS No. 144 to have a material impact on its consolidated
financial statements, because the impairment assessment under SFAS No. 144
is largely unchanged from SFAS No. 121.
Page 7
PART I. FINANCIAL INFORMATION
Item 2.
TSR, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and the notes to such financial
statements.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
information derived from the Company's condensed consolidated statements of
earnings. There can be no assurance that trends in operating results will
continue in the future:
Three months ended November 30, 2001 compared with three months ended
November 30, 2000
3
Months
Ended
November 30,
(Dollar amounts in Thousands)
---------------------------------
2001 2000
--------------- ----------------
% of % of
Amount Revenues Amount Revenues
------- -------- ------ --------
Revenues ........................................... $15,335 100.0 $21,047 100.0
Cost of Sales ...................................... 11,971 78.1 16,420 78.0
------- ----- ------- -----
Gross Profit ....................................... 3,364 21.9 4,627 22.0
Selling, General, and Administrative Expenses ...... 2,187 14.2 2,828 13.4
------- ----- ------- -----
Income from Operations ............................. 1,177 7.7 1,799 8.6
Other Income ....................................... 127 0.8 107 0.5
------- ----- ------- -----
Income Before Income Taxes ......................... 1,304 8.5 1,906 9.1
Provision for Income Taxes ......................... 541 3.5 830 4.0
------- ----- ------- -----
Net Income ......................................... $ 763 5.0 $ 1,076 5.1
======= ===== ======= =====
REVENUES
Revenues consist primarily of revenues from computer programming consulting
services. Revenues for the quarter ended November 30, 2001 decreased $5,712,000
or 27.1% from the comparable period in fiscal 2001. This decrease resulted from
an overall decrease in the number of programmers on billing with clients from
approximately 520 at November 30, 2000 to approximately 370 at November 30,
2001. The continuing weak economic environment has significantly reduced the IT
spending levels of many of our major customers, limiting opportunities to place
new consultants on billing. Additionally, while thankfully none of our
consultants were physically harmed in the World Trade Center tragedy, many of
our consultants working in the financial district were displaced for several
weeks, which has negatively impacted revenues and net income this quarter.
The trend of reduced IT spending has continued into the new calendar year. The
year end budget and planning process at many of our clients normally results in
projects ending at year end, resulting in a reduction in programmers on billing.
In prior years, much of this effect was offset by consultants starting new
projects. This year, however, new starts were down significantly as a result of
the economic condition referred to above, resulting in the number of consultants
on billing as of January 1, 2002 being reduced to approximately 330.
Page 8
The Company's revenues from programmers on billing have also been affected by
discounts required by major customers as a condition to remaining on their
approved vendor lists, such as discounts for prompt payment and volume
discounts. In addition, 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 and 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 do business. These changes have reduced the Company's profit
margins.
COST OF SALES
Cost of sales for the quarter ended November 30, 2001, decreased $4,449,000 or
27.1% to $11,971,000 from $16,420,000 in the prior year period, primarily due to
the reduced revenues discussed above. Cost of sales as a percentage of revenues
increased from 78.0% in the quarter ended November 30, 2000 to 78.1% in the
quarter ended November 30, 2001. This increase is primarily attributable to
customers requiring rate reductions and discounts.
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 $641,000 or 22.7%
from $2,828,000 in the quarter ended November 30, 2000 to $2,187,000 in the
quarter ended November 30, 2001. This decrease was primarily attributable to
lower headcount in our recruiting and administrative staff.
OTHER INCOME
Other income resulted primarily from interest and dividend income, which
increased by $16,000 to $123,000 due to a higher average on investable funds in
the quarter, ended November 30, 2001. Additionally, the Company also had a net
unrealized gain of $3,000 in the quarter ended November 30, 2001 versus a gain
of $1,000 in the quarter ended November 30, 2000 from marketable securities due
to mark to market adjustments of its trading securities equity portfolio. The
balance of $1,000 of other income in the current quarter resulted from the
recognition of the minority interest in the operating losses of a subsidiary.
INCOME TAXES
The effective income tax rate of 41.5% for the quarter ended November 30, 2001
decreased from a rate of 43.5% in the quarter ended November 30, 2000 due to a
benefit of $22,000 recorded in the current quarter for state and local deferred
income tax assets.
Page 9
Six months ended November 30, 2001 compared with six months ended November
30, 2000.
6 Months Ended
November 30,
(Dollar amounts in Thousands)
---------------------------------
2001 2000
---------------- ---------------
% of % of
Amount Revenues Amount Revenues
------ -------- ------- --------
Revenues ........................................... $32,753 100.0 $40,788 100.0
Cost of Sales ...................................... 25,532 78.0 31,655 77.6
------- ----- ------- -----
Gross Profit ....................................... 7,221 22.0 9,133 22.4
Selling, General, and Administrative Expenses ...... 4,592 14.0 5,603 13.7
------- ----- ------- -----
Income from Operations ............................. 2,629 8.0 3,530 8.7
Other Income ....................................... 200 0.6 250 0.6
------- ----- ------- -----
Income Before Income Taxes ......................... 2,829 8.6 3,780 9.3
Provision for Income Taxes ......................... 1,205 3.7 1,646 4.0
------- ----- ------- -----
Net Income ......................................... $ 1,624 4.9 $ 2,134 5.3
======= ===== ======= =====
REVENUES
Revenues consist primarily of revenues from computer programming consulting
services. Revenues for the six months ended November 30, 2001 decreased
$8,035,000 or 19.7% from the comparable period in fiscal 2001. This decrease
resulted from an overall decrease in the number of programmers on billing with
clients from approximately 520 at November 30, 2000 to approximately 370 at
November 30, 2001. The continuing weak economic environment has significantly
reduced the IT spending levels of many of our major customers, limiting
opportunities to place new consultants on billing. Additionally, while
thankfully none of our consultants were physically harmed in the World Trade
Center tragedy, many of our consultants working in the financial district were
displaced for several weeks, which has negatively impacted revenues and net
income this period.
The trend of reduced IT spending has continued into the new calendar year. The
year end budget and planning process at many of our clients normally results in
projects ending at year end, resulting in a reduction in programmers on billing.
In prior years, much of this effect was offset by consultants starting new
projects. This year, however, new starts were down significantly as a result of
the economic condition referred to above, resulting in the number of consultants
on billing as of January 1, 2002 being reduced to approximately 330.
The Company's revenues from programmers on billing have also been affected by
discounts required by major customers as a condition to remaining on their
approved vendor lists, such as discounts for prompt payment and volume
discounts. In addition, 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 and 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 do business. These changes have reduced the Company's profit
margins.
Page 10
COST OF SALES
Cost of sales for the six months ended November 30, 2001, decreased $6,123,000
or 19.3% to $25,560,000 from $31,655,000 in the prior year period, primarily due
to the reduced revenues discussed above. Cost of sales as a percentage of
revenues increased from 77.6% in the six months ended November 30, 2000 to 78.0%
in the six months ended November 30, 2001. This increase is primarily
attributable to customers requiring rate reductions and discounts.
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 $1,011,000 or 18.0%
from $5,603,000 in the six months ended November 30, 2000 to $4,592,000 in the
six months ended November 30, 2001. This decrease was primarily attributable to
lower headcount in our recruiting and administrative staff.
OTHER INCOME
Other income resulted primarily from interest and dividend income, which
decreased by $9,000 to $198,000 due to lower interest rates on investable funds
in the six months, ended November 30, 2001. Additionally, the Company also had a
net unrealized gain of $43,000 in the six months ended November 30, 2000 versus
a gain of $1,000 in the six months ended November 30, 2001 from marketable
securities due to mark to market adjustments of its trading securities equity
portfolio. The balance of $1,000 of other income in the current period resulted
from the recognition of the minority interest in the operating losses of a
subsidiary.
INCOME TAXES
The effective income tax rate of 42.6% for the six months ended November 30,
2001 decreased from a rate of 43.5% in the six months ended November 30, 2000
due to a benefit of $22,000 recorded in the current period for state and local
deferred income tax assets.
Page 11
LIQUIDITY AND CAPITAL RESOURCES
Although the Company's operating results could be negatively impacted by a
continuing decrease in demand for the Company's services, 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, 2001, the Company had working capital of $19,415,000 and cash
and cash equivalents of $4,797,000 as compared to working capital of $17,810,000
and cash and cash equivalents of $6,208,000 at May 31, 2001. Working capital
increased primarily due to the Company's net income of $1,624,000 in the six
months ended November 30, 2001.
Net cash provided by operating activities amounted to $373,000 for the six
months ended November 30, 2001, compared to net cash used in operating
activities of $997,000 for the six months ended November 30, 2000. The
improvement in cash provided by operating activities primarily resulted from
improved collections of receivables as compared to the prior year period,
partially offset by a decrease in net income. The comparative improvement in
collections occurred because of temporary slowness in collections due to system
changes at several customers in the prior year six months.
Net cash used in investing activities amounted to $1,785,000 for the six months
ended November 30, 2001, compared to net cash provided by investing activities
of $657,000 for the six months ended November 30, 2000. The decrease in net cash
flows from investing activities primarily resulted from purchases of marketable
securities in excess of sales and proceeds from maturities of marketable
securities compared to the prior year period and the purchase of the net assets
of an acquired business in August 2001.
Cash provided by financing activities resulted from the sale of a minority
interest in a subsidiary for $1,000 during the six months ended November 30,
2001. Cash used in financing activities for the six months ended November 30,
2000 consisted of purchases of treasury stock amounting to $1,243,000.
The Company's capital resource commitments at November 30, 2001 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, 2001. The
Company has available a revolving line of credit of $5,000,000 with a major
money center bank. As of November 30, 2001, no amounts were outstanding under
this line of credit.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets"
(SFAS No. 142)", which is effective for fiscal years beginning after June 15,
2001. SFAS No. 142 establishes accounting and reporting standards for goodwill
and intangible assets. Under SFAS No. 142, amortization of goodwill will be
terminated. However, goodwill will be subject to periodic assessments for
impairment by applying a fair-value-based test. Intangible assets must be
separately recognized and amortized over their useful lives. The Company does
not expect the adoption of SFAS No. 142 (effective, June 1, 2002) to have any
impact on its consolidated financial statements.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment of
Disposal of Long-Lived Assets (SFAS No. 144), which will become effective for
the Company on June 1, 2002. As applicable to the Company, SFAS No. 144 replaces
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and provides guidelines on how long-lived
assets should be evaluated for impairment and establishes criteria for when
long-lived assets are held for sale, and prescribes the accounting for
long-lived assets that will be disposed of other than by sale. Unlike SFAS No.
121, an impairment assessment under SFAS No. 144 will never result in a
write-down of goodwill. Rather goodwill will be evaluated for impairment under
SFAS No. 142, Goodwill and Other Intangible Assets. The Company does not expect
the adoption of SFAS No. 144 to have a material impact on its consolidated
financial statements, because the impairment assessment under SFAS No. 144 is
largely unchanged from SFAS No. 121.
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FORWARD-LOOKING STATEMENTS
Certain statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations, including statements concerning
the Company's future prospects and the Company's future cash flow requirements
are forward looking statements, as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projections
in the forward looking statements which statements involve risks and
uncertainties, including but not limited to the following: risks relating to the
competitive nature of the markets for computer programming consulting services,
the effect of current economic conditions on IT budgets, the concentration of
the Company's business with certain customers and uncertainty as to the
Company's ability to bring in new customers.
TSR, INC. AND SUBSIDIARIES
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's earnings and cash flows are subject to fluctuations due to (i)
changes in interest rates primarily affecting its income from the investment of
available cash balances in money market funds and (ii) changes in market values
of its investments in trading equity securities. Under its current policies, the
Company does not use interest rate derivative instruments to manage exposure to
interest rate changes. The Company's present exposure to changes in the market
value of its investments in equity securities is not significant.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K
(a). Reports on Form 8K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TSR, Inc.
--------------------------------------
(Registrant)
Date: January 8, 2002 /s/ J.F. HUGHES
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J.F Hughes, Chairman, President and Treasurer
Date: January 8, 2002 /s/ JOHN G. SHARKEY
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John G. Sharkey, Vice President Finance
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