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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, 2005
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
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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)
Registrant's telephone number: 631-231-0333
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Securities registered pursuant to Section 12(b) of the Exchange Act: None
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(Title of Class)
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $0.01 per share
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(Title of Class)
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]
Page 1
Indicated by check mark whether the Registrant is an accelerated filer (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 $6.85 at
November 30, 2004 was $18,186,000.
The number of shares of the Registrant's common stock outstanding as of July 31,
2005 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 2005 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 and state and local government agencies with significant technology
budgets. In the year ended May 31, 2005, the Company provided IT staffing
services to approximately 82 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
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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.
Beginning in May 2005, the Company's largest customer, Procurestaff, Ltd (end
client AT&T), instituted a program under which the Company may only bill AT&T
for services on a cost plus basis, with low allowances for the mark-ups. This
change reduces the amount the Company can bill AT&T for each consultant. It is
expected that this change will significantly reduce revenues and gross profit
from this client.
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 revenues. There can be no assurance that
this trend will not continue to adversely impact the Company's IT staffing
revenues.
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 and is not currently hiring new account
executives and technical recruiters and has not replaced account executives and
technical recruiters who have left the Company. At these offices, as of May 31,
2005, the Company employed 12 persons who are responsible for recruiting
technical personnel and 9 persons who are account executives. As of May 31, 2004
the Company had employed 10 technical personnel recruiters and 13 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 82 clients during the year
ended May 31, 2005 as compared to 95 in the prior fiscal year. The Company has
historically derived a significant percentage of its total revenues from a
relatively small number of clients. In the fiscal year ended May 31, 2005, the
Company had two clients which constituted more than 10% of consolidated revenues
(Procurestaff Ltd., 22.2% and NYC Department of Education, 13.5%). Procurestaff
Ltd. is a vendor management services provider. The majority of the revenue
generated from Procurestaff Ltd. was from AT&T as the end client. Additionally,
the Company's top ten clients accounted for 76% of consolidated revenues in
fiscal 2005 and 73% in fiscal 2004. 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.
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
revenues 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 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 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 tries
to keep costs down for the end client and receives a 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.
PROFESSIONAL STAFF AND RECRUITMENT
The Company maintains a database of over 90,000 technical personnel with a wide
range of skills. The Company uses a sophisticated proprietary computer system to
match a potential employee's skills and experience with client requirements. The
Company periodically contacts personnel in 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 on the Internet, publishing weekly advertisements in local
newspapers and attending job fairs on a periodic basis. The Company devotes
significant resources to recruiting technical personnel, maintaining 12
recruiters. 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.
Page 4
Other Services
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The Company is in the process of developing a new service, "Transformer", aimed
at companies with large investments in older applications known as legacy
systems. This service will use an automated process to move these legacy systems
from large mainframe computers, which are expensive to operate and maintain, to
lower cost computer environments. The Company has begun to market the service to
potential customers. The first transformation project for a data services
provider in the brokerage industry was terminated due to an inability to
automate a large portion of the work required to transform the application from
the procedural language in which it was written (FORTRAN) to an object-oriented
representation (C++). The Company now intends to focus its efforts on
transformation of legacy data files to relational databases and replatforming of
procedural languages, for which the Company's suite of proprietary software is
better suited. The Company is evaluating this new focus to determine its
potential to generate revenues in the future. The Company cannot predict whether
it will be successful in completing the development and marketing of this
service or whether it will realize significant revenues from this service
offering.
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
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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 June 30, 2005, the Company employs 280 people including its 3 executive
officers. Of such employees 9 are engaged in sales, 12 are recruiters for
programmers, 244 are technical and programming consultants, and 12 are in
administration and clerical functions. None of the Company's employees belong to
unions.
Item 2. Properties.
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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 August, 2007) and Edison, New
Jersey (lease expires August, 2008), with aggregate monthly rentals of
approximately $20,000.
The Company believes the present locations are adequate for its current needs as
well as for the future expansion of its existing business.
Item 3. Legal Proceedings.
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There are no material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
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Not Applicable
Page 5
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
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The Company's shares of Common Stock trade on the NASDAQ National Market System
under the symbol TSRI. The following are the high and low sales prices for each
quarter during the fiscal years ended May 31, 2005 and 2004:
JUNE 1, 2004 - MAY 31, 2005
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
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High Sales Price................ 7.35 7.12 10.49 8.09
Low Sales Price................. 5.48 5.92 6.55 5.12
JUNE 1, 2003 - MAY 31, 2004
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
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High Sales Price................ 10.50 8.14 8.29 8.00
Low Sales Price................. 5.84 6.25 6.51 6.10
There were 150 holders of record of the Company's Common Stock as of July 31,
2005. Additionally, the Company estimates that there were approximately 1,200
beneficial holders as of that date. On June 23, 2003, the Company declared a
special, large nonrecurring dividend of $2.00 per share payable on July 28, 2003
to holders of record as of July 11, 2003. Additionally, the Company declared
quarterly dividends of $0.15 during the fiscal years ended May 31, 2004 and
2005. The Company has not yet determined its dividend policy for fiscal 2006.
While the Company expects to continue paying regular quarterly dividends, it may
be necessary to adjust the dividend rate to reflect the impact on earnings of
the previously disclosed rate reductions at the Company's largest client. There
can be no assurance that the Company will continue to pay dividends.
Securities authorized for issuance under equity compensation plans.
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The following table provides information as of May 31, 2005 with respect to
compensation plans (including individual compensation arrangements) under with
equity securities of the Company are authorized for issuances:
Equity Compensation Plan Information
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Number of securities to be Weighted-average exercise Number of securities remaining
issued upon exercise of price of outstanding options, available for future issuance under
outstanding options, warrants warrants and rights equity compensation plans (excluding
and rights securities reflected in column (a))
Plan Category (a) (b) (c)
- ----------------------------- ------------------------------ ------------------------------ --------------------------------------
Equity compensation Plans
approved by security holders. 10,000 $5.53 549,950
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Equity compensation
Plans not approved
by security holders 0 0 0
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Total 10,000 $5.53 549,950
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Page 6
Item 6. Selected Financial Data.
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(Amounts in Thousands, Except Per Share Data)
MAY 31, May 31, May 31, May 31, May 31,
2005 2004 2003 2002 2001
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Revenues ............................................................ $51,444 $51,725 $52,443 $59,455 $78,951
Income From Operations .............................................. 3,635 3,696 3,975 4,424 6,294
Net Income .......................................................... 2,145 2,124 2,362 2,708 3,858
Basic and Diluted Net Income Per Common Share ....................... 0.47 0.47 0.53 0.61 0.86
Working Capital ..................................................... 14,391 14,976 23,028 20,518 17,810
Total Assets ........................................................ 18,531 19,203 27,852 25,597 23,284
Stockholders' Equity ................................................ 14,589 15,192 23,258 20,896 18,187
Book Value Per Common Share ......................................... 3.19 3.33 5.26 4.73 4.12
Unaudited Quarterly Financial Data
(Amounts in Thousands, except Per Share Data)
The following is a summary of unaudited quarterly operating results for the
fiscal years ended May 31, 2005 and 2004.
Fiscal 2005
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First Second Third Fourth
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Revenues ............................................ $13,381 $13,138 $12,433 $12,492
Gross Profit ........................................ 2,927 2,907 2,591 2,720
Net Income .......................................... 599 575 452 519
Basic and Diluted Net Income
per Common Share ......................... $ 0.13 $ 0.13 $ 0.10 $ 0.11
Fiscal 2004
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First Second Third Fourth
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Revenues ............................................ $12,737 $12,997 $12,571 $13,421
Gross Profit ........................................ 2,864 2,981 2,667 2,953
Net Income .......................................... 504 638 436 546
Basic and Diluted Net Income
per Common Share ......................... $ 0.11 $ 0.14 $ 0.10 $ 0.12
Page 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results
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of Operations.
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The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes thereto presented
elsewhere in this report.
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 historical trends in operating results will
continue in the future:
YEAR ENDED MAY 31,
(DOLLAR AMOUNTS IN THOUSANDS)
2005 2004 2003
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% OF % of % of
AMOUNT REVENUE Amount Revenue Amount Revenue
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Revenues .................................... $51,444 100.0 $51,725 100.0 $52,443 100.0
Cost of Sales ............................... 40,299 78.3 40,261 77.8 41,019 78.2
------- ----- ------- ----- ------- -----
Gross Profit ................................ 11,145 21.7 11,464 22.2 11,424 21.8
Selling, General, and Administrative Expenses 7, 510 14.6 7,768 15.0 7,450 14.2
------- ----- ------- ----- ------- -----
Income from Operations ...................... 3,635 7.1 3,696 7.2 3,974 7.6
Other Income ................................ 111 0.2 63 0.1 182 0.3
------- ----- ------- ----- ------- -----
Income Before Income Taxes .................. 3,746 7.3 3,759 7.3 4,156 7.9
Provision for Income Taxes .................. 1,601 3.1 1,635 3.2 1,794 3.4
------- ----- ------- ----- ------- -----
Net Income .................................. $ 2,145 4.2 $ 2,124 4.1 $ 2,362 4.5
======= ===== ======= ===== ======= =====
Revenues
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Revenues consist primarily of revenues from computer programming consulting
services. Revenues for the fiscal year ended May 31, 2005 decreased $281,000 or
0.5% from fiscal 2004. Despite advances in the economic environment, IT spending
levels continue to be reduced at many of our major customers, limiting
opportunities to place new consultants on billing. The reduced spending levels
have also decreased demand for placements, resulting in an overall decrease in
the rates charged for computer programming services. Revenues have 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 average number of consultants on billing also decreased from approximately
383 for the year ended May 31, 2004 to 376 for the year ended May 31, 2005.
During the fiscal year, the Company experienced periods of both increasing and
decreasing numbers of consultants on billing, with the decrease coming in the
second half of the fiscal year.
The Company's revenues from programmers on billing continue to be 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 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 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 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 tries to keep costs down for the
end client and receives a fee which is deducted from the payment to the Company.
The Company is unable to predict the long-term effects of these changes.
Revenues for fiscal 2004 decreased $718,000 from fiscal 2003. The economic
environment decreased demand for placements, resulting in an overall decrease in
the rates charged for computer programming services. The trend of an increasing
number of customers using vendor management systems also had a negative impact
on revenues.
Beginning in May 2005, the Company's largest customer, Procurestaff, Ltd (end
client A&T), instituted a program under which the Company may only bill AT&T for
services on a cost plus basis, with low allowances for the mark-ups. This change
reduces the amount the Company can bill AT&T for each consultant. It is expected
that this change will significantly reduce revenues and gross profit from this
client.
Page 8
Cost of Sales
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Cost of sales increased by $38,000, in fiscal 2005 from fiscal 2004. Cost of
sales as a percentage of revenues increased to 78.3% in fiscal 2005 from 77.8%
in fiscal 2004. These increases are primarily attributed to utilizing a higher
percentage of consultants as direct employees of the Company rather than
employees of subcontractors and continued competitive market pressures on rates
and discounts.
Fiscal 2004 cost of sales decreased $758,000, or 1.8%, compared to fiscal 2003.
The decrease in costs resulted primarily from the decrease in amounts paid to
technical personnel resulting primarily from the decrease in contract computer
programming services revenues and from decreases in amounts paid to programmers.
Selling, General and Administrative Expenses
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Selling, general and administrative expenses consist primarily of expenses
relating to account executives, technical recruiters, facilities costs,
management and corporate overhead. These expenses decreased $258,000, or 3.3%,
from $7,768,000 in fiscal 2004 to $7,510,000 in fiscal 2005. This decrease was
primarily attributed to decreased legal, selling, technical recruiting, and
amortization expenses of $254,000, $144,000, $62,000 and $50,000 respectively.
The decrease in these expenses was offset to some extent by approximately
$300,000 of expenses incurred in establishing the Company's new "Transformer"
service offering. See Item 1. Business.
Selling, general and administrative expenses increased $318,000 or 4.3% from
$7,450,000 in fiscal 2003 to $7,768,000 in fiscal 2004. This increase was
primarily attributed to increased legal and technical recruiting expenses of
$170,000 and $127,000, respectively.
Other Income
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Fiscal 2005 other income resulted primarily from interest and dividend income of
$178,000, which increased from the level realized in 2004 due to higher interest
rates. The Company also had a realized loss of $4,000 from the sale of
marketable securities due to a merger and an unrealized gain of $3,000 from
marketable securities due to mark to marketable adjustments of its equity
portfolio.
Fiscal 2004 other income resulted primarily from interest and dividend income of
$120,000, which decreased from the level realized in 2003 due to lower
investable balances and lower rates. The Company also had a net gain of $9,000
from marketable securities due to mark to market adjustments of its equity
portfolio. Other income also decreased due to an increase in minority interest
allocation of operating profits of the Company's majority owned subsidiary.
Income Taxes
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The effective income tax rate decreased to 42.7% in fiscal 2005 from 43.5% in
fiscal 2004 because of lower state and local taxes.
The effective income tax rate increased to 43.5% in fiscal 2004 from 43.2% in
fiscal 2003 because of higher state and local taxes.
Page 9
Liquidity, Capital Resources and Changes in Financial Condition
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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, 2005, the Company had working capital of $14,391,000 and cash and
cash equivalents of $2,571,000 as compared to working capital of $14,976,000 and
cash and cash equivalents of $2,269,000 at May 31, 2004. The Company's working
capital also included $7,908,000 and $6,499,000 of marketable securities at May
31, 2005 and 2004, respectively. The Company declared dividends at the rate of
$0.15 per quarter for its 2005 fiscal year. This amounted to $2,741,000 for
dividends in fiscal 2005. The dividends paid during the Company's 2005 fiscal
year exceeded the Company's net income for its 2005 fiscal year by approximately
$600,000. The Company had sufficient liquidity from its cash and cash
equivalents to make up for this shortfall.
Net cash flow of $4,562,000 was provided by operations during fiscal 2005 as
compared to $1,132,000 of net cash flow from in operations in fiscal 2004. The
cash flow from operations for fiscal 2005 primarily resulted from net income of
$2,145,000 and a reduction in accounts receivable of $2,395,000. The decrease in
accounts receivable at May 31, 2005, is attributable primarily to improved
collections from one major account which account carried higher balances at the
previous year end due to delayed payments.
Net cash used in investing activities amounted to $1,435,000 for fiscal 2005,
compared to $6,437,000 in net cash provided for fiscal 2004. The net cash flows
used in investing activities in fiscal 2005 primarily resulted from the purchase
of additional marketable securities. The net cash flows provided by investing
activities in fiscal 2004 primarily resulted from the proceeds of maturities of
marketable securities in excess of purchase of marketable securities.
Cash used in financing activities during the fiscal year ended May 31, 2005
resulted from cash dividends paid of $2,741,000 and a distribution of $83,000 to
the minority interest. Cash used in financing activities during the fiscal year
ended May 31, 2004 resulted primarily from cash dividends paid of $11,136,000.
The Company's capital resource commitments at May 31, 2005 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 2005. The Company has available a
revolving line of credit of $5,000,000 with a major money center bank through
October 6, 2005. As of May 31, 2005, no amounts were outstanding under this line
of credit.
Tabular Disclosure of Contractual Obligations
---------------------------------------------
Payments Due By Period
- --------------------------------------------------------------------------------------------------------------------
Contractual Obligations Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years
----------------------- ----- ---------------- --------- --------- -----------------
Long-Term Debt...................... - - - - -
Capital Lease Obligations........... - - - - -
Operating Leases.................... 1,097,000 329,000 545,000 184,000 39,000
Purchase Obligations................ - - - - -
Employment Agreements............... 1,443,000 751,000 692,000 - -
Other Long-Term Liabilities
Reflected on the Registrant's
Balance Sheet under GAAP............ - - - - -
---------- ---------- ---------- --------- --------
Total............................... $2,540,000 $1,080,000 $1,237,000 $ 184,000 $ 39,000
========== ========== ========== ========= ========
Page 10
Impact of New Accounting Standards
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In December 2004, the FASB issued a revision of SFAS No. 123, "Statement of
Financial Accounting Standards No. 123 (revised 2004)," which requires that the
cost resulting from all share based payment transactions be recognized in the
financial statements. This Statement 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 payment transactions with employees except for equity instruments held by
employee share ownership plans. This Statement is effective as of the beginning
of the first annual reporting period that begins after June 15, 2005. The
Company does not expect the adoption of the revised SFAS No. 123 to have a
material impact on its consolidated financial statements.
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 upon our historical experience 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 could have a material
adverse effect on the collectibility of our accounts receivable and our future
operating results.
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 11
Forward-Looking Statements; Factors that Affect Future Results
- --------------------------------------------------------------
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, and Ernest Bago, the President of TSR's contract
computer programming services subsidiary. The Company has entered into
employment agreements with Mr. Hughes and Mr. Bago for terms expiring on May 31,
2007. 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 services of any
of these personnel could have a material adverse effect on the Company.
Dependence on Significant Relationships.
In the fiscal year, ended May 31, 2005, the Company's largest clients,
Procurestaff Ltd. and the NYC Department of Education accounted for 22.2% and
13.5% of the Company's consolidated revenues, respectively. Procurestaff is a
vendor management company and most of the revenues received from Procurestaff
relate to a single customer, AT&T. See "Rapidly Changing Industry" below. 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. The termination or
significant reduction of its business relationship with any of its significant
clients would have a material adverse effect on the Company's financial
condition and 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.
Page 12
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.
There have also 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. 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 Company cannot predict at this time what long-term effect these
changes will have on the Company's business and results of operations.
Effect of Fluctuations in Economic Conditions
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. The Company attributes a
significant portion of its decline in revenues to customers reducing their
spending on IT projects as a result of the current economic environment. During
fiscal 2005, the Company experienced periods of both increasing and decreasing
numbers of consultants on billing, with the decrease coming in the second half
of fiscal 2005. The Company cannot predict when economic conditions will improve
and the demand for IT services will increase.
The current trend of companies moving technology jobs and projects offshore has
caused and could continue to cause revenues 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. There
can be no assurance that this trend will not continue to adversely impact the
Company's IT staffing revenues.
Fluctuations in Quarterly Operating Results.
The Company's revenues and operating results are subject to significant
variations from quarter to quarter. Revenues are 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 revenues 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.
Page 13
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 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 14
Item 7A. 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.
Item 8. Financial Statements.
--------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm........ 16
Consolidated Financial Statements:
Consolidated Balance Sheets as of May 31, 2005 and 2004........ 17
Consolidated Statements of Income for the
years ended May 31, 2005, 2004 and 2003................... 19
Consolidated Statements of Stockholders' Equity
for the years ended May 31, 2005, 2004 and 2003........... 20
Consolidated Statements of Cash Flows for the
years ended May 31, 2005, 2004 and 2003................... 21
Notes to Consolidated Financial Statements..................... 22
Page 15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
TSR, Inc.
Hauppauge, New York
We have audited the accompanying consolidated balance sheets of TSR, Inc. and
subsidiaries as of May 31, 2005 and 2004 and the related consolidated statements
of income, stockholders' equity, and cash flows for each of the three years in
the period ended May 31, 2005. We have also audited the financial statement
schedule for each of the three years in the period ended May 31, 2005 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 audits.
We conducted our audits 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 audits 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
audits provide a reasonable basis for 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, 2005 and 2004, and the results of their operations and
their cash flows for each of the years in the three year period ended May 31,
2005 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 11, 2005
Page 16
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 2005 AND 2004
ASSETS
2005 2004
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents (note1 (d)) ................... $ 2,571,276 $ 2,268,796
Marketable securities (note 1 (e)) ....................... 7,908,138 6,498,839
Accounts receivable:
Trade, net of allowance for doubtful accounts
of $430,000 in 2005 and 2004 (note 1(f)) .......... 7,509,188 9,904,620
Other ................................................ 69,511 29,700
------------ ------------
7,578,699 9,934,320
Prepaid expenses ......................................... 46,280 38,918
Prepaid and recoverable income taxes ..................... 15,403 15,483
Deferred income taxes (note 2) .......................... 180,000 180,000
------------ ------------
TOTAL CURRENT ASSETS ................................. 18,299,796 18,936,356
------------ ------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, AT COST:
Equipment ................................................ 247,801 446,148
Furniture and fixtures ................................... 112,196 112,196
Automobiles .............................................. 128,859 128,859
Leasehold improvements ................................... 68,379 68,379
------------ ------------
557,235 755,582
Less accumulated depreciation and amortization ........... 524,142 731,581
------------ ------------
33,093 24,001
OTHER ASSETS ................................................. 49,893 84,893
DEFERRED INCOME TAXES (NOTE 2) ............................... 148,000 143,000
ACQUIRED CLIENT RELATIONSHIPS, NET OF ACCUMULATED
AMORTIZATION OF $171,608 AND $157,308 .................... -- 14,300
------------ ------------
$ 18,530,782 $ 19,202,550
============ ============
See accompanying notes to consolidated financial statements.
(Continued)
Page 17
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
MAY 31, 2005 AND 2004
LIABILITIES AND STOCKHOLDERS' EQUITY
2005 2004
------------ ------------
CURRENT LIABILITIES:
Accounts and other payables .............................. $ 216,031 $ 144,391
Accrued and other liabilities:
Salaries, wages and commissions ...................... 1,890,620 2,002,906
Legal and professional fees .......................... 71,414 102,948
Other ................................................ 53,961 33,945
------------ ------------
2,015,995 2,139,799
Advances from customers .................................. 1,523,549 1,532,642
Income taxes payable ..................................... 152,966 143,553
------------ ------------
TOTAL CURRENT LIABILITIES ............................ 3,908,541 3,960,385
------------ ------------
MINORITY INTEREST ............................................ 33,458 50,161
COMMITMENTS AND CONTINGENCIES (NOTES 5, 6 AND 8)
STOCKHOLDERS' EQUITY (NOTES 3 AND 8):
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 ........... 62,283 62,283
Additional paid-in capital ............................... 5,071,727 5,079,027
Retained earnings ........................................ 21,486,074 22,081,995
------------ ------------
26,620,084 27,223,305
Less: Treasury stock, 1,660,314 shares, at cost ......... 12,031,301 12,031,301
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ........................... 14,588,783 15,192,004
------------ ------------
$ 18,530,782 $ 19,202,550
============ ============
See accompanying notes to consolidated financial statements.
Page 18
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MAY 31, 2005, 2004 AND 2003
2005 2004 2003
------------ ------------ ------------
REVENUES, NET ................................................ $ 51,444,681 $ 51,725,431 $ 52,443,160
COST OF SALES ................................................ 40,299,450 40,260,847 41,018,719
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ................. 7,510,112 7,768,138 7,449,831
------------ ------------ ------------
47,809,562 48,028,985 48,468,550
------------ ------------ ------------
INCOME FROM OPERATIONS ....................................... 3,635,119 3,696,446 3,974,610
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest and dividend income ............................. 178,067 120,150 234,867
Realized and unrealized gain (loss) from marketable
securities, net ...................................... (828) 9,564 (5,620)
Minority interest in subsidiary operating profits ........ (66,472) (66,903) (47,682)
------------ ------------ ------------
110,767 62,811 181,565
------------ ------------ ------------
INCOME BEFORE INCOME TAXES ................................... 3,745,886 3,759,257 4,156,175
PROVISION FOR INCOME TAXES (NOTE 2) .......................... 1,601,000 1,635,000 1,794,000
------------ ------------ ------------
NET INCOME ............................................... $ 2,144,886 $ 2,124,257 $ 2,362,175
============ ============ ============
BASIC NET INCOME PER COMMON SHARE ............................ $ 0.47 $ 0.47 $ 0.53
============ ============ ============
WEIGHTED AVERAGE NUMBER OF BASIC COMMON SHARES OUTSTANDING ... 4,568,012 4,545,762 4,418,012
============ ============ ============
DILUTED NET INCOME PER COMMON SHARE .......................... $ 0.47 $ 0.47 $ 0.53
============ ============ ============
WEIGHTED AVERAGE NUMBER OF DILUTED COMMON SHARES OUTSTANDING.. 4,569,966 4,550,939 4,418,012
============ ============ ============
See accompanying notes to consolidated financial statements.
Page 19
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 2005, 2004 AND 2003
SHARES OF ADDITIONAL TOTAL
COMMON COMMON PAID-IN RETAINED TREASURY STOCK-HOLDERS'
STOCK STOCK CAPITAL EARNINGS STOCK EQUITY
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT MAY 31, 2002 ............... 6,078,326 $ 60,783 $ 4,134,053 $ 28,731,992 $(12,031,301) $ 20,895,527
NET INCOME ............................ -- -- -- 2,362,175 -- 2,362,175
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT MAY 31, 2003 ............... 6,078,326 60,783 4,134,053 31,094,167 (12,031,301) 23,257,702
NET INCOME ............................ -- -- -- 2,124,257 -- 2,124,257
EXERCISE OF STOCK OPTIONS
INCLUDING RELATED TAX BENEFIT ......... 150,000 1,500 873,187 -- -- 874,687
SPECIAL CASH DIVIDEND PAID ............ -- -- -- (9,088,024) -- (9,088,024)
CASH DIVIDENDS PAID ................... -- -- -- (2,048,405) -- (2,048,405)
STOCK BASED COMPENSATION EXPENSE
(NOTE 1(N)) .......................... -- -- 71,787 -- -- 71,787
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT MAY 31, 2004 ............... 6,228,326 62,283 5,079,027 22,081,995 (12,031,301) 15,192,004
NET INCOME ............................ -- -- -- 2,144,886 -- 2,144,886
CASH DIVIDENDS PAID ................... -- -- -- (2,740,807) -- (2,740,807)
STOCK BASED COMPENSATION EXPENSE
(RECOVERY) (NOTE1(N)) ................. -- -- (7,300) -- -- (7,300)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT MAY 31, 2005 ............... 6,228,326 $ 62,283 $ 5,071,727 $ 21,486,074 $(12,031,301) $ 14,588,783
============ ============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
Page 20
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 2005, 2004 AND 2003
2005 2004 2003
------------ ------------ ------------
Cash flows from operating activities:
Net Income .......................................................... $ 2,144,886 $ 2,124,257 $ 2,362,175
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ................................... 30,309 80,438 114,506
Realized and unrealized loss (gain) from marketable
securities, net ............................................... 828 (9,564) 5,620
Deferred income tax benefit ..................................... (5,000) (20,000) --
Minority interest in subsidiary operating profits ............... 66,472 66,903 47,682
Stock based compensation expense (recovery) ..................... (7,300) 71,787 --
Tax benefit from stock option exercises ......................... -- 45,000 --
Changes in operating assets and liabilities:
Accounts receivable-trade ................................ 2,395,432 (666,583) 893,542
Other accounts receivable ................................ (39,811) 21,128 (1,009)
Prepaid expenses ......................................... (7,362) 939 11,069
Prepaid and recoverable income taxes ..................... 80 45,256 8,618
Other assets ............................................. 35,000 (34,089) 1,378
Accounts payable and accrued expenses .................... (52,164) (232,724) (131,526)
Advances from customers .................................. (9,093) (260,854) (21,115)
Income taxes payable ..................................... 9,413 (99,428) 7,093
------------ ------------ ------------
Net cash provided by operating activities ........................... 4,561,690 1,132,466 3,298,033
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and sales of marketable securities ..... 12,419,289 14,914,970 16,854,460
Purchases of marketable securities .............................. (13,829,416) (8,455,071) (20,867,719)
Purchases of fixed assets ....................................... (25,101) (22,281) (6,214)
------------ ------------ ------------
Net cash provided by (used in) investing activities ................. (1,435,228) 6,437,618 (4,019,473)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution to minority interest ............................... (83,175) (57,644) (9,358)
Cash dividends paid ............................................. (2,740,807) (11,136,429) --
Proceeds from exercise of stock options ......................... -- 829,687 --
------------ ------------ ------------
Net cash used in financing activities ............................... (2,823,982) (10,364,386) (9,358)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... 302,480 (2,794,302) (730,798)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .......................... 2,268,796 5,063,098 5,793,896
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................................ $ 2,571,276 $ 2,268,796 $ 5,063,098
============ ============ ============
SUPPLEMENTAL DISCLOSURE:
Income taxes paid ................................................... $ 1,597,000 $ 1,664,000 $ 1,778,000
============ ============ ============
See accompanying notes to consolidated financial statements.
Page 21
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2005, 2004 AND 2003
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS AND NATURE OF OPERATIONS
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 2005, two customers accounted for more than 10% of
the Company's revenues, constituting 22.2% and 13.5% of revenues,
respectively. In fiscal 2004, two customers accounted for more than 10% of
the Company's revenues, constituting 25.5% and 15.0% of revenues
respectively. In fiscal 2003, two customers accounted for more than 10% of
the Company's revenues, constituting 20.7% and 19.6% of revenues,
respectively. The accounts receivable associated with the Company's largest
customer was $1,360,000, $2,377,000 and $2,402,000 at May 31, 2005, 2004
and 2003, respectively. The accounts receivable associated with the
Company's second largest customer was $666,000, $2,253,000 and $1,740,000
at May 31, 2005, 2004, and 2003, 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. Accordingly, such
revenues are recognized as services are provided. Advances from customers
represent amounts received from customers prior to the Company's completion
of the related services and credit balances from overpayments.
Effective March 1, 2002, the Company adopted Emerging Issues Task Force
(EITF) Issue 01-14 "Income Statement Characterization of Reimbursements
Received for `Out-of-Pocket' Expenses Incurred." Accordingly,
reimbursements received by the Company for out-of-pocket expenses are
characterized as revenue. Prior to adoption of EITF Issue 01-14 the Company
characterized such amounts as a reduction of cost of sales.
(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,
2005 and 2004:
2005 2004
---- ----
Cash in banks ........ $ 294,237 $ 570,003
Money Market Funds ... 2,277,039 1,199,988
US Treasury Securities -- 498,805
---------- ----------
$2,571,276 $2,268,796
========== ==========
(Continued)
Page 22
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MAY 31, 2005, 2004 AND 2003
(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 are mostly less than one year), 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
---- ----- ------ -----
2005: US TREASURY SECURITIES .... $7,886,570 $ -- $ -- $7,886,570
EQUITY SECURITIES ......... 16,866 4,702 -- 21,568
---------- ------- ------- ----------
$7,903,436 $ 4,702 $ -- $7,908,138
========== ======= ======= ==========
2004: US Treasury securities .... $6,468,508 $ -- $ -- $6,468,508
Equity securities ..... 28,287 5,974 (3,930) 30,331
---------- ------- -------- ----------
$6,496,795 $ 5,974 $(3,930) $6,498,839
========== ======= ======== ==========
(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
(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. Antidilutive stock options aggregating 0,
0, and 160,000 shares and have been omitted from the calculation of diluted
net income per common share for the fiscal year ended May 31, 2005, 2004
and 2003, respectively.
(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.
(Continued)
Page 23
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MAY 31, 2005, 2004 AND 2003
(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 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 May 31, 2005.
(K) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 revenues and expenses
during the reporting period. Such estimates include, but are not limited to
provisions for doubtful accounts receivable, and assessments of the
recoverability of the Company's deferred tax assets and intangible assets.
Actual results could differ from those estimates.
(L) LONG-LIVED ASSETS
The Company reviews its long-lived assets, including intangibles, 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 2005, 2004
and 2003.
(N) STOCK OPTIONS
On July 28, 2003 the Company paid a large nonrecurring cash dividend of
$2.00 per share to shareholders of record as of July 11, 2003. The dividend
paid amounted to $9,088,024. Guidance under Emerging Issues Task Force
(EITF) 00-23, ISSUES RELATED TO THE ACCOUNTING FOR STOCK COMPENSATION UNDER
APB OPINION NO.25 AND FASB INTERPRETATION NO.44, requires modification for
outstanding stock options by adjusting the price and/or the number of
shares under a fixed stock option award as a result of a large nonrecurring
cash dividend. The Company did not adjust the terms of any outstanding
stock options and, given the circumstances, a new measurement date and
variable accounting treatment was required for its outstanding options at
the dividend payment date. The Company had 10,000 such outstanding options,
all of which were vested, as of May 31, 2005 and 2004 which are now subject
to variable accounting treatment. Accordingly, the Company recorded a
non-cash compensation charge of $71,787 for the 2004 fiscal year and a net
recovery of $7,300 for fiscal 2005 and will continue to record such
charges, or recoveries associated with the value of the stock underlying
these options through the earlier of their exercise, forfeiture or
expiration dates.
The Company has one stock-based employee compensation plan in effect. The
Company accounts for all transactions under which employees receive shares
of stock or other equity instruments in the Company based on the price of
its stock in accordance with the provisions of Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. All options
granted under the plan had an exercise price equal to the market value of
the underlying common stock, and the number of shares represented by such
options were known and fixed, on the date of grant. However, as a result of
the large nonrecurring cash dividend discussed above, the remaining
outstanding 10,000 options are now treated as variable options. The
following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of
Statement of Financial Accounting Standards (SFAS) No. 123 ACCOUNTING FOR
STOCK-BASED COMPENSATION.
Page 24
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MAY 31, 2005, 2004 AND 2003
Year Ended May 31,
------------------
2005 2004 2003
---- ---- ----
Net income:
As reported............................. $2,144,886 $2,124,257 $2,362,175
Deduct: Total stock-based employee
compensation expense determined under
fair value method for all awards, net
of minority interest and related tax
effects................................. -- -- (12,175)
Add: Stock-based employee compensation
expense (recovery) included in reported
net income, net of related tax effect... (7,300) 71,787 --
---------- ---------- ----------
Proforma net income................... $2,137,586 $2,196,044 $2,350,000
========== ========== ==========
Basic and diluted net income per share:
As reported.......................... $ 0.47 $ 0.47 $ 0.53
========== ========== ==========
Proforma SFAS 123.................... $ 0.47 $ 0.48 $ 0.53
========== ========== ==========
There were no options granted in fiscal 2005, 2004 and 2003.
(O) IMPACT OF NEW ACCOUNTING STANDARDS
In December 2004, the FASB issued a revision of SFAS No. 123, "Statement of
Financial Accounting Standards No. 123 (revised 2004)," which requires that
the cost resulting from all share based payment transactions be recognized
in the financial statements. This Statement 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. This Statement is
effective as of the beginning of the first annual reporting period that
begins after June 15, 2005. The Company does not expect the adoption of the
revised SFAS No. 123 to have a material impact on its consolidated
financial statements.
(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 receivables represent approximately 50 accounts with open balances
of which, the top 2 customers, as a percentage of revenue, consisted of 18%
and 9% of the net accounts receivable balance at May 31, 2005,
respectively.
Page 25
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MAY 31, 2005, 2004 AND 2003
(2) INCOME TAXES
A reconciliation of the provisions for income taxes computed at the federal
statutory rates for fiscal 2005, 2004, and 2003 to the reported amounts is
as follows:
2005 2004 2003
AMOUNT % Amount % Amount %
------ --- ------ --- ------ ---
Amounts at statutory federal tax rate. $1,274,000 34.0% $1,278,000 34.0% $1,413,000 34.0%
State and local taxes, net of
federal income tax effect........... 317,000 8.5 341,000 9.1 334,000 8.0
Non-deductible expenses, and other.... 10,000 0.2 16,000 0.4 47,000 1.2
---------- ---- ---------- ---- ---------- ----
$1,601,000 42.7% $1,635,000 43.5% $1,794,000 43.2%
========== ==== ========== ==== ========== ====
The components of the provision for income taxes are as follows:
Federal State Total
------- ----- -----
2005: CURRENT .............. $ 1,126,000 $ 480,000 $ 1,606,000
DEFERRED ......... (5,000) -- (5,000)
----------- ----------- -----------
$ 1,121,000 $ 480,000 $ 1,601,000
=========== =========== ===========
2004: Current .............. $ 1,139,000 $ 516,000 $ 1,655,000
Deferred ......... (20,000) -- (20,000)
----------- ----------- -----------
$ 1,119,000 $ 516,000 $ 1,635,000
=========== =========== ===========
2003: Current .............. $ 1,288,000 $ 506,000 $ 1,794,000
Deferred ......... -- -- --
----------- ----------- -----------
$ 1,288,000 $ 506,000 $ 1,794,000
=========== =========== ===========
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets at May 31, 2005 and 2004 are as
follows: 2005 2004 ---- ----
Allowance for doubtful accounts receivable ..... $180,000 $180,000
Equipment and leasehold improvement
Depreciation and amortization .......... 89,000 89,000
Acquired client relationships .................. 59,000 54,000
-------- --------
Total deferred income tax assets .... $328,000 $323,000
======== ========
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.
(Continued)
Page 26
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MAY 31, 2005, 2004 AND 2003
(3) STOCK OPTIONS
The 1997 Employee Stock Option Plan provides for the granting of options to
purchase up to 800,000 shares of the Company's common stock at prices equal
to fair market values at the grant dates. Options are exercisable as
determined on the date of the grant and expire on the fifth anniversary of
the date of grant. There are 559,950 shares of common stock which remain
reserved for issuance under the Plan.
STOCK OPTIONS OUTSTANDING
WEIGHTED
EXERCISE AVERAGE
SHARES PRICE PRICE
------ ----- -----
Outstanding at May 31, 2002........... 190,000 $ 5.53 $ 5.53
Options forfeited..................... (30,000) 5.53 5.53
-------- -------- --------
Outstanding at May 31, 2003........... 160,000 5.53 5.53
Options exercised .................... (150,000) 5.53 5.53
-------- --------
OUTSTANDING AT MAY 31, 2004 AND 2005.. 10,000 $ 5.53 $ 5.53
======== ======== ========
Exercisable at May 31, 2004 and 2005.. 10,000 $ 5.53 $ 5.53
======== ======== ========
(4) LINE OF CREDIT
The Company has an available line of credit of $5,000,000 with a major
money center bank through October 6, 2005. As of May 31, 2005, 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. The Company
intends to renew this facility on or before its current expiration.
(5) COMMITMENTS AND CONTINGENCIES
A summary of noncancellable long-term operating lease commitments for
facilities as of May 31, 2005 follows:
PERIOD AMOUNT
------ ------
Less than
1 year.............. $ 329,000
1-3 years........... 545,000
3-5 years........... 184,000
Over 5 years........ 39,000
----------
Total........... $1,097,000
Total rent expenses under all lease agreements amounted to $369,000,
$347,000 and $357,000 in fiscal 2005, 2004 and 2003.
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 financial position of the Company.
Page 27
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MAY 31, 2005, 2004 AND 2003
(6) EMPLOYMENT AGREEMENTS
In June 2004, an employment agreement was entered into with the President
of the contract computer programming services subsidiary providing for an
annual base salary and additional incentive compensation based upon a
formula which is agreed upon from time to time and is currently based on
the profitability of the Company. This agreement is for a three-year term
ending May 31, 2007 and provides for severance, in the event of
termination, of a maximum of one year's salary. In the event of a change in
control of the Corporation, the executive would be entitled to a severance
payment of $250,000 times the remaining years in the contract term if
certain profitability criteria are met.
In June 2002, an employment agreement was entered into with the Chairman of
the Board, Chief Executive Officer, President and Treasurer, which
terminates May 31, 2007. This agreement provides for an initial base salary
with annual adjustments based upon increases in the Consumer Price Index,
such increases to be no less than 3% and no more than 8% per year.
Additionally, the agreement provides for an annual discretionary bonus for
each fiscal year, the maximum to be $50,000 if pre-tax profits are less
than $1,000,000 and a minimum of 7.5% of pre-tax profit if such profits
exceed $1,000,000.
(7) UNAUDITED QUARTERLY FINANCIAL DATA
The following is a summary of unaudited quarterly operating results for the
fiscal years ended May 31, 2005 and 2004.
(Amounts in Thousands, except Per Share Data)
Fiscal 2005
-----------
First Second Third Fourth
----- ------ ----- ------
Revenues .................... $13,381 $13,138 $12,433 $12,492
Gross Profit ................ 2,927 2,907 2,591 2,720
Net Income .................. 599 575 452 519
Basic and Diluted Net Income
per Common Share .......... $ 0.13 $ 0.13 $ 0.10 $ 0.11
(Amounts in Thousands, except Per Share Data)
Fiscal 2004
-----------
First Second Third Fourth
----- ------ ----- ------
Revenues .................... $12,737 $12,997 $12,571 $13,421
Gross Profit ................ 2,864 2,981 2,667 2,953
Net Income .................. 504 638 436 546
Basic and Diluted Net Income
per Common Share .......... $ 0.11 $ 0.14 $ 0.10 $ 0.12
(8) SUBSEQUENT EVENT
On June 28, 2005, the Board of Directors of the Company announced that a
regular quarterly cash dividend of $0.15 per share will be paid on July 30,
2005 to shareholders of record as of July 16, 2005. This dividend will
amount to approximately $685,000 and will be paid from the Company's cash
and marketable securities.
Page 28
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None
Item 9A. 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 Rule 13a-15(e) under the Securities Exchange Act of
1934 (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 Rule
13a-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.
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 2005 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 2005 Annual Meeting
of Stockholders.
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 2005 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 2005 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 2005 Annual Meeting
of Stockholders.
Page 29
PART IV
Item 15. Exhibits, Financial Statements, Financial Statement Schedules, and
------------------------------------------------------------------
Reports on Form 8-K.
-------------------
(a) The following documents are filed as part of this report:
1. The financial statements as indicated in the index set forth on
page 15.
2. Financial statement schedule:
Schedule supporting consolidated financial statements: Page
----
Schedule II - Valuation and Qualifying Accounts ........ 30
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 32.
(b) Reports on Form 8-K: None
TSR, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to
Beginning Cost and Deductions/ Balance at
of Period Expense Write-Offs End of Period
Year ended May 31, 2005:
Allowance for doubtful accounts.... $ 430,000 $ -- $ -- $ 430,000
======== ======= ======== =========
Year ended May 31, 2004:
Allowance for doubtful accounts.... $ 430,000 $ -- $ -- $ 430,000
========= ======= ======== =========
Year ended May 31, 2003:
Allowance for doubtful accounts.... $ 430,000 $ -- $ -- $ 430,000
========= ======= ======== =========
Page 30
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 12, 2005
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, President, Treasurer and Director
/s/ John G. Sharkey
-----------------------------------
John G. Sharkey, Vice President, Finance, Controller and Secretary
/s/ Ernest G. Bago
-----------------------------------
Ernest G. Bago, President, TSR Consulting Services, Inc. and Director
/s/ John H. Hochuli, Jr
-----------------------------------
John H. Hochuli, Jr., Director
/s/ James J. Hill
-----------------------------------
James J. Hill, Director
/s/ Christopher Hughes
-----------------------------------
Christopher Hughes, Director
/s/ Robert A. Esernio
-----------------------------------
Robert A. Esernio, Director
/s/ Raymond A. Roel
-----------------------------------
Raymond A. Roel, Director
Dated: August 12, 2005
Page 31
TSR, INC. AND SUBSIDIARIES
EXHIBIT INDEX
FORM 10-K, MAY 31, 2005
Exhibit Sequential
----------
Number EXHIBIT Page #
------ ------
3.1 Articles of Incorporation for the Company, as amended.
Incorporated by reference to Exhibit 3.1 to the Annual
Report on Form 10-K filed by the Company for the fiscal year
ended May 31, 1998. N/A
3.2 Bylaws of the Company, as amended incorporated by reference
to Exhibit 3.2 to the Annual Report on Form 10-K filed by
the Company for the fiscal year ended May 31, 1998. N/A
10.1 Employment Agreement between TSR, Inc. and Ernest G. Bago,
dated as of June 1, 2004. Incorporated by reference to
Exhibit 10.1 to the Annual Report on Form 10-K filed by the
Corporation for the fiscal year ended May 31, 2004. N/A
10.2 1997 Employee Stock Option Plan, incorporated by reference
to Exhibit 10.2 to the annual Report on Form 10-K filed by
Company for the fiscal year ended May 31, 1997. N/A
10.3 Form of Employee Stock Option Agreement, incorporated by
reference to Exhibit 10.3 to the Annual report on Form 10-K
filed by the Company for the fiscal year ended May 31, 1997. N/A
10.4 Employment Agreement dated June 1, 2002 between the Company
and Joseph F. Hughes, incorporated by reference to Exhibit
N/A 10:04 to the Annual Report on Form 10-K filed by the
Company for the fiscal year ended May 31, 2002. N/A
10.5 Revolving Credit Agreement dated October 6, 1997 among TSR
Consulting Services, Inc., TSR, Inc., 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. N/A
10.6 Employment Agreement dated June 1, 2005 between the Company
and John G. Sharkey incorporated by reference to Exhibit
10.1 to the Report on Form 8-K filed by the Company on July
26, 2005. N/A
21 List of Subsidiaries 33
23.1 Consent of BDO Seidman, LLP 34
31.1 Certification by J.F. Hughes Pursuant to Securities Exchange
Act Rule 13a-14 35
31.2 Certification by John G. Sharkey Pursuant to Securities
Exchange Act Rule 13a-14 36
32.1 Certification of J.F. Hughes Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. 37
32.2 Certification of John G. Sharkey Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. 38
Page 32