Item 1. Business. --------
General - -------
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 - --------------------------------------
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.
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.
Other Services - --------------
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 - -----------
The technical staffing industry is highly competitive and fragmented and has low barriers to entry. The Company competes for potential clients with providers of outsourcing services, systems integrators, computer systems consultants, other providers of technical staffing services and, to a lesser extent, temporary personnel agencies. Many of the Company's competitors are significantly larger and have greater financial resources than the Company. The Company believes that the principal competitive factors in obtaining and retaining clients are accurate assessment of clients' requirements, timely assignment of technical employees with appropriate skills and the price of services. The principal competitive factors in attracting qualified technical personnel are compensation, availability, quality and variety of projects and schedule flexibility. The Company believes that many of the technical personnel included in its database may also be pursuing other employment opportunities. Therefore, the Company believes that its responsiveness to the needs of technical personnel is an important factor in the Company's ability to fill projects. Although the Company believes it competes favorably with respect to these factors, it expects competition to increase and there can be no assurance that the Company will remain competitive.
Intellectual Property Rights - ----------------------------
The Company relies primarily upon a combination of trade secret, nondisclosure and other contractual arrangements to protect its proprietary rights. The Company generally enters into confidentiality agreements with its employees, consultants, clients and potential clients and limits access to and distribution of its proprietary information. There can be no assurance that the steps taken by the Company in this regard will be adequate to deter misappropriation of its proprietary information or that the Company will be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights.
Personnel - ---------
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.
Item 2. Properties. ----------
The Company leases 8,000 square feet of space in Hauppauge, New York for a term expiring November 30, 2010, with annual rentals of approximately $70,000. This space is used as executive and administrative offices for the Company and the Company's operating subsidiary. The Company also leases sales and technical recruiting offices in New York City (lease expires 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.
Item 3. Legal Proceedings. -----------------
There are no material legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders. ---------------------------------------------------
Not Applicable
PART II
Item 5.
Item 5. Market for Common Equity and Related Stockholder Matters. --------------------------------------------------------
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 ------- ------- ------- -------
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 ------- ------- ------- -------
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. - -------------------------------------------------------------------
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
Item 6.
Item 6. Selected Financial Data. -----------------------
(Amounts in Thousands, Except Per Share Data)
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.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations. -------------
The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and the notes thereto presented elsewhere in this report.
Results of Operations - ---------------------
The following table sets forth for the periods indicated certain financial information derived from the Company's consolidated statements of earnings. There can be no assurance that historical trends in operating results will continue in the future:
Revenues - --------
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.
Cost of Sales - -------------
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 - --------------------------------------------
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 - ------------
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 - ------------
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.
Liquidity, Capital Resources and Changes in Financial Condition - ---------------------------------------------------------------
The Company expects that cash flow generated from operations together with its available cash and marketable securities and available credit facilities will be sufficient to provide the Company with adequate resources to meet its liquidity requirements for the foreseeable future.
At May 31, 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 ---------------------------------------------
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 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.
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.
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.
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.
Item 7A.
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.
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
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
TSR, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MAY 31, 2005 AND 2004
ASSETS
See accompanying notes to consolidated financial statements.
(Continued)
TSR, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, CONTINUED MAY 31, 2005 AND 2004
LIABILITIES AND STOCKHOLDERS' EQUITY
See accompanying notes to consolidated financial statements.
TSR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED MAY 31, 2005, 2004 AND 2003
See accompanying notes to consolidated financial statements.
TSR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED MAY 31, 2005, 2004 AND 2003
See accompanying notes to consolidated financial statements.
TSR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MAY 31, 2005, 2004 AND 2003
See accompanying notes to consolidated financial statements.
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)
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:
(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)
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.
TSR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED MAY 31, 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.
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:
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)
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.
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.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure --------------------
None
Item 9A.
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.
Item 9B. Other Information -----------------
None
PART III
Item 10.
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.
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.
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.
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.
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.
PART IV
Item 15.
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
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
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