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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the period ended August 31, 2008
[_] Transition report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _______ to _______
Commission File Number: 0-8656
TSR, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 13-2635899
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
400 Oser Avenue, Hauppauge, NY 11788
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(Address of principal executive offices)
631-231-0333
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(Registrant's telephone number)
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(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [_] No
Indicate by check mark whether the registrant is large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer [_] Accelerated Filer [_]
Non-Accelerated filer [_] Smaller Reporting Company [X]
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [_] Yes [X] No
SHARES OUTSTANDING
------------------
4,507,011 shares of common stock, par value $.01 per share, as of September 30,
2008
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TSR, INC. AND SUBSIDIARIES
INDEX
Page
Part I. Financial Information: Number
------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
August 31, 2008 and May 31, 2008 .............................. 3
Condensed Consolidated Statements of Income -
For the three months ended August 31, 2008 and 2007 ........... 4
Condensed Consolidated Statements of Cash Flows -
For the three months ended August 31, 2008 and 2007 ........... 5
Notes to Condensed Consolidated Financial Statements ................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................... 9
Item 4T. Controls and Procedures .............................................. 13
Part II. Other Information ............................................................. 14
Item 2(c). Unregistered Sales of Equity Securities and Use of Proceeds ........ 14
Item 6. Exhibits ............................................................. 14
Signatures ............................................................................. 14
Page 2
Part I. Financial Information
Item 1. Financial Statements
TSR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
August 31, May 31,
2008 2008
------------ ------------
ASSETS (Unaudited) (Note 1)
Current Assets:
Cash and cash equivalents $ 747,519 $ 1,588,443
Marketable securities 6,467,452 6,459,832
Accounts receivable, net of allowance for doubtful accounts of
$315,000 and $326,000 8,896,009 8,176,936
Other receivables 62,778 52,375
Prepaid expenses 57,674 53,788
Prepaid and recoverable income taxes 34,048 48,015
Deferred income taxes 131,000 135,000
------------ ------------
Total Current Assets 16,396,480 16,514,389
Marketable securities 999,648 999,648
Equipment and leasehold improvements, net of accumulated depreciation
and amortization of $401,695 and $396,963 25,620 23,285
Other assets 49,653 49,653
Deferred income taxes 53,000 55,000
------------ ------------
Total Assets $ 17,524,401 $ 17,641,975
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts and other payables $ 294,678 $ 313,157
Accrued expenses and other current liabilities 1,666,566 1,919,564
Advances from customers 1,526,170 1,589,087
Dividends payable 365,441 --
Income taxes payable 103,722 --
------------ ------------
Total Current Liabilities 3,956,577 3,821,808
------------ ------------
Minority Interest 55,886 53,533
------------ ------------
Stockholders' Equity:
Preferred stock, $1 par value, authorized 1,000,000 shares;
none issued -- --
Common stock, $.01 par value, authorized 25,000,000 shares;
issued 6,228,326 shares 62,283 62,283
Additional paid-in capital 5,071,727 5,071,727
Retained earnings 20,513,534 20,663,925
------------ ------------
25,647,544 25,797,935
Less: Treasury stock, 1,698,214 and 1,660,314 shares, at cost 12,135,606 12,031,301
------------ ------------
Total Stockholders' Equity 13,511,938 13,766,634
------------ ------------
Total Liabilities and Stockholders' Equity $ 17,524,401 $ 17,641,975
============ ============
The accompanying notes are an integral part of
these condensed consolidated financial statements.
Page 3
TSR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For The Three Months Ended August 31, 2008 and 2007
(UNAUDITED)
Three Months
Ended
August 31,
-----------------------------
2008 2007
------------ ------------
Revenue, net $ 12,149,820 $ 13,525,652
------------ ------------
Cost of sales 10,027,820 11,016,350
Selling, general and administrative expenses 1,799,646 1,798,871
------------ ------------
11,827,466 12,815,221
------------ ------------
Income from operations 322,354 710,431
Other income (expense):
Interest and dividend income 67,297 112,454
Unrealized gain (loss) on marketable securities, net (248) 2,856
Minority interest in subsidiary operating profits (9,353) (30,273)
------------ ------------
Income before income taxes 380,050 795,468
Provision for income taxes 165,000 348,000
------------ ------------
Net income $ 215,050 $ 447,468
============ ============
Basic and diluted net income per common share $ 0.05 $ 0.10
============ ============
Weighted average number of basic and diluted common shares outstanding 4,564,787 4,568,012
============ ============
The accompanying notes are an integral part of
these condensed consolidated financial statements.
Page 4
TSR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three Months Ended August 31, 2008 and 2007
(UNAUDITED)
Three Months
Ended
August 31,
-----------------------------
2008 2007
------------ ------------
Cash flows from operating activities:
Net Income $ 215,050 $ 447,468
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 4,732 7,142
Unrealized loss (gain) on marketable securities, net 248 (2,856)
Minority interest in subsidiary operating profits 9,353 30,273
Deferred income taxes 6,000 --
Changes in operating assets and liabilities:
Accounts receivable (719,073) (1,306,694)
Other receivables (10,403) 2,901
Prepaid expenses (3,886) (4,255)
Prepaid and recoverable income taxes 13,967 148,462
Accounts payable and accrued expenses (271,477) 192,385
Income taxes payable 103,722 159,153
Advances from customers (62,917) (70,650)
------------ ------------
Net cash used in operating activities (714,684) (396,671)
------------ ------------
Cash flows from investing activities:
Proceeds from maturities of marketable securities 2,466,482 2,934,269
Purchases of marketable securities (2,474,350) (2,940,850)
Purchase of fixed assets (7,067) (1,441)
------------ ------------
Net cash used in investing activities (14,935) (8,022)
------------ ------------
Cash flows from financing activities:
Purchases of treasury stock (104,305) --
Distribution to minority interest (7,000) (5,500)
------------ ------------
Net cash used in financing activities (111,305) (5,500)
------------ ------------
Net decrease in cash and cash equivalents (840,924) (410,193)
Cash and cash equivalents at beginning of period 1,588,443 1,900,264
------------ ------------
Cash and cash equivalents at end of period $ 747,519 $ 1,490,071
============ ============
Supplemental disclosures of cash flow data:
Income taxes paid $ 41,000 $ 40,000
============ ============
The accompanying notes are an integral part of
these condensed consolidated financial statements.
Page 5
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2008
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying condensed consolidated interim financial statements
include the accounts of TSR, Inc. and its subsidiaries (the "Company"). All
significant inter-company balances and transactions have been eliminated in
consolidation. These interim financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America applying to interim financial information and with the
instructions to Form 10-Q of Regulation S-X of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures
required by accounting principles generally accepted in the United States
of America and normally included in the Company's annual financial
statements have been condensed or omitted. These interim financial
statements as of and for the three months ended August 31, 2008 are
unaudited; however, in the opinion of management, such statements include
all adjustments (consisting of normal recurring accruals) necessary to
present fairly the consolidated position, results of operations and cash
flows of the Company for the periods presented. The results of operations
for the interim periods presented are not necessarily indicative of the
results that might be expected for future interim periods or for the full
year ending May 31, 2009. The balance sheet at May 31, 2008 has been
derived from the audited financial statements at that date. These interim
financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended May 31, 2008.
2. 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. The Company has had no stock options or other
common stock equivalents outstanding during any of the periods presented.
3. 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 August 31,
2008 and May 31, 2008:
August 31, May 31,
2008 2008
------------ ------------
Cash in banks $ 134,993 $ 394,987
Money market funds 612,526 1,193,456
------------ ------------
$ 747,519 $ 1,588,443
============ ============
4. Revenue Recognition
-------------------
The Company's contract computer programming services are generally provided
under time and materials agreements with customers. Revenue is recognized
in accordance with Staff Accounting Bulletin (SAB) 104, "Revenue
Recognition," when persuasive evidence of an arrangement exists, the
services have been rendered, the price is fixed or determinable, and
collectability is reasonably assured. These conditions occur when a
customer agreement is effected and the consultant performs the authorized
services. Advances from customers represent amounts received from customers
prior to the Company's provision of the related services and credit
balances from overpayments.
Reimbursements received by the Company for out-of-pocket expenses are
characterized as revenue in accordance with Emerging Issues Task Force
(EITF) Issue 01-14 "Income Statement of Characterization of Reimbursements
Received for `Out-of-Pocket' Expenses Incurred."
Page 6
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
August 31, 2008
(Unaudited)
5. Marketable Securities
---------------------
The Company accounts for its marketable securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting
for Certain Investments in Debt and Equity Securities." Accordingly, the
Company classifies its marketable securities at acquisition as either (i)
held-to-maturity, (ii) trading or (iii) available-for-sale. Based upon the
Company's intent and ability to hold its US Treasury securities to maturity
(which maturities range up to 24 months), such securities have been
classified as held-to-maturity and are carried at amortized cost, which
approximates market value. The Company's equity securities are classified
as trading securities, which are carried at fair value, as determined by
quoted market price, which is level 1 input, as established by the fair
value hierarchy under SFAS No. 157. The related unrealized gains and losses
are included in earnings. The Company's marketable securities at August 31,
2008 and May 31, 2008 are summarized as follows:
Gross Gross
August 31, 2008 Unrealized Unrealized
--------------- Amortized Holding Holding Recorded
Current Cost Gains Losses Value
--------- ------------ ------------ ------------ ------------
United States Treasury Securities $ 6,449,156 $ -- $ -- $ 6,449,156
Equity Securities 16,866 1,430 -- 18,296
------------ ------------ ------------ ------------
$ 6,466,022 $ 1,430 $ -- $ 6,467,452
============ ============ ============ ============
Long - Term
-----------
United States Treasury Securities $ 999,648 $ -- $ -- $ 999,648
============ ============ ============ ============
Gross Gross
May 31, 2008 Unrealized Unrealized
------------ Amortized Holding Holding Recorded
Current Cost Gains Losses Value
--------- ------------ ------------ ------------ ------------
United States Treasury Securities $ 6,441,288 $ -- $ -- $ 6,441,288
Equity Securities 16,866 1,678 -- 18,544
------------ ------------ ------------ ------------
$ 6,458,154 $ 1,678 $ -- $ 6,459,832
============ ============ ============ ============
Long - Term
-----------
United States Treasury Securities $ 999,648 $ -- $ -- $ 999,648
============ ============ ============ ============
Page 7
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
August 31, 2008
(Unaudited)
6. Recent Accounting Pronouncements
--------------------------------
On September 15, 2006, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). SFAS No
157 is effective for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. SFAS No. 157 provides guidance
related to estimating fair value and requires expanded disclosures. SFAS
No. 157 applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value. SFAS No. 157 does not expand the
use of fair value in any new circumstances. The adoption of SFAS No. 157
did not have a material impact on the Company's consolidated financial
statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment to FASB
Statement No. 115" ("SFAS No. 159"). SFAS No. 159 permits entities to elect
to measure many financial instruments and certain other items at fair
value. Upon adoption of SFAS No. 159, an entity may elect the fair value
option for eligible items that exist at the adoption date. Subsequent to
the initial adoption, the election of the fair value option should only be
made at initial recognition of the asset or liability or upon a
re-measurement event that gives rise to new-basis accounting. SFAS No. 159
does not affect any existing accounting literature that requires certain
assets and liabilities to be carried at fair value nor does it eliminate
disclosure requirements included in other accounting standards. SFAS No.
159 is effective for fiscal years beginning after November 15, 2007. The
adoption of SFAS No. 159 did not have a material impact on the Company's
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (R), "Business Combinations"
("SFAS 141(R)"), and SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements" ("SFAS 160"). SFAS 141 (R) requires an
acquirer to measure the identifiable assets acquired, the liabilities
assumed and any noncontrolling interest in the acquiree at their fair
values on the acquisition date, with goodwill being the excess value over
the net identifiable assets acquired. SFAS 160 clarifies that a
noncontrolling interest in a subsidiary should be reported as equity in the
consolidated financial statements. The calculation of earnings per share
will continue to be based on income amounts attributable to the parent.
SFAS 141 (R) and SFAS 160 are effective for financial statements issued for
fiscal years beginning after December 15, 2008. Early adoption is
prohibited. The Company does not expect the adoption of SFAS 141 (R) and
SFAS 160 to have a material impact on its consolidated financial
statements.
7. Dividends
---------
On August 6, 2008, the Board of Directors of the Company declared that a
regular quarterly cash dividend of $0.08 per share for the quarter ended
May 31, 2008 would be paid on September 18, 2008 to stockholders of record
as of August 27, 2008. The dividend amounted to approximately $365,000 and
was paid from the Company's cash and marketable securities.
Page 8
Part I. Financial Information
Item 2.
TSR, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and the notes to such financial
statements.
Forward-Looking Statements
--------------------------
Certain statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations, including statements concerning
the Company's future prospects and the Company's future cash flow requirements
are forward looking statements, as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projections
in the forward looking statements which statements involve risks and
uncertainties, including but not limited to the following: the impact of current
adverse conditions in the credit markets and current adverse economic conditions
on the Company's business; risks relating to the competitive nature of the
markets for contract computer programming services; the extent to which market
conditions for the Company's contract computer consulting services will continue
to adversely affect the Company's business; the concentration of the Company's
business with certain customers; uncertainty as to the Company's ability to
maintain its relations with existing customers and expand its contract computer
consulting services business; the impact of changes in the industry, such as the
use of vendor management companies in connection with the consulting procurement
process, the increase in customers moving IT operations offshore and other risks
and uncertainties set forth in the Company's filings with the Securities and
Exchange Commission. The Company is under no obligation to publicly update or
revise forward looking statements.
Results of Operations
---------------------
The following table sets forth, for the periods indicated, certain financial
information derived from the Company's condensed consolidated statements of
income. There can be no assurance that trends in operating results will continue
in the future:
Three months ended August 31, 2008 compared with three months ended August 31,
------------------------------------------------------------------------------
2007
----
Three Months Ended
August 31,
(Dollar amounts in Thousands)
2008 2007
----------------------------- -----------------------------
% of % of
Amount Revenue Amount Revenue
------------ ------------ ------------ ------------
Revenue, net $ 12,150 100.0 $ 13,526 100.0
Cost of sales 10,028 82.5 11,017 81.4
------------ ------------ ------------ ------------
Gross profit 2,122 17.5 2,509 18.6
Selling, general and administrative expenses 1,800 14.8 1,799 13.3
------------ ------------ ------------ ------------
Income from operations 322 2.7 710 5.3
Other income, net 58 0.4 85 0.6
------------ ------------ ------------ ------------
Income before income taxes 380 3.1 795 5.9
Provision for income taxes 165 1.3 348 2.6
------------ ------------ ------------ ------------
Net income $ 215 1.8 $ 447 3.3
============ ============ ============ ============
Page 9
TSR, INC. AND SUBSIDIARIES
Revenue
-------
Revenue consists primarily of revenue from computer programming consulting
services. Revenue for the quarter ended August 31, 2008 decreased $1,376,000 or
10.2% from the quarter ended August 31, 2007. The average number of consultants
on billing with customers decreased from approximately 336 for the quarter ended
August 31, 2007 to 299 for the quarter ended August 31, 2008. The decrease in
revenue resulted primarily from the continued reduction in consultants placed
with AT&T, additional reductions in consultants on billing with customers which
the Company attributes to current economic conditions and decreases in revenue
due to lower billing rates caused by discounts and other rate reductions
instituted by customers.
As a result of the merger of AT&T with SBC Communications, Inc., Procurestaff,
which had been the sole vendor management company for AT&T, is currently one of
the many vendors to the new AT&T and no longer serves as the primary vendor
manager. Due to these changes, the Company experienced a decrease in new
placements with AT&T beginning in the second quarter of fiscal 2007. This has
reduced the number of consultants on billing with AT&T from 100 at August 31,
2006 to 68 at August 31, 2007 and 35 at August 31, 2008. The Company expects
this change in relationship will continue to impact the Company's business
relationship with AT&T, resulting in fewer opportunities to place new
consultants at AT&T.
As a result of the current economic downturn and, specifically, the impact of
the adverse conditions in the credit markets on the financial services industry,
the Company expects that IT spending will continue to decrease in the short term
and that the impact is likely to be greater in the financial services industry.
These economic conditions have reduced the opportunities to place new
consultants on billing with clients. The Company derived approximately 20
percent of its revenue from banking and brokerage clients in fiscal 2008. The
Company cannot predict the extent to which these conditions will affect the
number of consultants on billing with customers.
The Company has provided services to Lehman Brothers Holdings, Inc. ("LBHI")
through its contract with Beeline.com, Inc. ("Beeline"), a vendor management
company. LBHI filed a petition under Chapter 11 of the U.S. Bankruptcy Code on
September 15, 2008. As part of the bankruptcy proceedings, the Bankruptcy Court
has approved a sale of Lehman Brothers, Inc. ("LBI"), a subsidiary of LBHI to
Barclays Capital Inc. ("Barclays"). The Beeline contract has been assumed by LBI
as part of the purchase agreement. The Company has received payment in full for
amounts due for services rendered through the date of the bankruptcy filing and
will not incur a charge against earnings as the result of the bankruptcy filing.
LBHI and its subsidiaries constituted approximately 6% of the Company's revenue
in fiscal 2008 and the Company cannot determine the impact that the bankruptcy
filing and purchase of LBI by Barclays will have on the number of consultants on
billing with LBI and its affiliates.
Cost of Sales
-------------
Cost of sales for the quarter ended August 31, 2008, decreased $989,000 or 9.0%
to $10,028,000 from $11,017,000 in the prior year period. The decrease in cost
of sales resulted primarily from the decrease in the number of consultants on
billing with clients. Cost of sales as a percentage of revenue increased from
81.4% in the quarter ended August 31, 2007 to 82.5% in the quarter ended August
31, 2008. The increase in cost of sales percentage of revenue was primarily
attributable to discount programs instituted or expanded by customers and other
customer required rate reductions. These discount programs and other billing
rate reduction initiatives decrease revenue without allowing offsetting cost
reductions.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses consist primarily of expenses
relating to account executives, technical recruiters, facilities costs,
management and corporate overhead. These expenses increased $1,000 or 0.1% from
$1,799,000 in the quarter ended August 31, 2007 to $1,800,000 in the quarter
ended August 31, 2008. This increase was primarily attributable to the amounts
paid to additional sales people offset by decreased legal and auditing expenses
and the lower commissions paid to the existing sales and recruiting personnel
due to the lower revenue. However, while selling, general and administrative
expenses only increased slightly, these expenses as a percentage of revenue
increased from 13.3% in the quarter ended August 31, 2007 to 14.8% in the
quarter ended August 31, 2008.
Page 10
TSR, INC. AND SUBSIDIARIES
Income from Operations
----------------------
Income from operations decreased $388,000 or 54.6% from $710,000 in the quarter
ended August 31, 2007 to $322,000 in the quarter ended August 31, 2008. The
combination of reduced revenue, reduced gross margins and relatively flat
selling, general and administrative expenses had a significant negative impact
on income from operations.
Other Income
------------
Other income for the quarter ended August 31, 2008 resulted primarily from
interest and dividend income of $67,000, which decreased by $45,000 from the
level realized in the quarter ended August 31, 2007 due to lower interest rates
earned on the Company's US Treasury securities and money market accounts .
Income Taxes
------------
The effective income tax rate of 43.4% for the quarter ended August 31, 2008
decreased from a rate of 43.7% in the quarter ended August 31, 2007.
Page 11
TSR, INC. AND SUBSIDIARIES
Liquidity and Capital Resources
-------------------------------
The Company expects that cash flow generated from operations together with its
cash and marketable securities will be sufficient to provide the Company with
adequate resources to meet its liquidity requirements for the foreseeable
future.
At August 31, 2008, the Company had working capital of $12,440,000 including
cash and cash equivalents of $748,000 as compared to working capital of
$12,693,000 including cash and cash equivalents of $1,588,000 at May 31, 2008.
The Company's working capital also included $6,467,000 and $6,460,000 of
marketable securities with maturities of less than one year at August 31, 2008
and May 31, 2008, respectively.
For the three months ended August 31, 2008, net cash used in operating
activities was $715,000 compared to cash used of $397,000 for the three months
ended August 31, 2007, or a decrease of $318,000. The cash used in operating
activities primarily resulted from an increase in accounts receivable of
$719,000 and a decrease in accounts payable and accrued expenses of $271,000.
The increase in accounts receivable resulted primarily from delayed payments
from two clients with the same vendor manager. These amounts were collected
after the end of the quarter. The cash used by operating activities in the three
months ended August 31, 2007, resulted primarily from an increase in accounts
receivable.
Net cash used in investing activities of $15,000 for the three months ended
August 31, 2008 primarily resulted from reinvesting all of the proceeds of
maturing US Treasury Securities with decreasing interest rates and the purchase
of fixed assets.
Net cash used in financing activities resulted from the purchase of treasury
stock amounting to $104,000 and distributions to the minority interest of
$7,000.
The Company's capital resource commitments at August 31, 2008 consisted of lease
obligations on its branch and corporate facilities. The Company intends to
finance these lease commitments from cash flow provided by operations, available
cash and short-term marketable securities.
The Company's cash and marketable securities were sufficient to enable it to
meet its cash requirements during the three months ended August 31, 2008. The
Company has available a revolving line of credit of $5,000,000 with a major
money center bank through October 31, 2009. As of August 31, 2008, no amounts
were outstanding under this line of credit.
Tabular Disclosure of Contractual Obligations
---------------------------------------------
Payments Due By Period
Less than More than
Contractual Obligations Total 1 Year 1-3 Years 3-5 Years 5 Years
----------------------- ------------ ------------ ------------ ------------ ------------
Operating Leases $ 1,482,000 $ 359,000 $ 680,000 $ 443,000 $ --
Employment Agreements 1,380,000 749,000 531,000 100,000 --
------------ ------------ ------------ ------------ ------------
Total $ 2,862,000 $ 1,108,000 $ 1,211,000 $ 543,000 $ --
============ ============ ============ ============ ============
Page 12
TSR, INC. AND SUBSIDIARIES
Recent Account Pronouncements
-----------------------------
On September 15, 2006, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. SFAS No. 157 provides guidance related to
estimating fair value and requires expanded disclosures. SFAS No. 157 applies
whenever other standards require (or permit) assets or liabilities to be
measured at fair value. SFAS No. 157 does not expand the use of fair value in
any new circumstances. The adoption of SFAS No. 157 did not have a material
impact on the Company's consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment of FASB
Statement No. 115" ("SFAS No. 159"). SFAS No. 159 permits entities to elect to
measure many financial instruments and certain other items at fair value. Upon
adoption of SFAS No. 159, an entity may elect the fair value option for eligible
items that exist at the adoption date. Subsequent to the initial adoption, the
election of the fair value option should only be made at initial recognition of
the asset or liability or upon a re-measurement event that gives rise to
new-basis accounting. SFAS No. 159 does not affect any existing accounting
literature that requires certain assets and liabilities to be carried at fair
value nor does it eliminate disclosure requirements included in other accounting
standards. SFAS No. 159 is effective for fiscal years beginning after November
15, 2007. The adoption of SFAS No. 159 did not have a material impact on the
Company's consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (R), "Business Combinations"
("SFAS 141(R)"), and SFAS No. 160, "Noncontrolling Interests in Consolidated
Financial Statements" ("SFAS 160"). SFAS 141 (R) requires an acquirer to measure
the identifiable assets acquired, the liabilities assumed and any noncontrolling
interest in the acquiree at their fair values on the acquisition date, with
goodwill being the excess value over the net identifiable assets acquired. SFAS
160 clarifies that a noncontrolling interest in a subsidiary should be reported
as equity in the consolidated financial statements. The calculation of earnings
per share will continue to be based on income amounts attributable to the
parent. SFAS 141 (R) and SFAS 160 are effective for financial statements issued
for fiscal years beginning after December 15, 2008. Early adoption is
prohibited. The Company does not expect the adoption of SFAS 141 (R) and SFAS
160 to have a material impact on its consolidated financial statements.
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 the
Company's consolidated financial statements, contained in its May 31, 2008
Annual Report on Form10-K, as filed with the SEC. The Company believes that
those accounting policies require the application of management's most
difficult, subjective or complex judgments. There have been no changes in the
Company's significant accounting policies as of August 31, 2008.
Item 4T. 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 accounting officer, of the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation, the
principal executive officer and principal accounting officer concluded that, as
of the end of the period covered by this report, the Company's disclosure
controls and procedures are effective.
INTERNAL CONTROL OVER FINANCIAL REPORTING. There was no change in the Company's
internal control over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the Company's most
recently reported completed fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
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Part II. Other Information
Item 2(c). Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth information concerning any purchase of the
Company's common stock made by or on behalf of the Company or any "affiliated
purchaser," as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of
1934 during the Company's first fiscal quarter:
ISSUER PURCHASES OF EQUITY SECURITIES
Maximum Number (or
Total Number of Approximate Dollar
Shares (or Units) Value) of Shares
Purchased as Part (or Units) that May
Total Number of Average Price of Publicly Yet Be Purchase
Shares (or Units) Paid per Share Announced Plans Under the
Period Purchased (or Unit) or Programs Plans or Programs
-------------------- ------------------ ------------------ ------------------ ------------------
June 1, 2008 -
June 30, 2008 0 n/a 0 300,000
July 1, 2008 -
July 31, 2008 0 n/a 0 300,000
August 1, 2008-
August 31, 2008 37,900 $2.75 37,900(1) 262,100
-------------------- ------------------ ------------------ ------------------ ------------------
Total 37,900 $2.75 37,900 262,100
(1) The repurchase plan was authorized by the Board of Directors and publicly
announced on December 17, 2007. The plan does not have an expiration date.
Item 6. Exhibits
(a). Exhibit 31.1 - Certification by J.F. Hughes pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 31.2 - Certification by John G. Sharkey pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.1 - Certification by J.F. Hughes pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.2 - Certification by John G. Sharkey pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
TSR Inc.
-----------------------------------------------
(Registrant)
Date: October 10, 2008 /s/ J.F. Hughes
-----------------------------------------------
J.F. Hughes, Chairman and President
Date: October 10, 2008 /s/ John G. Sharkey
-----------------------------------------------
John G. Sharkey, Vice President Finance
and Chief Financial Officer
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