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TSRI > SEC Filings for TSRI > Form 10-Q on 8-Oct-2013All Recent SEC Filings

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Form 10-Q for TSR INC


8-Oct-2013

Quarterly Report


MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Part I. Financial Information
Item 2.

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 success of the Company's plan for internal growth, the impact of 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 consultant 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
operations. There can be no assurance that trends in operating results will
continue in the future:

Three months ended August 31, 2013 compared with three months ended August 31,
2012

                                                              (Dollar amounts in thousands)
                                                                   Three Months Ended
                                                     August 31, 2013                 August 31, 2012
                                                Amount       % of Revenue       Amount       % of Revenue
Revenue, net                                   $  12,087             100.0 %   $  11,289             100.0 %
Cost of sales                                      9,989              82.6 %       9,439              83.6 %

Gross profit                                       2,098              17.4 %       1,850              16.4 %

Selling, general and administrative expenses       2,040              16.9 %       1,963              17.4 %

Income (loss) from operations                         58               0.5 %        (113 )            (1.0 )%

Other income, net                                      0               0.0 %           2               0.0 %

Income (loss) before income taxes                     58               0.5 %        (111 )            (1.0 )%
Provision (benefit) for income taxes                  20               0.2 %         (37 )            (0.3 )%

Consolidated net income (loss)                 $      38               0.3 %   $     (74 )            (0.7 )%

Page 11

TSR, INC. AND SUBSIDIARIES

Revenue

Revenue consists primarily of revenue from computer programming consulting services. Revenue for the quarter ended August 31, 2013 increased $798,000 or 7.1% from the prior year quarter. The average number of consultants on billing with customers increased from approximately 254 for the quarter ended August 31, 2012 to 300 for the quarter ended August 31, 2013. The revenue increase was somewhat muted due to reduced average billing rates for the consultants on billing with customers compared with the prior year quarter. This resulted from a shift in the business mix as a higher percentage of new placements have been with customers where there is stronger competition due to managed vendor services programs.

Cost of Sales

Cost of sales for the quarter ended August 31, 2013, increased $550,000 or 5.8% to $9,989,000 from $9,439,000 in the prior year period. The increase in cost of sales resulted primarily from the increase in the number of consultants on billing with clients. Cost of sales as a percentage of revenue decreased from 83.6% in the quarter ended August 31, 2012 to 82.6% in the quarter ended August 31, 2013. The decrease in cost of sales as a percentage of revenue was primarily attributable to increased revenue from full time placement fees which do not have associated direct costs.

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 $77,000 or 3.9% from $1,963,000 in the quarter ended August 31, 2012 to $2,040,000 in the quarter ended August 31, 2013. This increase was primarily attributable to an increase in the number of sales personnel and expenses associated with hiring them. Hiring new sales executives requires a significant investment to cover their costs while their non-compete agreements, which typically last a year, expire. The Company expects selling, general and administrative expenses to continue to increase as more recruiters and sales executives are hired to stimulate growth. Selling, general and administrative expenses, as a percentage of revenue, decreased from 17.4% in the quarter ended August 31, 2012 to 16.9% in the quarter ended August 31, 2013 as a result of the additional technical recruiters and sales executives beginning to contribute additional revenue.

Other Income

Other income for the quarter ended August 31, 2013 resulted primarily from interest and dividend income of $2,000, which decreased by $1,000 from the level realized in the quarter ended August 31, 2012 due to lower interest rates earned on the Company's certificates of deposit and money market accounts. The interest and dividend income was offset by a mark to market loss of $2,000 on the Company's equity securities.

Income Taxes

The income tax provision (benefit) included in the Company's results of operations for the quarters ended August 31, 2013 and 2012 reflect the Company's estimated effective tax rate for the years ending May 31, 2014 and 2013, respectively. These rates were (33.3) % for the quarter ended August 31, 2012 and 34.5% for the quarter ended August 31, 2013.

Consolidated Net Income (Loss)

Consolidated net income increased $112,000 from a loss of $74,000 in the quarter ended August 31, 2012 to net income of $38,000 in the quarter ended August 31, 2013. This increase was primarily attributable to the increase in revenue as a result of the additional recruiters and sales executives contributing additional revenue. Gradual improvement is expected to continue as the Company's plan for internal growth begins to generate a sufficient increase in revenue.

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TSR, INC. AND SUBSIDIARIES

Liquidity and Capital Resources

The Company expects that its cash and marketable securities will be sufficient to provide the Company with adequate resources to meet its liquidity requirements for at least the next 12 months.

At August 31, 2013, the Company had working capital (total current assets in excess of total current liabilities) of $8,516,000 including cash and cash equivalents and certificates of deposit and marketable securities of $3,417,000 as compared to working capital of $8,717,000 including cash and cash equivalents and certificates of deposit and marketable securities of $3,890,000 at May 31, 2013.

For the three months ended August 31, 2013, net cash used in operating activities was $215,000 compared to net cash provided by operating activities of $188,000 for the three months ended August 31, 2012. The cash used in operating activities in the three months ended August 31, 2013 resulted primarily from an increase in accounts receivable of $92,000 and a decrease in accounts and other payables and accrued expenses and other current liabilities of $137,000. The increase in accounts receivable is attributable to the increased revenue. The decrease in accounts and other payable and accrued expenses and other current liabilities is attributable to a decrease in the accrued payroll at the end of the current quarter. The cash provided by operating activities in the three months ended August 31, 2012 primarily resulted from a decrease in accounts receivable of $139,000 and an increase in accounts and other payables and accrued expenses and other current liabilities of $173,000 which were offset, to some extent, by the consolidated net loss of $74,000.

Net cash used in investing activities of $7,000 for the three months ended August 31, 2013 resulted primarily from the purchase of fixed assets. Net cash used in investing activities of $2,737,000 for the three months ended August 31, 2012 primarily resulted from new investments in US Treasury securities and certificates of deposit.

Net cash used in financing activities resulted from distributions to the noncontrolling interest of $3,000 in the three months ended August 31, 2013. Net cash used in financing activities resulted from distributions to the noncontrolling interest of $3,500 and the purchases of 3,600 shares of common stock for $17,000 in the three months ended August 31, 2012.

The Company's capital resource commitments at August 31, 2013 consisted of lease obligations on its branch and corporate facilities. The Company intends to satisfy these lease commitments from cash flow provided by operations, available cash and short-term marketable securities.

Page 13

TSR, INC. AND SUBSIDIARIES

Recent Accounting Pronouncements

The Company is not aware of any new accounting pronouncements that would have a material impact on its condensed 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, 2013 Annual Report on Form 10-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, 2013.

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