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TSRI > SEC Filings for TSRI > Form 10-Q on 10-Jan-2014All Recent SEC Filings

Show all filings for TSR INC

Form 10-Q for TSR INC


10-Jan-2014

Quarterly Report


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

Part I. Financial Information
Item 2. 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 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 November 30, 2013 compared with three months ended November
30, 2012

                                                           (Dollar amounts in thousands)
                                                                Three Months Ended
                                                     November 30,                 November 30,
                                                         2013                         2012
                                                                % of                         % of
                                                 Amount       Revenue         Amount       Revenue
Revenue, net                                   $  12,166          100.0 %   $  10,560          100.0 %
Cost of sales                                     10,101           83.0 %       8,805           83.4 %
Gross profit                                       2,065           17.0 %       1,755           16.6 %

Selling, general and administrative expenses       1,979           16.3 %       2,014           19.1 %
Income (loss) from operations                         86            0.7 %        (259 )         (2.5 )%
Other income (expense), net                            3            0.0 %          (1 )          0.0 %
Income (loss) before income taxes                     89            0.7 %        (260 )         (2.5 )%
Provision (benefit) for income taxes                  36            0.3 %         (79 )         (0.8 )%
Consolidated net income (loss)                 $      53            0.4 %   $    (181 )         (1.7 )%


TSR, INC. AND SUBSIDIARIES

Revenue

Revenue consists primarily of revenue from computer programming consulting services. Revenue for the quarter ended November 30, 2013 increased $1,606,000 or 15.2% from the prior year quarter. The average number of consultants on billing with customers increased from approximately 260 for the quarter ended November 30, 2012 to 306 for the quarter ended November 30, 2013. The revenue increase was lower than expected from the increase in consultants on billing with customers 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 November 30, 2013, increased $1,296,000 or 14.7% to $10,101,000 from $8,805,000 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 83.4% in the quarter ended November 30, 2012 to 83.0% in the quarter ended November 30, 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 decreased $35,000 or 1.7% from $2,014,000 in the quarter ended November 30, 2012 to $1,980,000 in the quarter ended November 30, 2013. This decrease primarily resulted from a reduction of professional fees of $56,000 in the quarter, while the expenses related to technical recruiters and sales executive increased by $28,000. 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 19.1% in the quarter ended November 30, 2012 to 16.3% in the quarter ended November 30, 2013 as a result of the additional technical recruiters and sales executives hired in the previous fiscal year beginning to contribute additional revenue.

Other Income

Other income for the quarter ended November 30, 2013 resulted primarily from interest and dividend income of $1,000, which decreased by $1,000 from the level realized in the quarter ended November 30, 2012 due to lower interest rates earned on the Company's certificates of deposit and money market accounts. There was also a mark to market gain of $1,500 on the Company's equity securities for the quarter ended November 30, 2013.

Income Taxes

The income tax provision (benefit) included in the Company's results of operations for the quarters ended November 30, 2013 and 2012 reflect the Company's estimated effective tax rate for the years ending May 31, 2014 and 2013, respectively. These rates were (30.3)% for the quarter ended November 30, 2012 and 40.6% for the quarter ended November 30, 2013.

Consolidated Net Income (Loss)

Consolidated net income increased $234,000 from a loss of $181,000 in the quarter ended November 30, 2012 to net income of $53,000 in the quarter ended November 30, 2013. This increase was primarily attributable to the increase in revenue as a result of the additional recruiters and sales executives contributing additional revenue. Although we are experiencing an increase in revenue under the Company's plan for internal growth, we anticipate that our net income will continue to be affected, with only gradual improvement until such time as the additional recruiters and sales executives begin to generate a sufficient increase in revenue.


                           TSR, INC. AND SUBSIDIARIES

Six months ended November 30, 2013 compared with six months ended November 30,
2012

                                                              (Dollar amounts in thousands)
                                                                    Six Months Ended
                                                      November 30,                    November 30,
                                                          2013                            2012
                                                Amount       % of Revenue       Amount       % of Revenue
Revenue, net                                   $  24,253             100.0 %   $  21,849             100.0 %
Cost of sales                                     20,090              82.8 %      18,244              83.5 %
Gross profit                                       4,163              17.2 %       3,605              16.5 %

Selling, general and administrative expenses       4,019              16.6 %       3,977              18.2 %
Income (loss) from operations                        144               0.6 %        (372 )            (1.7 )%
Other income, net                                      3               0.0 %           1               0.0 %
Income (loss) before income taxes                    147               0.6 %        (371 )            (1.7 )%
Provision (benefit) for income taxes                  56               0.2 %        (116 )            (0.5 )%
Consolidated net income (loss)                 $      91               0.4 %   $    (255 )            (1.2 )%

Revenue

Revenue consists primarily of revenue from computer programming consulting services. Revenue for the six months ended November 30, 2013 increased $2,404,000 or 11.0% from the prior year period. The average number of consultants on billing with customers increased from approximately 257 for the six months ended November 30, 2012 to 303 for the six months ended November 30, 2013. The revenue increase was lower than expected from the increase in consultants on billing with customers due to reduced average billing rates for the consultants on billing with customers compared with the prior year period. 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 six months ended November 30, 2013 increased $1,846,000 or 10.1% to $20,090,000 from $18,244,000 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 83.5% in the six months ended November 30, 2012 to 82.8% in the six months ended November 30, 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.


TSR, INC. AND SUBSIDIARIES

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 $42,000 or 1.1% from $3,977,000 in the six months ended November 30, 2012 to $4,019,000 in the six months ended November 30, 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 18.2% in the six months ended November 30, 2012 to 16.6% in the six months ended November 30, 2013 as a result of the additional technical recruiters and sales executives hired in the prior fiscal year beginning to contribute additional revenue.

Other Income

Other income for the six months ended November 30, 2013 resulted primarily from interest and dividend income of $3,000, which decreased by $3,000 from the level realized in the six months ended November 30, 2012 due to lower interest rates earned on the Company's certificates of deposit and money market accounts.

Income Taxes

The income tax provision (benefit) included in the Company's results of operations for the six months ended November 30, 2013 and 2012 reflect the Company's estimated effective tax rate for the years ending May 31, 2014 and 2013, respectively. These rates were (31.3)% for the six months ended November 30, 2012 and 38.1% for the six months ended November 30, 2013.

Consolidated Net Income (Loss)

Consolidated net income increased $346,000 from a loss of $255,000 in the six months ended November 30, 2012 to net income of $91,000 in the six months ended November 301, 2013. This increase was primarily attributable to the increase in revenue as a result of the additional recruiters and sales executives contributing additional revenue. Although we are experiencing an increase in revenue under the Company's plan for internal growth, we anticipate that our net income will continue to be affected, with only gradual improvement until such time as the additional recruiters and sales executives begin to generate a sufficient increase in revenue.


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 at least the next 12 months.

At November 30, 2013, the Company had working capital (total current assets in excess of total current liabilities) of $8,845,000 including cash and cash equivalents and certificates of deposit and marketable securities of $3,563,000 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 six months ended November 30, 2013, net cash used in operating activities was $316,000 compared to net cash used in operating activities of $489,000 for the six months ended November 30, 2012, or a decrease in cash used in operating activities of $173,000. The cash used in operating activities in the six months ended November 30, 2013 primarily resulted from a decrease in accounts and other payables and accrued expenses and other current liabilities of $565,000 which resulted primarily from a reduction in accrued payroll. The cash used in operating activities in the six months ended November 30, 2012 primarily resulted from the consolidated net loss of $255,000, an increase of prepaid and recoverable income taxes of $129,000 and a decrease in accounts and other payables and accrued expenses and other current liabilities of $140,000.

Net cash provided by investing activities of $244,000 for the six months ended November 30, 2013 primarily resulted from not reinvesting a maturing certificate of deposit. Net cash used in investing activities of $2,737,000 for the six months ended November 30, 2012 primarily resulted from new investments in US Treasury securities and certificates of deposit.

In the six months ended November 30, 2013, net cash used in financing activities resulted from a distribution to the noncontrolling interest of $6,000. In the six months ended November 30, 2012, net cash used in financing activities resulted primarily from a cash dividend of $1.50 per share paid on November 30, 2012, which amounted to $2,970,000, distributions to the noncontrolling interest of $7,000 and the purchases of 3,600 shares of common stock for $16,571.

The Company's capital resource commitments at November 30, 2013 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.


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 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 November 30, 2013.

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