A N N U A L
R E P O R T
2016
5
TSR AT A GLANCE
TSR is engaged in the business of providing contract computer programming services to its customers. The Company
provides its customers with technical computer personnel to supplement their in-house information technology (“IT”)
capabilities. TSR’s customers for its contract computer programming services consist primarily of Fortune 1000
companies with significant technology budgets. With more than 40 years experience in the information services business,
TSR is positioned to fulfill virtually any information technology temporary staffing contract requirement. Extensive
recruiting efforts are employed to create and maintain a database of highly qualified professionals who are well-versed in
the latest technological advances. TSR’s professional staff has extensive experience across a broad range of industries
from telecommunications and pharmaceuticals to banking and insurance.
FINANCIAL HIGHLIGHTS
(Amounts in Thousands, Except Per Share Data)
May 31,
2016
May 31,
2015
May 31,
2014
May 31,
2013
May 31,
2012
Revenue, Net ........................................................................
$ 60,998
$ 57,403
$ 49,530
$ 44,914
$ 45,215
Income (Loss) From Operations ..........................................
Net Income (Loss) Attributable to TSR, Inc. .......................
Basic Net Income (Loss) Per TSR, Inc. Common Share .....
839
399
0.20
432
193
25
(86 )
(716 )
(520 )
(2 )
(62 )
0.10
(0.04 )
(0.26 )
(0.03 )
Working Capital ...................................................................
9,391
8,986
8,706
8,717
12,402
Total Assets ..........................................................................
14,090
14,051
13,563
13,619
17,165
Total TSR, Inc. Equity .........................................................
Book Value Per TSR, Inc. Common Share ..........................
(Total TSR Equity Divided by Common Shares Outstanding)
9,432
4.81
9,033
8,840
8,926
12,498
4.60
4.51
4.55
6.30
Cash Dividends Declared Per TSR, Inc. Common Share ....
$
0.00
$
0.00
$
0.00
$
1.50
$
0.00
LETTER FROM THE CHAIRMAN
Dear Stockholders:
The past year marked a challenging stretch for businesses and investors alike. Against this demanding
backdrop, I am pleased to report that TSR continued to yield profitable results from our multi-year
strategic investment initiative in our people and processes. For the year ended May 31st, 2016,
revenue increased 6.3% from last year to $61.0 million. Net income attributable to TSR increased
from $193,000 in the prior year to net income of $399,000 in the current year. Additionally, net
income per share increased from $0.10 to $0.20 per share.
We attribute the increase in revenue largely to two encouraging dynamics. First, the capabilities of
our salesforce and technical recruiters – after several years as new hires – have started to mature and
blossom. Our focus on organic growth has been another critical driver, with our marketing efforts
fixed primarily on increasing business from our existing clients, many of whom we have served for
decades.
While we have experienced increases in revenue and profitability, there continue to be new
challenges. Rapidly changing computer technologies and evolving standards are the new normal of
the IT business world. This means finding and hiring the right IT talent for our clients is requiring
ever greater effort and investment. Speed to market matters: “It’s the fast fish which eats the slow
fish.”
Another on-going challenge we face (along with the rest of the business world) is that the cost of our
health insurance and other employee benefits continues to increase, primarily due to government
mandates.
In sum, TSR’s strong culture is built on a foundation of trust, service and hard work. The days are
long, often stretching into nights and weekends. Yet we remain relentless in our dedication to
listening closely to our customers and their needs, and working smartly on their behalf. We hope and
believe that our dedication will also best serve you, our shareholders.
As always, I thank you for your ongoing support.
Sincerely
Joe Hughes
1
TSR INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, 2016 and 2015
ASSETS
Current assets:
Cash and cash equivalents................................................................................................. $
Certificates of deposit and marketable securities ..............................................................
Accounts receivable:
Trade, net of allowance for doubtful accounts of $185,000 in 2016 and
$193,000 in 2015 ....................................................................................................
Other .............................................................................................................................
Prepaid expenses ...............................................................................................................
Deferred income taxes ......................................................................................................
2016
2015
4,514,157
1,553,272
$
3,669,790
1,271,568
7,703,680
10,853
7,714,533
99,069
128,000
8,754,784
2,458
8,757,242
116,096
120,000
Total Current Assets ..........................................................................................
14,009,031
13,934,696
Equipment and leasehold improvements, at cost:
Equipment .........................................................................................................................
Furniture and fixtures ........................................................................................................
Automobiles ......................................................................................................................
Leasehold improvements ..................................................................................................
Less accumulated depreciation and amortization ..............................................................
Other assets .........................................................................................................................
Deferred income taxes ........................................................................................................
99,244
111,107
19,665
60,058
290,074
262,076
27,998
49,653
3,000
102,833
111,107
19,665
60,058
293,663
254,732
38,931
49,653
28,000
Total Assets ........................................................................................................... $ 14,089,682
$ 14,051,280
LIABILITIES AND EQUITY
Current liabilities:
Accounts and other payables ............................................................................................. $
Accrued expenses and other current liabilities:
Salaries, wages and commissions .................................................................................
Other .............................................................................................................................
Income taxes payable ........................................................................................................
Advances from customers .................................................................................................
2,481,436
152,674
2,634,110
14,810
1,245,563
Total Liabilities ....................................................................................................
4,618,188
2,237,628
146,214
2,383,842
3,877
1,431,522
4,948,346
723,705
$
1,129,105
Commitments and contingencies
Equity:
TSR, Inc.
Preferred stock, $1.00 par value, authorized 500,000 shares; none issued .......................
Common stock, $0.01 par value, authorized 12,500,000 shares;
issued 3,114,163 shares; 1,962,062 outstanding ..........................................................
Additional paid-in capital .................................................................................................
Retained earnings ..............................................................................................................
Less: Treasury stock, 1,152,101 shares, at cost ...............................................................
Total TSR, Inc. Equity .........................................................................................
Noncontrolling Interest .....................................................................................................
Total Equity .........................................................................................................................
-
-
31,142
5,102,868
17,811,884
22,945,894
13,514,003
9,431,891
39,603
9,471,494
31,142
5,102,868
17,412,658
22,546,668
13,514,003
9,032,665
70,269
9,102,934
Total Liabilities and Equity ................................................................................ $ 14,089,682
$ 14,051,280
See accompanying notes to consolidated financial statements.
2
TSR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended May 31, 2016 and 2015
2016
2015
Revenue, net ......................................................................................................................... $ 60,998,281
$ 57,402,896
Cost of sales ..........................................................................................................................
Selling, general and administrative expenses ....................................................................
51,038,879
9,120,526
60,159,405
48,087,428
8,883,003
56,970,431
Income from operations ......................................................................................................
838,876
432,465
Other income:
Interest and dividend income ............................................................................................
Unrealized gain (loss) from marketable securities, net .....................................................
8,621
(2,296)
6,325
Income before income taxes ................................................................................................
845,201
Provision for income taxes ..................................................................................................
389,000
Consolidated net income .....................................................................................................
Less: Net income attributable to noncontrolling interest .................................................
456,201
56,975
6,114
5,712
11,826
444,291
152,000
292,291
99,580
Net income attributable to TSR, Inc. ................................................................................ $
399,226
$
192,711
Net income per TSR, Inc. common share .......................................................................... $
0.20
$
0.10
Weighted average number of common shares outstanding ..............................................
1,962,062
1,962,062
See accompanying notes to consolidated financial statements.
3
TSR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
Years ended May 31, 2016 and 2015
Shares of
common
stock
Common
stock
Additional
paid-in
capital
Retained
earnings
Treasury
stock
TSR Inc.
equity
Non-
controlling
interest
Total
equity
Balance at
June 1, 2014 ..................................
3,114,163
Net income
attributable to
noncontrolling
interest ...........................................
-
Distribution to
noncontrolling
interest ...........................................
-
Net income
attributable to
TSR, Inc. ......................................
-
Balance at
May 31, 2015 .................................
3,114,163
Net income
attributable to
noncontrolling
interest ...........................................
-
Distribution to
noncontrolling
interest ...........................................
-
Net income
attributable to
TSR, Inc. ......................................
-
Balance at
May 31, 2016 .................................
3,114,163
$ 31,142
$ 5,102,868
$ 17,219,947
$(13,514,003)
$ 8,839,954
$ 80,124
$ 8,920,078
-
-
-
-
-
-
-
-
192,711
-
-
-
-
-
99,580
99,580
(109,435)
(109,435)
192,711
-
192,711
31,142
5,102,868
17,412,658
(13,514,003)
9,032,665
70,269
9,102,934
-
-
-
-
-
-
-
-
399,226
-
-
-
-
-
56,975
56,975
(87,641)
(87,641)
399,226
-
399,226
$ 31,142
$ 5,102,868 $ 17,811,884
$(13,514,003)
$ 9,431,891
$ 39,603
$ 9,471,494
See accompanying notes to consolidated financial statements.
4
TSR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended May 31, 2016 and 2015
Cash flows from operating activities:
Consolidated net income ..................................................................................................
Adjustments to reconcile consolidated net income to net cash provided by
operating activities:
Depreciation and amortization ......................................................................................
Provision for bad debts ..................................................................................................
Unrealized (gain) loss from marketable securities, net
Deferred income taxes ...................................................................................................
Changes in operating assets and liabilities:
Accounts receivable-trade ..........................................................................................
Other receivables ........................................................................................................
Prepaid expenses ........................................................................................................
Prepaid and recoverable income taxes .......................................................................
Accounts and other payables and accrued expenses and other current liabilities .......
Income taxes payable .................................................................................................
Advances from customers ..........................................................................................
2016
2015
$
456,201
$
292,291
22,765
15,000
2,296
17,000
1,036,104
(8,395)
17,027
-
(155,132)
10,933
(185,959)
20,428
-
(5,712)
68,000
35,554
6,872
(41,908)
32,159
362,385
3,877
(60,424)
Net cash provided by operating activities ........................................................................
1,227,840
713,522
Cash flows from investing activities:
Proceeds from maturities of marketable securities ........................................................
Purchases of marketable securities ................................................................................
Purchases of equipment and leasehold improvements ..................................................
1,762,000
(2,046,000)
(11,832)
2,487,000
(2,238,000)
(25,264)
Net cash provided by (used in) investing activities ..........................................................
(295,832)
223,736
Cash flows from financing activities:
Distributions to noncontrolling interest .........................................................................
(87,641)
(109,435)
Net cash used in financing activities ................................................................................
(87,641)
(109,435)
Net increase in cash and cash equivalents ............................................................................
844,367
827,823
Cash and cash equivalents at beginning of year ...................................................................
3,669,790
2,841,967
Cash and cash equivalents at end of year .........................................................................
$
4,514,157
$
3,669,790
Supplemental disclosures of cash flow data:
Income taxes paid .............................................................................................................
$
361,000
$
49,000
See accompanying notes to consolidated financial statements.
5
TSR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2016 and 2015
(1) Summary of Significant Accounting Policies
(a) Business, Nature of Operations and Customer Concentrations
TSR, Inc. and Subsidiaries (the “Company”) are primarily engaged in providing contract computer programming services to
commercial customers located primarily in the Metropolitan New York area. The Company provides its customers with
technical computer personnel to supplement their in-house information technology capabilities. In fiscal 2016, four customers
each accounted for more than 10% of the Company’s consolidated revenue, constituting a combined 55.0%. The largest of
these constituted 17.7% of consolidated revenue. In fiscal 2015, two customers each accounted for more than 10% of the
Company’s consolidated revenue, constituting a combined 34.9%. The largest of these constituted 19.2% of consolidated
revenue. The accounts receivable balances associated with the Company’s largest customers were $3,735,000 for four
customers at May 31, 2016 and $2,109,000 for two customers at May 31, 2015. 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. Revenue is recognized in accordance with Accounting Standards Codification (“ASC”) Topic 605, “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. Revenue is recorded net of all discounts and processing fees. Advances from
customers represent amounts received from customers prior to the Company’s completion of the related services and credit
balances from overpayments.
Reimbursements received by the Company for out-of-pocket expenses are characterized as revenue.
(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, 2016 and 2015:
Cash in banks ...................
Money market funds .........
2016
2015
$ 3,974,007 $ 2,851,802
817,988
540,150
$ 4,514,157 $ 3,669,790
(e) Certificates of Deposit and Marketable Securities
The Company has characterized its investments in marketable securities, based on the priority of the inputs used to value the
investments, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in
active markets for identical assets or liabilities (Level 1), and lowest priority to unobservable inputs (Level 3). If the inputs
used to measure the investments fall within different levels of the hierarchy, the categorization is based on the lowest level
input that is significant to the fair value measurement of the instrument.
Investments recorded in the accompanying consolidated balance sheets are categorized based on the inputs to valuation
techniques as follows:
Level 1 - These are investments where values are based on unadjusted quoted prices for identical assets in an active market
the Company has the ability to access.
Level 2 - These are investments where values are based on quoted market prices that are not active or model derived
valuations in which all significant inputs are observable in active markets.
Level 3 - These are investments where values are derived from techniques in which one or more significant inputs are
unobservable.
6
TSR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2016 and 2015
The following are the major categories of assets measured at fair value on a recurring basis as of May 31, 2016 and 2015
using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and
significant unobservable inputs (Level 3):
May 31, 2016
Level 1
Level 2
Level 3
Total
Certificates of deposit....................................................
-
25,272
Equity securities ............................................................
25,272
$
$
$
1,528,000
-
$
$
1,528,000
$
-
-
-
$
$
1,528,000
25,272
1,553,272
May 31, 2015
Level 1
Level 2
Level 3
Total
Certificates of deposit......................................................
-
Equity securities ..............................................................
27,568
27,568
$
$
$
1,244,000
-
$
$
1,244,000
$
-
-
-
$
$
1,244,000
27,568
1,271,568
Based upon the Company’s intent and ability to hold its certificates of deposits to maturity (which maturities range up to
twelve months at purchase), 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 prices, which is a Level 1 input, as established by the fair value hierarchy. The related
unrealized gains and losses are included in earnings. The Company’s certificates of deposit and marketable securities at May
31, 2016 and 2015 are summarized as follows:
Amortized
Cost
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Current
2016: Certificates of deposit ........................................
1,528,000
Equity securities .................................................
16,866
1,544,866
$
$
1,244,000
Current
2015: Certificates of deposit ...........................................
16,866
1,260,866
Equity securities ...................................................
$
$
$
$
$
$
-
8,406
8,406
-
10,702
10,702
$
$
$
$
-
-
-
-
-
-
Recorded
Value
$
$
$
$
1,528,000
25,272
1,553,272
1,244,000
27,568
1,271,568
The Company’s investments in marketable securities consist primarily of investments in certificates of deposit and equity
securities. Market values were determined for each individual security in the investment portfolio. When evaluating the
investments for other-than-temporary impairment, the Company reviews factors such as length of time and extent to which
fair value has been below cost basis, the financial condition of the issuer, and the Company’s ability and intent to hold the
investment for a period of time, which may be sufficient for anticipated recovery in market values.
(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, creditworthiness 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.
7
TSR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2016 and 2015
(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 ..............................................
Furniture and fixtures ............................
Automobiles ...........................................
Leasehold improvements ....................... Lesser of lease term or useful life
3 years
3 years
3 years
(h) Net Income Per Common Share
Basic net income per common share is computed by dividing income available to common stockholders of TSR, Inc. by the
weighted average number of common shares outstanding. The Company had no stock options or other common stock
equivalents outstanding during the fiscal years ended May 31, 2016 or 2015.
(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.
(j) Fair Value of Financial Instruments
ASC Topic 825, “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 consolidated financial statements approximate fair value because of the short-term maturities of
these instruments.
(k) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America 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 revenue
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. Actual results could differ from those
estimates.
(l) Long-Lived Assets
The Company reviews its long-lived assets 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) Impact of New Accounting Standards
In May 2014, the FASB issued an update to ASC 606, “Revenue from Contracts with Customers.” This update to ASC 606
provides a five-step process to determine when and how revenue is recognized. The core principle of the guidance is that a
Company should recognize revenue upon transfer of promised goods or services to customers in an amount that reflects the
expected consideration to be received in exchange for those goods or services. This update to ASC 606 will also result in
enhanced disclosures about revenue, providing guidance for
that were not previously addressed
comprehensively, and improving guidance for multiple-element arrangements. This update to ASC 606 is effective for the
Company in the fiscal year ending May 31, 2018. The Company expects the impact of the update, if any, to be immaterial on
its consolidated financial statements.
transactions
In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred
Taxes,” which applies to the classification of deferred tax assets and liabilities. The update eliminates the requirement to
classify deferred tax assets and liabilities as noncurrent or current within a classified statement of financial position. This
ASU is effective for annual and interim periods beginning after December 15, 2016 and should be applied prospectively with
early adoption permitted at the beginning of an interim or annual reporting period. The Company is currently evaluating the
impact of adopting this guidance.
8
TSR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2016 and 2015
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of
Financial Assets and Financial Liabilities.” The amendments in this update require all equity investments to be measured at
fair value with changes in the fair value recognized through net income. The amendments in this update also require an entity
to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting
from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in
accordance with the fair value option for financial instruments. In addition, the amendments in this update eliminate the
requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public
business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that
is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business
entities. This update is effective for the Company in the fiscal year ending May 31, 2019. The Company is currently
evaluating the impact, if any, of this update on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This update includes a lease accounting model that
recognizes two types of leases – finance leases and operating leases. The standard requires that a lessee recognize on the
balance sheet assets and liabilities relating to leases with terms of more than 12 months. The recognition, measurement, and
presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or
operating lease. This update is effective for the Company in the fiscal year ending May 31, 2020. The Company is currently
evaluating the impact, if any, of this update on its consolidated financial statements.
(n) Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash
equivalents, certificates of deposit, marketable securities and accounts receivable. The Company places its cash equivalents
with high-credit quality financial institutions and brokerage houses. The Company has substantially all of its cash in four
bank accounts. At times, such amounts may exceed Federally insured limits. The Company holds its marketable securities in
brokerage accounts. The Company has not experienced losses in any such accounts. The Company’s accounts receivable
represent 46 accounts with open balances as of May 31, 2016. As a percentage of revenue, the four largest customers among
these 46 accounts consisted of 48.5% of the net accounts receivable balance at May 31, 2016.
(2) Income Taxes
A reconciliation of the provision for income taxes computed at the Federal statutory rates for fiscal 2016 and 2015 to the reported
amounts is as follows:
2016
2015
Amount
%
Amount
%
Amounts at statutory Federal tax rate .................
$ 287,000
Noncontrolling interest .......................................
(19,000)
34.0%
(2.3)
$ 151,000
34.0%
(34,000)
(7.6)
State and local taxes, net of Federal
income tax effect ................................
Non-deductible expenses and other ....................
88,000
33,000
10.4
3.9
13,000
22,000
2.9
4.9
$ 389,000
46.0%
$ 152,000
34.2%
The components of the provision for income taxes are as follows:
2016:
Current .............................................
$
253,000
$
119,000
$
372,000
Deferred ............................................
3,000
14,000
17,000
$
256,000
$
133,000
$
389,000
Federal
State
Total
2015:
Current ...............................................
$
32,000
$
52,000
$
Deferred .............................................
100,000
(32,000)
84,000
68,000
$
132,000
$
20,000
$
152,000
9
TSR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2016 and 2015
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets at May 31, 2016
and 2015 are as follows:
Allowance for doubtful accounts receivable ...................
Accrued compensation and other accrued
expenses .......................................................................
Net operating loss carryforward .....................................
Equipment and leasehold improvement
depreciation and amortization .....................................
Acquired client relationships ..........................................
Unrealized gains .............................................................
Total deferred income tax assets ..................
2016
2015
$
78,000
$ 86,000
50,000
10,000
34,000
25,000
(6,000)
2,000
(3,000)
$ 131,000
1,000
5,000
(3,000)
$ 148,000
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.
The Company has no unrecognized tax benefits at May 31, 2016 and 2015. The Company’s Federal and state income tax returns
prior to fiscal year 2013 are closed.
The Company recognizes interest and penalties associated with tax matters as selling, general and administrative expenses and
includes accrued interest and penalties with accrued and other liabilities in the consolidated balance sheets.
(3) Commitments and Contingencies
A summary of noncancellable long-term operating lease commitments for facilities as of May 31, 2016 follows:
Fiscal Year
Amount
2017 ..............
2018 ..............
2019 ..............
2020 ..............
2021 ..............
Total
$
$
363,000
248,000
191,000
86,000
51,000
939,000
Total rent expenses under all lease agreements amounted to $379,000 and $390,000 in fiscal 2016 and 2015, respectively.
The Company has entered into employment agreements with two of its officers expiring through 2020. The total remaining
payments under these agreements is $1,225,000 at May 31, 2016.
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 consolidated financial position of the Company.
(4) Stockholder’s Equity
During the years ended May 31, 2016 and 2015, the Company did not purchase any of its common stock on the open market
under the previously announced plan. As of April 7, 2016, the previously announced plan was terminated with 56,318 shares
remaining available for purchase.
10
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 Company’s consolidated financial statements and 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 income. There can be no assurance that historical trends in operating results will continue in the future:
Year Ended May 31,
(Dollar Amounts in Thousands)
2016
2015
Amount
% of
Revenue
Amount
% of
Revenue
Revenue, Net ...............................................................
$ 60,998
100.0%
$ 57,403
100.0%
Cost of Sales ................................................................
51,039
Gross Profit ..................................................................
Selling, General and Administrative Expenses ............
Income from Operations ..............................................
Other Income, Net .......................................................
Income Before Income Taxes ......................................
Provision for Income Taxes .........................................
Consolidated Net Income ...........................................
Net Income Attributable to Noncontrolling Interest ....
Net Income Attributable to TSR, Inc. ..........................
$
9,959
9,120
839
6
845
389
456
57
399
83.7
16.3
14.9
1.4
0.0
1.4
0.6
0.8
0.1
0.7%
$
48,088
9,315
8,883
83.8
16.2
15.5
432
12
444
152
292
99
193
0.7
0.1
0.8
0.3
0.5
0.2
0.3%
revenue
Revenue
Revenue consists primarily of
from computer
programming consulting services. Revenue for the fiscal year
ended May 31, 2016 increased $3,595,000 or 6.3% from fiscal
2015. This increase in revenue resulted primarily from the
average daily rates charged for the consultants on billing with
customers increasing approximately 5.5% in the current year
compared with the prior fiscal year. This rate increase is
primarily the result of placing more consultants in higher level
positions. The increase in revenue also resulted from the
average number of consultants on billing with customers
increasing from approximately 346 for the fiscal year ended
May 31, 2015 to approximately 350 for the fiscal year ended
May 31, 2016.
Cost of Sales
Cost of sales for the fiscal year ended May 31, 2016 increased
$2,951,000 or 6.1% to $51,039,000 from $48,088,000 in the
prior fiscal year. The increase in cost of sales resulted primarily
from the average daily rates paid to the consultants on billing
with customers increasing approximately 4.5% in the current
fiscal year compared with the prior fiscal year. The increase in
cost of sales also resulted from the increase in the number of
consultants on billing with clients. Cost of sales as a percentage
11
of revenue decreased from 83.8% in the fiscal year ended May
31, 2015 to 83.7% in the fiscal year ended May 31, 2016.
in
increase
incentive compensation paid
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 $237,000 or 2.7% from $8,883,000 in the
fiscal year ended May 31, 2015 to $9,120,000 in the fiscal year
ended May 31, 2016. This increase was primarily attributable to
an
to account
executives. Several of the account executives hired in recent
years contributed increased revenues and earned incentive
compensation
incentive
compensation for the first time. 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 15.5% in the fiscal year
ended May 31, 2015 to 14.9% in the fiscal year ended May 31,
2016 as a result of the additional revenue from the increase in
the average daily rates charged for the consultants on billing
with customers.
their guaranteed
in excess of
TSR INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
interest and dividend
Other Income
Other income for the fiscal year ended May 31, 2016 resulted
primarily from
income of $9,000
decreased by a mark to market loss of approximately $3,000 on
the Company’s marketable equity securities. Other income for
the fiscal year ended May 31, 2015 resulted primarily from
interest and dividend income of $6,000 and a mark to market
gain of approximately $6,000 on the Company’s marketable
equity securities.
Income Taxes
The effective income tax rates were 46.0% for the fiscal year
ended May 31, 2016 and 34.2% for the fiscal year ended May
31, 2015. The effective rate for the fiscal year ended May 31,
2016 increased primarily due to additional state taxes.
Net Income Attributable to TSR, Inc.
Net income attributable to TSR, Inc. increased $206,000 from
$193,000 in the fiscal year ended May 31, 2015 to net income of
$399,000 in the fiscal year ended May 31, 2016. This increase
in net income was primarily attributable to the increase in
revenue as a result of the increase in the average daily rates
charged for the consultants on billing with customers.
Liquidity, Capital Resources and Changes in Financial
Condition
The Company expects that its available cash, certificates of
deposit and marketable securities will be sufficient to provide
the Company with adequate resources to meet its liquidity
requirements for the next 12 months.
At May 31, 2016, the Company had working capital (total
current assets in excess of total current liabilities) of $9,391,000
including cash and cash equivalents and certificates of deposit
and marketable securities of $6,067,000 as compared to working
capital of $8,986,000 including cash and cash equivalents and
certificates of deposit and marketable securities of $4,941,000 at
May 31, 2015.
Net cash flow of $1,228,000 was provided by operations during
fiscal 2016 as compared to $714,000 of net cash flow provided
by operations in fiscal 2015. The cash provided by operations
for fiscal 2016 primarily resulted from consolidated net income
of $456,000 and a decrease
in accounts receivable of
$1,036,000, offset, to some extent, by a decrease in accounts
and other payables and accrued and other liabilities of $155,000
and a decrease in advances from customers of $186,000. The
decrease in accounts receivable primarily resulted from a greater
number of clients instituting prompt payment discounts. The
cash provided by operations for fiscal 2015 primarily resulted
from consolidated net income of $292,000 and an increase in
accounts payable and accrued expenses of $362,000.
Net cash used in investing activities amounted to $296,000 for
fiscal 2016, compared to $224,000 in net cash provided by
investing activities in fiscal 2015. The net cash used in
investing activities for fiscal 2016 primarily resulted from
investing in additional certificates of deposit. The cash
provided in 2015 primarily resulted from maturing certificates
of deposit, a portion of which were not rolled over.
Net cash used in financing activities of $88,000 and $109,000
during the fiscal years ended May 31, 2016 and 2015,
respectively, resulted from distributions to the holder of the
noncontrolling interest in the Company’s subsidiary, Logixtech
Solutions, LLC.
The Company’s capital resource commitments at May 31, 2016
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 2016.
Impact of New Accounting Standards
In May 2014, the FASB issued an update to ASC 606, “Revenue
from Contracts with Customers.” This update to ASC 606
provides a five-step process to determine when and how revenue
is recognized. The core principle of the guidance is that a
company should recognize revenue upon transfer of promised
goods or services to customers in an amount that reflects the
expected consideration to be received in exchange for those
goods or services. This update to ASC 606 will also result in
enhanced disclosures about revenue, providing guidance for
transactions
addressed
comprehensively, and improving guidance for multiple-element
arrangements. This update to ASC 606 is effective for the
Company in the fiscal year ending May 31, 2018. The Company
expects the impact of this update, if any, to be immaterial on its
consolidated financial statements.
that were
previously
not
In November 2015, the FASB issued ASU 2015-17, “Income
Taxes (Topic 740): Balance Sheet Classification of Deferred
Taxes,” which applies to the classification of deferred tax assets
and liabilities. The update eliminates the requirement to classify
deferred tax assets and liabilities as noncurrent or current within
a classified statement of financial position. This ASU is
effective for annual and interim periods beginning after
December 15, 2016 and should be applied prospectively with
early adoption permitted at the beginning of an interim or
annual reporting period. The Company is currently evaluating
the impact of adopting this guidance.
In January 2016, the FASB issued ASU 2016-01, “Financial
Instruments – Overall: Recognition and Measurement of
Financial Assets and Financial Liabilities.” The amendments in
this update require all equity investments to be measured at fair
value with changes in the fair value recognized through net
income. The amendments in this update also require an entity to
present separately in other comprehensive income the portion of
the total change in the fair value of a liability resulting from a
change in the instrument-specific credit risk when the entity has
12
TSR INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
elected to measure the liability at fair value in accordance with
the fair value option for financial instruments. In addition, the
amendments in this update eliminate the requirement to disclose
the fair value of financial instruments measured at amortized
cost for entities that are not public business entities and the
requirement
significant
assumptions used to estimate the fair value that is required to be
disclosed for financial instruments measured at amortized cost
on the balance sheet for public business entities. This update is
effective for the Company in the fiscal year ending May 31,
2019. The Company is currently evaluating the impact, if any,
of this update on its consolidated financial statements.
the method(s) and
to disclose
In February 2016, the FASB issued ASU 2016-02, “Leases
(Topic 842).” This update includes a lease accounting model
that recognizes two types of leases – finance leases and
operating leases. The standard requires that a lessee recognize
on the balance sheet assets and liabilities relating to leases with
terms of more than 12 months. The recognition, measurement,
and presentation of expenses and cash flows arising from a lease
by a lessee will depend on its classification as a finance or
operating lease. This update is effective for the Company in the
fiscal year ending May 31, 2020. The Company is currently
evaluating the impact, if any, of this update 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:
experience,
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 creditworthiness, 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 on our
creditworthiness,
customer
historical
economic trends 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, or in their willingness to pay, could have a material
adverse effect on the collectibility of our accounts receivable
and our future operating results.
types,
Valuation of Marketable Securities
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
certificates of deposit to maturity (which maturities range up to
12 months), such securities have been classified as held-to-
maturity and are carried at amortized cost, which approximates
fair 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. The related unrealized gains and
losses are included in earnings.
Valuation of Deferred Tax Assets
We regularly evaluate our ability to recover the reported amount
of our deferred income tax assets 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 herein,
including statements
concerning the Company’s plans, future prospects and 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 set forth in the
forward-looking statements due to known and unknown 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
programming services will continue to adversely affect the
Company’s business; the concentration of the Company’s
business with certain customers; uncertainty as
the
Company’s ability to maintain its relations with existing
customers and expand its contract computer programming
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; the Company’s ability to adapt
to changing market conditions; and other risks and uncertainties
described in the Company’s filings under the Securities
Exchange Act of 1934. The Company is under no obligation to
publicly update or revise forward-looking statements.
to
13
TSR INC. AND SUBSIDIARIES
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, 2016 and
2015, and the related consolidated statements of income, equity, and cash flows for the years then ended. TSR, Inc.’s
management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these
consolidated financial statements 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
consolidated financial statements 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 audit 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 consolidated financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. 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 as of May 31, 2016 and 2015 and the results of their operations and their cash flows
for the years then ended in conformity with accounting principles generally accepted in the United States of America.
CohnReznick LLP
Jericho, New York
July 28, 2016
14
TSR INC. AND SUBSIDIARIES
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company’s shares of Common Stock trade on the NASDAQ Capital Market under the symbol TSRI. The following are the high
and low sales prices for each quarter during the fiscal years ended May 31, 2016 and 2015:
June 1, 2015 – May 31, 2016
1st
Quarter
High Sales Price ............................ $ 4.77
3.51
Low Sales Price .............................
3rd
2nd
Quarter
Quarter
$ 4.83 $ 5.03
3.49
4.00
4th
Quarter
$ 4.12
3.37
June 1, 2014 – May 31, 2015
1st
Quarter
High Sales Price ............................ $ 3.88
2.90
Low Sales Price .............................
3rd
2nd
Quarter
Quarter
$ 3.59 $ 4.84
3.34
3.05
4th
Quarter
$ 5.50
3.66
There were 67 holders of record of the Company’s Common Stock as of June 30, 2016. Additionally, the Company estimates that
there were approximately 800 beneficial holders as of that date. There were no dividends declared or paid by the Company with
respect to its shares of Common Stock during the last two fiscal years. The Company has no current plans to implement a quarterly
dividend program or pay any other special cash dividend.
15
TRANSFER AGENT
Continental Stock Transfer
17 Battery Place
New York, NY 10004
212-509-4000
AUDITORS
CohnReznick LLP
100 Jericho Quadrangle
Suite 223
Jericho, NY 11753
COUNSEL
Giordano, Halleran & Ciesla, P.C.
125 Half Mile Road
Suite 300
Red Bank, NJ 07701
CORPORATE
HEADQUARTERS
400 Oser Avenue
Suite 150
Hauppauge, NY 11788
631-231-0333
SUBSIDIARY
TSR Consulting
Services, Inc.
New York City
420 Lexington Avenue
Suite #835
New York, NY 10170
212-986-4600
E-mail: tsrny@tsrconsulting.com
New Jersey
379 Thornall Street
6th Floor
Edison, NJ 08837
732-321-9000
E-mail: tsrnj@tsrconsulting.com
Long Island
400 Oser Avenue
Suite 150
Hauppauge, NY 11788
631-231-0333
E-mail: tsrli@tsrconsulting.com
DIRECTORS
Joseph F. Hughes
Chairman of the Board
Chief Executive Officer
President and Treasurer
Christopher Hughes
Senior Vice President and
President TSR Consulting
Services, Inc.
James J. Hill
Director
Retired Executive Vice President
Sales & Marketing,
MRA Publications, Inc.
Brian J. Mangan
Director
Retired Senior Vice President
Finance,
ABC Television Network
Raymond A. Roel
Director
Principal,
Ray Roel Consulting LLC
OFFICERS
Joseph F. Hughes
Chairman of the Board
Chief Executive Officer
President and Treasurer
Christopher Hughes
Senior Vice President and
President TSR Consulting
Services, Inc.
John G. Sharkey
Vice President, Finance
and Secretary
Copies of the Company’s Form 10-K are available, without charge, to shareholders upon written request to:
John G. Sharkey, Vice President, Finance, TSR, Inc., 400 Oser Avenue, Suite 150, Hauppauge, NY 11788