ANNUAL
REPORT
2017
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 of 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,
2017
May 31,
2016
May 31,
2015
May 31,
2014
May 31,
2013
Revenue, Net ......................................................................
$ 62,573
$ 60,998
$ 57,403
$ 49,530
$ 44,914
Income (Loss) From Operations .........................................
Net Income (Loss) Attributable to TSR, Inc. .......................
Basic Net Income (Loss) Per TSR, Inc. Common Share......
562
268
0.14
839
399
0.20
432
193
25
(86 )
(716 )
(520 )
0.10
(0.04 )
(0.26 )
Working Capital .................................................................
7,689
9,391
8,986
8,706
8,717
Total Assets ........................................................................
14,535
14,090
14,051
13,563
13,619
Total TSR, Inc. Equity ........................................................
Book Value Per TSR, Inc. Common Share .........................
(Total TSR Equity Divided by Common Shares Outstanding)
7,738
3.94
9,432
9,033
8,840
8,926
4.81
4.60
4.51
4.55
Cash Dividends Declared Per TSR, Inc. Common Share.....
$
1.00
$
0.00
$
0.00
$
0.00
$
1.50
LETTER FROM THE CHAIRMAN
Dear Stockholders:
My first annual report letter as TSR’s Chairman and CEO begins with a personal note of appreciation.
Shortly after the close of our fiscal year 2017, our treasured Founder and Chairman, Joseph F. Hughes,
retired after 48 years of leadership and service. TSR would not exist today if it were not for Joe’s vision
and his extraordinary ability to constantly adapt. Words cannot convey the depth of our gratitude to Joe.
On behalf of all TSR employees and stockholders, I wish Joe the best of health and happiness in his
retirement. I am grateful for this opportunity to lead TSR forward.
This transition in TSR’s leadership has been relatively seamless due to vigorous succession planning
that had been in place for several years. I share Joe’s vision and am committed to leading TSR to
succeed in an ever evolving marketplace. Overall, the Company faced several challenges this year. For
the year ended May 31st, revenue increased 2.6% from last year to $62.6 million. Among other things,
we had particular success in growing our business in the utilities industry, offset by uncertain business
conditions generally and reduced purchasing activity among several of our European banking and
pharmaceutical customers. Net income attributable to TSR decreased from $399,000 in the prior year to
net income of $268,000 in the current year. Additionally, net income per share decreased from $0.20 to
$0.14 per share. Net income was impacted by increases in general and administrative expenses.
While we always seek new customers, our primary focus continues to be on organic growth -- increasing
business from our existing clients, many of whom we have served for decades.
TSR’s outstanding reputation among its customers, potential customers and the staffing services
industry is of paramount importance to us. Changing computer technologies and IT needs continue to
escalate worldwide. While challenging, responding to technological change is precisely TSR’s sweet
spot, our wheelhouse, and has been for more than 40 years. We strive to be among the leading service
providers for architects and developers in cloud based computing, mobile based financial technology,
robotic process automation, cyber and information security, ethical hacking, and penetration testing.
Delivering these and other new technologies as they develop will fuel our growth.
As I assume leadership at TSR, I find it fitting to quote Joe: “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 dedication will also best serve you, our stockholders.”
Sincerely
Chris Hughes
President
1
TSR INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, 2017 and 2016
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 2017 and 2016 .............
Other ........................................................................................................................
Prepaid expenses ...........................................................................................................
Prepaid and recoverable income taxes ...........................................................................
Deferred income taxes ...................................................................................................
2017
2016
5,723,976
1,020,888
$
4,514,157
1,553,272
7,324,291
18,455
7,342,746
176,397
94,833
106,000
7,703,680
10,853
7,714,533
99,069
-
128,000
Total Current Assets......................................................................................
14,464,840
14,009,031
Equipment and leasehold improvements, at cost:
Equipment .....................................................................................................................
Furniture and fixtures ....................................................................................................
Automobiles ..................................................................................................................
Leasehold improvements ...............................................................................................
Less accumulated depreciation and amortization ...........................................................
Other assets......................................................................................................................
Deferred income taxes .....................................................................................................
98,889
111,107
19,665
60,058
289,719
269,069
20,650
49,653
-
99,244
111,107
19,665
60,058
290,074
262,076
27,998
49,653
3,000
Total Assets .................................................................................................... $ 14,535,143
$ 14,089,682
LIABILITIES AND EQUITY
Current liabilities:
Accounts and other payables ......................................................................................... $
Accrued expenses and other current liabilities:
Salaries, wages and commissions ...............................................................................
Other ........................................................................................................................
Income taxes payable ....................................................................................................
Dividends payable .........................................................................................................
Advances from customers ..............................................................................................
644,834
$
723,705
2,699,686
138,372
2,838,058
-
1,962,062
1,330,714
2,481,436
152,674
2,634,110
14,810
-
1,245,563
Total Liabilities ..............................................................................................
6,775,668
4,618,188
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
16,118,011
21,252,021
13,514,003
7,738,018
21,457
7,759,475
31,142
5,102,868
17,811,884
22,945,894
13,514,003
9,431,891
39,603
9,471,494
Total Liabilities and Equity........................................................................... $ 14,535,143
$ 14,089,682
See accompanying notes to consolidated financial statements.
2
TSR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended May 31, 2017 and 2016
2017
2016
Revenue, net....................................................................................................................... $ 62,572,585
$ 60,998,281
Cost of sales .......................................................................................................................
Selling, general and administrative expenses ...................................................................
52,326,521
9,683,601
62,010,122
51,038,879
9,120,526
60,159,405
Income from operations ...................................................................................................
562,463
838,876
Other income:
Interest and dividend income ..........................................................................................
Unrealized gain (loss) from marketable securities, net ....................................................
Income before income taxes ..............................................................................................
Provision for income taxes ................................................................................................
Consolidated net income ..................................................................................................
Less: Net income attributable to noncontrolling interest ................................................
10,888
3,616
14,504
576,967
263,000
313,967
45,778
8,621
(2,296)
6,325
845,201
389,000
456,201
56,975
Net income attributable to TSR, Inc. ............................................................................... $
268,189
$
399,226
Net income per TSR, Inc. common share ......................................................................... $
0.14
$
0.20
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, 2017 and 2016
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, 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
Net income
attributable to
noncontrolling
interest .............................................
-
Distribution to
noncontrolling
interest .............................................
-
Cash dividend
declared ...........................................
-
Net income
attributable to
TSR, Inc. ........................................
-
Balance at
May 31, 2017...................................
3,114,163
$ 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
-
-
-
-
-
-
-
-
-
-
(1,962,062)
268,189
-
-
-
-
-
-
45,778
45,778
(63,924)
(63,924)
(1,962,062)
-
(1,962,062)
268,189
-
268,189
$ 31,142
$ 5,102,868 $ 16,118,011
$(13,514,003)
$ 7,738,018
$ 21,457
$ 7,759,475
See accompanying notes to consolidated financial statements.
4
TSR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended May 31, 2017 and 2016
Cash flows from operating activities:
2017
2016
Consolidated net income ................................................................................................
Adjustments to reconcile consolidated net income to net cash provided by
$
313,967
$
456,201
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 .......................................................................................
19,976
-
(3,616)
25,000
379,389
(7,602)
(77,328)
(94,833)
125,077
(14,810)
85,151
22,765
15,000
2,296
17,000
1,036,104
(8,395)
17,027
-
(155,132)
10,933
(185,959)
Net cash provided by operating activities .......................................................................
750,371
1,227,840
Cash flows from investing activities:
Proceeds from maturities of marketable securities .......................................................
Purchases of marketable securities ..............................................................................
Purchases of equipment and leasehold improvements .................................................
2,523,000
(1,987,000)
(12,628)
1,762,000
(2,046,000)
(11,832)
Net cash provided by (used in) investing activities .........................................................
523,372
(295,832)
Cash flows from financing activities:
Distributions to noncontrolling interest .......................................................................
(63,924)
(87,641)
Net cash used in financing activities ..............................................................................
(63,924)
(87,641)
Net increase in cash and cash equivalents ..........................................................................
1,209,819
844,367
Cash and cash equivalents at beginning of year ..................................................................
4,514,157
3,669,790
Cash and cash equivalents at end of year .......................................................................
$
5,723,976
$
4,514,157
Supplemental disclosures of cash flow data:
Income taxes paid ..........................................................................................................
$
348,000
$
361,000
Non-cash:
Dividends declared and payable .....................................................................................
$
1,962,000
$
-
See accompanying notes to consolidated financial statements.
5
TSR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2017 and 2016
(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 (“IT”) capabilities. In addition, beginning
in fiscal 2017, the Company provided administrative (non-IT) workers on a contract basis to two of its existing customers. In
fiscal 2017, three customers each accounted for more than 10% of the Company’s consolidated revenue, constituting a
combined 44.9%. The largest of these constituted 19.4% of consolidated revenue. 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. The accounts receivable balances associated with the Company’s largest
customers were $3,340,000 for three customers at May 31, 2017 and $3,735,000 for four customers at May 31, 2016. The
Company operates in one business segment, contract staffing 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 and administrative staffing 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, 2017 and 2016:
Cash in banks ......................
Money market funds ...........
Certificates of deposit .........
2017
4,634,245
840,731
249,000
5,723,976
$
$
2016
3,974,007
540,150
-
4,514,157
$
$
(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 leve l
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, 2017 and 2016
The following are the major categories of assets measured at fair value on a recurring basis as of May 31, 2017 and 2016
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, 2017
Level 1
Level 2
Level 3
Total
Certificates of deposit ..................................................
-
28,888
Equity securities ..........................................................
28,888
$
$
$
$
992,000
-
992,000
$
$
-
-
-
$
$
992,000
28,888
1,020,888
May 31, 2016
Level 1
Level 2
Level 3
Total
Certificates of deposit ....................................................
-
Equity securities ............................................................
25,272
25,272
$
$
$
1,528,000
-
$
$
1,528,000
$
-
-
-
$
$
1,528,000
25,272
1,553,272
Based upon the Company’s intent and ability to hold its certificates of deposit 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, 2017 and 2016 are summarized as follows:
Amortized
Cost
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Current
2017: Certificates of deposit .......................................
992,000
Equity securities ...............................................
16,866
1,008,866
$
$
Current
2016: Certificates of deposit .........................................
1,528,000
Equity securities .................................................
16,866
1,544,866
$
$
$
$
$
$
-
12,022
12,022
-
8,406
8,406
$
$
$
$
-
-
-
-
-
-
Recorded
Value
$
$
$
$
992,000
28,888
1,020,888
1,528,000
25,272
1,553,272
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, 2017 and 2016
(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, 2017 or 2016.
(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, 2019. The Company expects the impact of the update, if any, to be immaterial on
its consolidated financial statements.
transactions
8
TSR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2017 and 2016
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 periods beginning after December 15, 2016, and interim periods within those annual periods and
should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. The
Company will adopt this guidance in the first quarter of fiscal 2018. The Company’s deferred tax assets and liabilities will all
be classified as noncurrent.
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.
In March 2016, the FASB issued ASU 2016-08, “Principal versus Agent Consideration (Topic 606).” This update contains
guidance on principal versus agent assessments when a third party is involved in providing goods or services to a customer. It
specifies that an entity is a principal, and thus records revenue on a gross basis, if it controls a good or service before
transferring the good or service to the customer. An entity is an agent, and thus records revenue on a net basis, if it arranges
for a good or service to be provided by another entity. 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 May 2016, the FASB issued ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients (Topic 606).” This
update provides certain clarifications to reduce potential diversity and to simplify the standard. The amendments in ASU
2016-12 clarify the following key areas: assessing collectibilty; presenting sales taxes and other similar taxes collected from
customers; noncash consideration; contract modifications at transition; completed contracts at transition; and disclosing the
accounting change in the period of adoption. 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.
(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 47 accounts with open balances as of May 31, 2017. As a percentage of revenue, the three largest customers among
these 47 accounts consisted of 45.6% of the net accounts receivable balance at May 31, 2017.
9
TSR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2017 and 2016
(2) Income Taxes
A reconciliation of the provision for income taxes computed at the Federal statutory rates for fiscal 2017 and 2016 to the reported
amounts is as follows:
2017
2016
Amount
%
Amount
%
Amounts at statutory Federal tax rate ................
$ 196,000
Noncontrolling interest ......................................
(16,000)
34.0%
(2.8)
$ 287,000
34.0%
(19,000)
(2.3)
State and local taxes, net of Federal
income tax effect ...............................
Non-deductible expenses and other ...................
56,000
27,000
9.7
4.7
88,000
33,000
10.4
3.9
$ 263,000
45.6%
$ 389,000
46.0%
The components of the provision for income taxes are as follows:
2017:
Current ............................................
$
170,000
$
Deferred ...........................................
8,000
$
178,000
$
68,000
17,000
85,000
$
238,000
25,000
$
263,000
Federal
State
Total
2016:
Current ..............................................
$
253,000
$
119,000
$
372,000
Deferred ............................................
3,000
14,000
17,000
$
256,000
$
133,000
$
389,000
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets at May 31, 2017
and 2016 are as follows:
2017
2016
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..................
$
75,000
38,000
-
(4,000)
2,000
(5,000)
$ 106,000
$
78,000
50,000
10,000
(6,000)
2,000
(3,000)
$ 131,000
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, 2017 and 2016. The Company’s Federal and state income tax returns
prior to fiscal year 2014 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.
10
TSR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2017 and 2016
(3) Commitments and Contingencies
A summary of noncancellable long-term operating lease commitments for facilities as of May 31, 2017 follows:
Fiscal Year
Amount
2018 ..............
2019 ..............
2020 ..............
2021 ..............
2022 ..............
thereafter .......
Total
$ 372,000
342,000
241,000
209,000
161,000
41,000
$ 1,366,000
Total rent expenses under all lease agreements amounted to $372,000 and $379,000 in fiscal 2017 and 2016, respectively.
The Company has entered into employment agreements with two of its executive officers expiring in 2020 and 2022, respectively.
The total remaining payments under these agreements is $2,500,000 at May 31, 2017.
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
On May 25, 2017, the Company declared a special cash dividend of $1.00 per common share payable on July 14, 2017 to
shareholders of record on June 16, 2017. This dividend totaled $1,962,062. The Company has no current plans to implement a
quarterly dividend program or pay any other special cash dividend.
During the years ended May 31, 2017 and 2016, 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.
(5) Subsequent Event
Joseph F. Hughes, Chairman of the Board, Chief Executive Officer, President and Treasurer, retired on July 5, 2017. The Board
of Directors of the Company has elected Christopher Hughes, formerly Senior Vice President of TSR, Inc., to succeed Joseph F.
Hughes as Chairman of the Board, Chief Executive Officer, President and Treasurer. Upon his retirement, the Board awarded
Joseph F. Hughes a one-time founder’s bonus of $100,000. The Board also approved the continued payment by the Company of
the remaining payments of the lease for the automobile used by Joseph F. Hughes until the lease expires in May, 2018. Further,
the Board approved the continued payment by the Company for health insurance coverage for Joseph F. Hughes and his spouse
under the Company’s executive medical plan until May 31, 2018 and payments in lieu of the insurance coverage for two years
thereafter.
11
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)
2017
2016
Amount
% of
Revenue
Amount
% of
Revenue
Revenue, Net .............................................................
$ 62,573
100.0%
$ 60,998
100.0%
Cost of Sales..............................................................
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. ........................
$
52,327
10,246
9,684
83.6
16.4
15.5
51,039
9,959
9,120
83.7
16.3
14.9
562
15
577
263
314
46
268
0.9
0.0
0.9
0.4
0.5
0.1
0.4%
$
839
6
845
389
456
57
399
1.4
0.0
1.4
0.6
0.8
0.1
0.7%
revenue
Revenue
Revenue consists primarily of
from computer
programming consulting services. Revenue for the fiscal year
ended May 31, 2017 increased $1,575,000 or 2.6% from fiscal
2016. The overall average number of consultants on billing with
customers increased from 350 for the fiscal ended May 31, 2016
to 379 for the fiscal year ended May 31, 2017, while the average
number of computer programming consultants decreased from
350 for the fiscal year ended May 31, 2016 to 328 in the fiscal
year ended May 31, 2017. The 379 consultants on billing for the
current period include 51 administrative (non-IT) workers that
the Company placed with two large customers at the customers’
requests at billing rates 67.6% lower than those charged for
computer programming consultants. The Company did not make
any placements of administrative (non-IT) workers in the prior
fiscal year. The Company charges lower daily billing rates for
administrative (non-IT) workers, but also pays lower rates to the
administrative (non-IT) workers.
Cost of Sales
Cost of sales for the fiscal year ended May 31, 2017 increased
$1,288,000 or 2.5% to $52,327,000 from $51,039,000 in the
prior fiscal year. The increase in cost of sales resulted primarily
from an increase in consultants placed with customers. The
placement of lower paid administrative (non-IT) workers at two
major customers offset the reduction in the average number of
computer programming consultants placed with customers. Cost
of sales as a percentage of revenue decreased from 83.7% in the
fiscal year ended May 31, 2016 to 83.6% in the fiscal year
ended May 31, 2017. The decrease in cost of sales as a
to the
percentage of revenue was primarily attributable
placement of administrative (non-IT) workers at higher average
markups
computer programming
consultants. However, because their pay rates averaged 71.1%
lower than the computer programming consultants, the daily
gross profit per worker in dollars is still lower for the
administrative
computer
programming consultants.
(non-IT) workers
the Company’s
than
than
the
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 $564,000 or 6.2% from $9,120,000 in the
fiscal year ended May 31, 2016 to $9,684,000 in the fiscal year
ended May 31, 2017. This increase was primarily attributable to
an increase in the cost of in-house recruiters, amounts paid for
offshore recruiting services to support the hiring of contract
administrative (non-IT) workers and professional fees. Selling,
general and administrative expenses, as a percentage of revenue,
increased from 14.9% in the fiscal year ended May 31, 2016 to
15.5% in the fiscal year ended May 31, 2017 as a result of the
additional expenses not yielding sufficient additional revenue.
12
TSR INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Other Income
Other income for the fiscal year ended May 31, 2017 resulted
primarily from interest and dividend income of $11,000 and a
mark to market gain of approximately $4,000 on the Company’s
marketable equity securities. Other income for the fiscal year
ended May 31, 2016 resulted primarily from interest and
dividend income of $9,000 decreased by a mark to market loss
of approximately $3,000 on the Company’s marketable equity
securities.
Income Taxes
The effective income tax rates were 45.6% for the fiscal year
ended May 31, 2017 and 46.0% for the fiscal year ended May
31, 2016. State income taxes were slightly lower in fiscal year
2017 as compared with fiscal year 2016.
Net Income Attributable to TSR, Inc.
Net income attributable to TSR, Inc. decreased $131,000 from
$399,000 in the fiscal year ended May 31, 2016 to net income of
$268,000 in the fiscal year ended May 31, 2017. This decrease
in net income was primarily attributable to the increase in
selling, general and administrative expenses outpacing the
increase in gross profit generated by the revenue increase.
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 12 month period following the date of these
financial statements.
At May 31, 2017, the Company had working capital (total
current assets in excess of total current liabilities) of $7,689,000
including cash and cash equivalents and certificates of deposit
and marketable securities of $6,745,000 as compared to working
capital of $9,391,000 including cash and cash equivalents and
certificates of deposit and marketable securities of $6,067,000 at
May 31, 2016. The decrease in working capital is primarily
attributable to the special cash dividend of $1.00 per share
declared on May 25, 2017 and payable on July 14, 2017 to
shareholders of record on June 16, 2017. There were 1,962,062
shares of the Company’s Common Stock outstanding on the
record date, June 16, 2017.
Net cash flow of $750,000 was provided by operations during
fiscal 2017 as compared to $1,228,000 of net cash flow
provided by operations in fiscal 2016. The cash provided by
operations for fiscal 2017 primarily resulted from consolidated
net income of $314,000, a decrease in accounts receivable of
$379,000 and an increase in accounts and other payables and
accrued and other liabilities of $125,000, offset, to some extent,
by an increase in prepaid expenses of $77,000 and an increase in
prepaid and recoverable income taxes of $95,000. 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.
Net cash provided by investing activities amounted to $523,000
for fiscal 2017, compared to $296,000 in net cash used in
investing activities in fiscal 2016. The cash provided by
investing activities in 2017 primarily resulted from maturing
certificates of deposit, a portion of which were not rolled over.
The net cash used in investing activities for fiscal 2016
primarily resulted from investing in additional certificates of
deposit.
Net cash used in financing activities of $64,000 and $88,000
during the fiscal years ended May 31, 2017 and 2016,
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, 2017
consisted of lease obligations on its branch and corporate
facilities. The Company
lease
intends
commitments from cash flow provided by operations, available
cash and short-term marketable securities.
to finance
these
The Company’s cash and marketable securities were sufficient
to enable it to meet its liquidity requirements during fiscal 2017.
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, 2019. 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 periods beginning after December 15, 2016,
and interim periods within those annual periods and should be
13
TSR INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
applied prospectively with early adoption permitted at the
beginning of an interim or annual reporting period. The
Company will adopt this guidance in the first quarter of fiscal
2018. The Company’s deferred tax assets and liabilities will all
be classified as noncurrent.
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
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.
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.
In March 2016, the FASB issued ASU 2016-08, “Principal
versus Agent Consideration (Topic 606).” This update contains
guidance on principal versus agent assessments when a third
party is involved in providing goods or services to a customer. It
specifies that an entity is a principal, and thus records revenue
on a gross basis, if it controls a good or service before
transferring the good or service to the customer. An entity is an
agent, and thus records revenue on a net basis, if it arranges for
a good or service to be provided by another entity. 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 May 2016, the FASB issued ASU 2016-12, “Narrow-Scope
Improvements and Practical Expedients (Topic 606).” This
to reduce potential
update provides certain clarifications
diversity and to simplify the standard. The amendments in ASU
2016-12 clarify the following key areas: assessing collectibilty;
presenting sales taxes and other similar taxes collected from
customers; noncash consideration; contract modifications at
transition; completed contracts at transition; and disclosing the
accounting change in the period of adoption. 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.
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
the application of
following accounting policies require
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
historical
creditworthiness,
customer
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.
14
TSR INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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
including statements
Certain statements contained herein,
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
15
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, 2017 and
2016, 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, 2017 and 2016 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
August 15, 2017
16
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, 2017 and 2016:
June 1, 2016 – May 31, 2017
4th
1st
Quarter
Quarter
High Sales Price ........................... $ 6.80 $ 9.50 $ 6.70 $ 8.00
4.35
Low Sales Price............................
2nd
Quarter
3rd
Quarter
4.70
4.80
3.42
June 1, 2015 – May 31, 2016
4th
1st
Quarter
Quarter
High Sales Price ........................... $ 4.77 $ 4.83 $ 5.03 $ 4.12
3.37
Low Sales Price............................
2nd
Quarter
3rd
Quarter
4.00
3.49
3.51
There were 56 holders of record of the Company’s Common Stock as of June 30, 2017. Additionally, the Company estimates that
there were approximately 775 beneficial holders as of that date. On May 25, 2017, the Company declared a special cash dividend of
$1.00 per common share payable on July 14, 2017 to stockholders of record on June 16, 2017. The Company has no current plans to
implement a quarterly dividend program or pay any other special cash dividend.
TRANSFER AGENT
Continental Stock Transfer
1 State Street Plaza
30th Floor
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
Christopher Hughes
Chairman of the Board
Chief Executive Officer
President and Treasurer
Regina Dowd
Director
Account Executive
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
Christopher Hughes
Chairman of the Board
Chief Executive Officer
President and Treasurer
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