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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended May 31, 1996
or
[ ] Transition Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the transition period from ___________ to____________
Commission File Number: 0-8656
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TSR, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 13-2635899
- ------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 Oser Avenue, Hauppauge, NY 11788
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(Address of principal executive offices)
Registrant's telephone number: 516-231-0333
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Securities registered pursuant to Section 12(b) of the Exchange Act:
None
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(Title of Class)
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $0.01 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes _____ [ ] No
Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-K contained in this form, and no disclosure
will be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
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<PAGE>
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. (See
definition of affiliate in Rule 12b-2 of the Exchange Act).
The aggregate market value was approximately $6,935,000, based on the market
price of the Registrant's Common Stock at July 31, 1996 of $8.50 and excluding
shares of common stock held by officers, directors and beneficial holders of 5%
of the outstanding common stock of the Registrant, many of which persons may not
be affiliates of the Registrant.
State the number of shares outstanding of each of the Registrant's classes of
common equity, as of the latest practicable date.
1,457,069 shares of Common Stock, par value $0.01 per share, as of July 31,
1996.
Documents incorporated by Reference:
The information required in Part III, Items 11, 12 and 13 is incorporated by
reference to the Registrant's Proxy Statement in connection with the 1996 Annual
Meeting of Shareholders, which will be filed by the Registrant within 120 days
after the close of its fiscal year.
2
<PAGE>
PART I
Item 1. Business.
Registrant, a Delaware corporation, was formed in February 1969. The Registrant
currently operates in one business segment, computer software, and is engaged
primarily in the business of providing contract computer programming services.
It also provides maintenance and support for its conversion software, and
provides program updating and consulting services to American Express Bank Ltd.
(AEBL). Previously, until March 1, 1996, the Registrant also provided
construction specification data bases on magnetic media, primarily to
architectural and engineering firms, and, until October 8, 1995, provided
temporary nurses and nurses' aides to health care facilities and home care
patients (see Note 3 to Consolidated Financial Statements).
The following table sets forth the amount and percentage of the gross revenues
realized by the Registrant from its principal business activities during the
fiscal years ended May 31, 1996, 1995, and 1994 respectively. The purpose of
this table is to provide historical data. This table should not be considered
indicative of future revenue to be realized by the Registrant.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
-----------------------------------------------------------
(000'S)
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Contract Programming Services .. $29,667 93% $23,420 88% $18,732 85%
Construction Specifications .... 1,456 5 2,038 8 1,914 9
Health Care Services ........... 445 1 948 3 920 4
Specialized Computer Programming
and Conversion Services ..... 242 1 268 1 360 2
------- --- ------- --- ------- ---
$31,810 100% $26,674 100% $21,926 100%
======= === ======= === ======= ===
</TABLE>
Contract Computer Programming Services
The Registrant's contract computer programming services are conducted through
TSR Consulting Services, Inc. (TCS), a wholly-owned subsidiary organized in
1980, which provides contract computer programming services in the New York
Metropolitan area, New England, Washington, D.C., and Virginia. The principal
consulting office is located in New York City and branch offices in New Jersey
and Long Island have proved viable and have enhanced the Registrant's business.
During fiscal 1996 the Registrant opened a branch office in Connecticut.
The Registrant's contract computer programming services business involves hiring
specific programmers to work for limited periods of time, generally three months
to one year, on specific computer programming projects of major corporations.
These consultants usually supplement corporate in-house staffs. The Registrant's
ability to succeed in the contract programming services business depends on both
its ability to obtain assignments to fulfill programming requirements for major
corporations and its ability to recruit programmers to fulfill these
requirements. The ability to obtain assignments to fulfill specialized
requirements is in part dependent upon the economic environment. Over the past
several years there has been significant revenue growth, however, it has mainly
come from increased business within existing accounts. During fiscal 1996, in
excess of 50% of the revenue increase was attributable to the Registrant's
largest account.
In recruiting consultants to fill customer requirements, the Registrant relies
on a database of approximately 20,000 programmer/consultants. The number of
consultants (including employees and subcontractors) on billing with customers
was approximately 225 as of May 31, 1995 and increased throughout the fiscal
year to approximately 290 at May 31, 1996.
(Continued)
3
<PAGE>
The Registrant pays programmers on a semimonthly basis and invoices its
corporate customers, on a time and material basis, not less frequently than
monthly. The Registrant currently services approximately 70 customers. During
the fiscal year ended May 31, 1996, the Registrant derived 22.4% of its
consolidated revenue, or $7,141,000, from AT&T for contract programming
services. The Registrant was included on the preferred vendors list at AT&T for
1995 and 1996, which facilitated the substantial increase in revenue for this
account. The Registrant has focused its growth plan to bring in new accounts and
reduce its concentration of business risk. To this end the Registrant has been
hiring senior sales personnel who market the Registrant's services to major
corporations. These additions represent a significant investment by the
Registrant since such sales executives require guaranteed draws prior to
developing a sufficient customer base. Most such individuals are under
short-term restrictive covenants from prior employers precluding them from
soliciting accounts with which they have relationships. The Registrant hired
three such individuals in fiscal 1996.
The Registrant's professional consulting services are subject to intense
competition in the geographic areas in which it conducts business. Such
competition places continuous downward pressure on gross margins (see
Management's Discussion and Analysis).
Construction Specifications
In 1983, the Registrant acquired certain of the operating assets of Bowne
Information Systems, Inc. (a subsidiary of Bowne & Co.) through a wholly-owned
subsidiary called Construction Data Services, Inc. (formerly BIS, Inc.). As a
result of such acquisition, the Registrant succeeded to certain contractual
rights to market construction specification data bases on magnetic media that
are useful to the engineering, architectural and building contractors field in
both the public and private sectors.
This subsidiary provided all of its products and services under an exclusive
license agreement dated December 1, 1983, as amended, with the Construction
Sciences Research Foundation, Inc. (CSRF). Such agreement terminated March 1,
1996. In June of 1996, the Registrant entered into a termination arrangement
whereby it recorded operating income in the amount of $93,150 in the fourth
quarter of fiscal 1996, and will record non-operating income of $76,850 in the
first quarter of fiscal 1997 (see Management's Discussion and Analysis).
Health Care Services
The Registrant, through its wholly-owned subsidiary TSR Health Care Services,
Inc., provided temporary nurses and nurses' aides to health care facilities and
home care patients. In June 1992, the Registrant commenced preliminary
activities, which, subject to appropriate licensing, would permit it to provide
the services of a home health care agency. The Registrant operated primarily as
a supplemental staffing agency to health care facilities from August 1992 until
April 1993 when the home care license was obtained and full operation commenced.
During fiscal 1993 and into mid-fiscal 1994, the Registrant expanded its sales
and clerical staff without commensurate improvement in profitability. Towards
the end of fiscal 1994, the staff was reduced to lower overhead expenses.
Because of these reductions, this operation, after sustaining an operating loss
of $248,000 in fiscal 1994, broke even during fiscal 1995. In the second quarter
of fiscal 1996, the Registrant determined to discontinue its health care
services business. The growth and profitability experienced had not matched the
Registrant's expectations when the business commenced. Small improvements in
operating results notwithstanding, the Registrant had concluded that its
resources were better utilized in the further development of its contract
programming business. Therefore, the existing caseload was transferred to
another licensed home care agency as of the close of business October 8, 1995.
This transfer did not result in a gain or loss to the Registrant. The agreement
to transfer the account base provided that the purchasing agency pay the
Registrant 50% of the gross profit generated from the Registrant's accounts for
a period of two years. The Registrant received approximately $46,000 in such
payments which were included in revenue during fiscal 1996.
4
<PAGE>
Other Business
The Registrant currently receives revenues of $15,000 per month under
maintenance agreements to service its conversion software. Pursuant to these
agreements the Registrant provides maintenance and support for its existing
installed base of conversion software customers. As a result of a consensual
settlement of certain legal proceedings, the Registrant ceased marketing this
product by the end of 1988. Since then, these monthly revenues have been
diminishing as the service contracts with existing customers expire. Unless
expiring contracts are renewed, this revenue base will further decline. The
total revenue received under these agreements was $180,000 for fiscal 1996.
The Registrant also continues to provide programming updating and consulting
services to AEBL on a time and material basis. During fiscal 1996, the
Registrant billed $62,000 on a time and material basis. It is expected that the
Registrant will continue to provide consulting services to AEBL on a time and
material basis.
The Registrant presently employs 242 people including its 3 executive officers.
Of such employees 15 are engaged in sales, 13 are recruiters for programmers,
194 are technical and programming consultants, and 17 are in administration and
clerical functions. Of the 242 employees, approximately 229 are employed by the
consulting subsidiary, 4 clerical people are employed by the construction
specifications subsidiary, and 9 are employed directly by the Registrant.
The Registrant does not own any material patents, franchises or concessions and
there is little chance that the Registrant will acquire any patents, franchises
or concessions in the near future, although the Registrant believes it has
developed certain software which it considers proprietary.
The Registrant does not maintain any significant backlog and does not believe
that the extent of its backlog at any time is of material significance to its
business.
New Business
The Registrant has recently entered the highly competitive code conversion
market to correct client application systems for problems which will occur as a
result of the upcoming century change January 1, 2000. The Registrant will
compete by utilizing an innovative approach through recently created conversion
software. The Registrant is arranging to commence a pilot project to demonstrate
its capabilities in the area. Upon successful completion of the pilot project
with the Registrant's unproven, untried software, substantial capital investment
will be required to establish appropriate computer facilities to manage
full-blown conversion projects. There can be no assurance that the Registrant
will be successful in the code conversion market or of the extent to which such
business will be profitable. The Registrant expects to operate this business
through a newly created subsidiary of which it will own 80% of the Common Stock
and the creator of the software will own 20%.
Item 2. Properties.
The Registrant leases 8,000 square feet of space in Hauppauge, New York for a
term ending December 31, 1996, with annual rentals of approximately $70,000.
This space is used as executive and administrative offices as well as by the
Registrant's operating subsidiaries.
The Registrant also leases sales and technical support offices in New York City
(lease ends March, 1997), New Jersey (lease ends August, 2000), and Connecticut
(lease ends August 1996), with aggregate monthly rentals of approximately
$12,000.
The Registrant believes the present locations are adequate for its current needs
as well as for the future expansion of its existing business.
5
<PAGE>
Item 3. Legal Proceedings.
None
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Registrant's shares of Common Stock trade on the NASDAQ National Market tier of
the Nasdaq Stock market under the symbol TSRI. The following are the high and
low sales prices for each quarter during the fiscal years ended May 31, 1996 and
1995:
<TABLE>
<CAPTION>
JUNE 1, 1995 - MAY 31, 1996
------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
High Sales Price............... 9 10 1/2 6 5/8 21
Low Sales Price................ 4 3/4 5 1/4 5 1/8 5 3/8
<CAPTION>
JUNE 1, 1994 - MAY 31, 1995
------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
High Sales Price............... 4 1/2 7 1/4 7 1/4 6 1/8
Low Sales Price................ 3 5/8 3 11/16 4 5/8 4 7/8
</TABLE>
There were 241 holders of record of the Registrant's Common Stock as of July 31,
1996. Additionally, the Registrant estimates that there were approximately 500
beneficial holders as of that date. On July 18, 1995 the Board of Directors
declared a special cash dividend of $0.40 per share on its Common Stock payable
on August 28, 1995 to shareholders of record as of July 31, 1995. Historically,
no cash dividends have been paid by the Registrant on its Common Stock except
that on September 16, 1991, the Registrant paid a special dividend of $1 per
share on its Common Stock. The Registrant has not adopted a policy of paying
dividends on a regular periodic basis and does not intend to declare one for
fiscal 1996.
6
<PAGE>
Item 6. Selected Financial Data.
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
MAY 31, May 31, May 31, May 31, May 31,
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues............................................. $31,810 $26,674 $21,926 $17,006 $14,855
Income From Operations............................... 1,456 1,264 799 142 395
Net Income........................................... 964 802 500 152 416
Net Income Per Common Share.......................... 0.64 0.53 0.32 0.09 0.26
Working Capital...................................... 8,358 8,337 7,525 7,372 7,214
Total Assets......................................... 11,167 10,629 9,191 8,734 8,449
Shareholders' Equity................................. 8,635 8,609 7,808 7,642 7,477
Book Value Per Common Share.......................... 5.93 5.68 5.16 4.70 4.60
Cash Dividends Declared Per Common Share............. 0.40 -- -- -- 1.00
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and the notes to the consolidated financial
statements presented elsewhere in this report.
Results of Operations
1996 Compared with 1995
Revenues for fiscal 1996 increased $5,136,000 or 19.3% over the prior year.
Contract programming services revenues contributed an increase of $6,221,000
which was offset by decreases in construction specifications of $582,000 and
health care services of $503,000 which businesses were terminated during the
current fiscal year. The increase in revenues in contract programming services
resulted primarily from further penetration within existing accounts, and
$3,700,000 of such increase resulted from further penetration in the
Registrant's largest account.
Cost of sales increased $3,965,000 or 20.5% over the prior year. The increase
included additional costs of $4,748,000 from contract programming which
primarily resulted from the above mentioned revenue increase. Construction
specifications and health care services costs decreased by $411,000 and $372,000
respectively due to the termination of these businesses.
Contract programming gross margins declined slightly from the prior year.
However, margins increased in the fourth quarter of fiscal 1996 after decreasing
for approximately 15 months. The decline in margins was attributable to
increased amounts paid to qualified programming professionals who have been in
demand. The increase in the fourth quarter is attributable to the Registrant's
ability to increase billing rates on a portion of its lower margin business.
(Continued)
7
<PAGE>
Selling, general and administrative expenses increased $979,000 or 16.2% over
the prior year. The contract programming business incurred increases amounting
to $1,418,000 which resulted primarily from increased personnel in recruiting
and sales, including those hired to staff a new office in Connecticut. The
increase also included additional commission based compensation due to the
increased revenues. Expenses decreased in construction specifications and health
care by $227,000 and $212,000 respectively due to the termination of those
businesses.
Interest and dividend income increased $19,000 on a lower average investable
base due to higher rates paid on the Registrant's treasury bills. Gains from the
sale of securities resulted from the purchase and sale of marketable equity
securities during the period, none of which were held at the end of the fiscal
year.
The effective income tax rate dropped to 43.5% from 46.1% in the prior year
because of lower state and local taxes, as the majority of the Registrant's
growth has come from New Jersey as compared with New York City, which has a
higher combined income tax rate.
1995 Compared with 1994
Revenues for fiscal 1995 increased $4,748,000 or 21.7% over the prior year.
Contract programming services revenues contributed $4,688,000 of this increase,
which resulted primarily from further penetration within existing accounts by
the sales personnel.
Cost of sales increased $3,976,000 or 25.9% over the prior year. This increase
included additional costs of $3,635,000 from contract programming, which
primarily resulted from the above mentioned revenue increase. Cost of sales
increased by $309,000 in the construction specifications business, primarily
because of additional expenses accrued to cover ongoing customer support costs
associated with terminating this business in March 1996. The cost of materials,
printing and shipping also increased for this business. Cost of sales also
increased by $29,000 in the health care services business, partly attributable
to a revenue increase and partly attributable to slightly lower margins.
Contract programming gross margins in the second half of the fiscal year
declined slightly from the first half and were flat for the full year, reversing
the trend of increasing gross margins which had been experienced for almost two
years. The decline in margins is attributable to increased amounts paid to
qualified programming professionals who have been in demand.
Selling, general, and administrative expenses increased $307,000, or 5.3% over
the prior year. The contract programming and construction specifications
businesses incurred increases amounting to $557,000, primarily due to additional
commission based compensation. The health care services business reduced
expenses in fiscal 1995 by $250,000 on flat revenues by decreasing sales and
administrative staffing, which eliminated the operating loss of $248,000
incurred in fiscal 1994.
Interest and dividend income increased $67,000 to $208,000 for the year,
primarily because of the increase during the year in short-term interest rates
paid on the Registrant's treasury bills.
The effective income tax rate dropped to 46.1% in the current year from 47.4% in
the prior year because of federal income taxes provided in the prior year on
additional taxable income attributable to state income tax refunds.
Liquidity, Capital Resources and Changes in Financial Condition
Subject to continued profitability, the Registrant expects that cash flow
generated from operations will be sufficient to provide the Registrant with
adequate resources to meet all needs with respect to its existing business. In
the event the Registrant requires additional funds, which the Registrant expects
will be required if there is a substantial investment in its code conversion
business, the Registrant expects to meet such needs with its cash and short-term
marketable securities as well as interest earned thereon, which the Registrant
believes to be sufficient for the foreseeable future.
(Continued)
8
<PAGE>
Net cash flow provided by operations resulted primarily from net income. Cash
flow was used to fund the increase in accounts receivable, which occurred
primarily because of the revenue increase. This use of cash was partly offset by
cash provided from an increase in accounts payable and accrued expenses. The
growth of accounts payable and accrued expenses is commensurate with the
increase in cost of sales.
Cash flow provided or used by investing activities has been affected primarily
by the Registrant's decisions to either purchase United States Treasury Bills
with maturities of three months or those with longer maturities. During the
current period, the Registrant purchased primarily treasury bills with
maturities of less than three months and did not roll over some maturing bills.
This resulted in the funds being reclassified from marketable securities to cash
and cash equivalents for financial statement purposes.
On July 18, 1995, the Board of Directors of the Registrant declared a cash
dividend of $0.40 per share on its common stock payable on August 28, 1995 to
shareholders of record on July 31, 1995. The Registrant funded such dividend
which amounted to $605,828, from its available cash and United Stated Treasury
Bills. The Registrant has not adopted a policy of paying dividends on a regular
periodic basis, and the Registrant does not expect to declare a dividend for
fiscal 1996.
In February 1995, the Board of Directors of the Registrant authorized the
repurchase of up to 150,000 shares of the Registrant's common stock. During
fiscal 1996, 57,500 shares were repurchased at a cost of $332,756.
The Registrant's capital resource commitments at May 31, 1996 consisted of lease
obligations on its branch and corporate facilities. The Registrant intends to
finance these commitments from cash provided by operations.
The Registrant has recently entered the highly competitive code conversion
market to correct client application systems for problems which will occur as a
result of the upcoming century change January 1, 2000. The Registrant will
compete by utilizing an innovative approach through recently created conversion
software. The Registrant is arranging to commence a pilot project to demonstrate
its capabilities in the area. Upon successful completion of the pilot project
with the Registrant's unproven, untried software, substantial capital investment
will be required to establish appropriate computer facilities to manage
full-blown conversion projects. There can be no assurance that the Registrant
will be successful in the code conversion market or of the extent to which such
business will be profitable. The Registrant expects to operate this business
through a newly created subsidiary of which it will own 80% of the Common Stock
and the creator of the software will own 20%.
Effect of Inflation
The Registrant believes that its results in each of its last three fiscal years
have not been materially affected by inflation.
New Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 123, "Accounting for Stock-Based Compensation," which must be
adopted by the Company in fiscal 1997. The Company has elected not to implement
the fair value based accounting method for employee stock options, but has
elected to disclose, commencing in fiscal 1997, the pro-forma net income and
earnings per share as if such method had been used to account for stock-based
compensation cost as described in the Statement.
In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which must
also be adopted by the Company in fiscal 1997. The effect of adopting the
standard will be insignificant.
9
<PAGE>
Item 8. Financial Statements.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors........................................ 11
Financial Statements:
Consolidated Balance Sheets as of May 31, 1996 and 1995...... 12
Consolidated Statements of Earnings for the
years ended May 31, 1996, 1995 and 1994.................... 14
Consolidated Statements of Shareholders' Equity
for the years ended May 31, 1996, 1995 and 1994............ 15
Consolidated Statements of Cash Flows for the
years ended May 31, 1996, 1995 and 1994.................... 16
Notes to Consolidated Financial Statements................... 17
10
<PAGE>
KPMG PEAT MARWICK LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TSR, Inc.:
We have audited the accompanying consolidated balance sheets of TSR, Inc. and
subsidiaries as of May 31, 1996 and 1995, and the related consolidated
statements of earnings, shareholders' equity and cash flows for each of the
years in the three-year period ended May 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
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, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three-year period ended May
31, 1996, in conformity with generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, the Company
changed its method of accounting for investments in fiscal 1995.
KPMG PEAT MARWICK LLP
Jericho, New York
July 22, 1996
11
<PAGE>
<TABLE>
<CAPTION>
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 1996 AND 1995
ASSETS
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (note 1(d)) ............ $ 2,958,922 $ 633,656
Marketable securities (note 1(e)) ................ 1,691,462 4,354,181
Accounts receivable:
Trade (net of allowance for doubtful accounts
of $164,000 in 1996 and $160,000 in 1995) . 6,022,264 5,045,111
Other ....................................... 35,315 117,535
----------- -----------
6,057,579 5,162,646
Prepaid expenses ................................. 34,039 30,060
Prepaid and recoverable income taxes ............. 29,875 39,692
Deferred income taxes ............................ 118,000 136,000
----------- -----------
TOTAL CURRENT ASSETS ................... 10,889,877 10,356,235
----------- -----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, AT COST:
Equipment ........................................ 429,236 440,594
Furniture and fixtures ........................... 151,032 129,568
Automobiles ...................................... 262,805 282,504
Leasehold improvements ........................... 76,748 71,823
----------- -----------
919,821 924,489
Less accumulated depreciation and amortization ... 699,098 695,184
----------- -----------
220,723 229,305
OTHER ASSETS .......................................... 34,091 23,321
DEFERRED INCOME TAXES (NOTE 2) ........................ 22,000 20,000
----------- -----------
$11,166,691 $10,628,861
=========== ===========
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
12
<PAGE>
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
MAY 31, 1996 AND 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1995
----------- -----------
CURRENT LIABILITIES:
Accounts and other payables ............... $ 159,797 $ 112,394
Accrued and other liabilities:
Salaries, wages and commissions ...... 1,484,437 1,178,445
Legal and professional fees .......... 82,211 71,697
Customer support ..................... 182,600 240,000
Other ................................ 91,859 83,156
----------- -----------
1,841,107 1,573,298
Advances from customers ................... 399,945 238,591
Income taxes payable ...................... 130,695 95,112
----------- -----------
TOTAL CURRENT LIABILITIES ....... 2,531,544 2,019,395
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 5 AND 6)
SHAREHOLDERS' EQUITY (NOTES 4 AND 7):
Preferred stock, $1.00 par value,
authorized 1,000,000 shares; none issued -- --
Common stock, $.01 par value, authorized
4,000,000 shares; issued 2,469,596 shares 24,696 24,696
Additional paid-in capital ................ 1,562,973 1,562,973
Retained earnings ......................... 10,334,277 9,975,840
----------- -----------
11,921,946 11,563,509
Less 1,012,527 in 1996 and 955,027 in 1995
common shares in treasury, at cost ...... 3,286,799 2,954,043
----------- -----------
TOTAL SHAREHOLDERS' EQUITY ...... 8,635,147 8,609,466
----------- -----------
$11,166,691 $10,628,861
=========== ===========
See accompanying notes to consolidated financial statements.
13
<PAGE>
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED MAY 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES ................................... $31,810,163 $26,674,386 $21,926,291
COST OF SALES .............................. 23,317,141 19,351,891 15,375,485
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 7,037,025 6,058,504 5,751,383
----------- ----------- -----------
30,354,166 25,410,395 21,126,868
----------- ----------- -----------
INCOME FROM OPERATIONS ..................... 1,455,997 1,263,991 799,423
----------- ----------- -----------
OTHER INCOME:
Interest and dividend income .......... 227,184 208,244 141,405
Gains from sales of securities, net ... 23,508 -- 9,233
Gain (loss) from sales of assets ...... (424) 15,425 --
----------- ----------- -----------
250,268 223,669 150,638
----------- ----------- -----------
INCOME BEFORE INCOME TAXES ................. 1,706,265 1,487,660 950,061
PROVISION FOR INCOME TAXES (NOTE 2) ........ 742,000 686,000 450,000
----------- ----------- -----------
NET INCOME ............................ $ 964,265 $ 801,660 $ 500,061
=========== =========== ===========
NET INCOME PER COMMON SHARE ................ $ 0.64 $ 0.53 $ 0.32
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING ................ 1,498,257 1,514,569 1,551,680
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MAY 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Unrealized
loss in
long-term Total
Additional marketable share-
Common paid-in Retained equity Treasury holders'
stock capital earnings securities stock equity
------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MAY 31, 1993 ................... $24,696 $1,562,973 $ 8,674,119 $(194) $(2,620,047) $7,641,547
DECREASE IN UNREALIZED LOSS IN LONG-
TERM MARKETABLE EQUITY SECURITIES ....... -- -- -- 194 -- 194
PURCHASE OF TREASURY STOCK ................ -- -- -- -- (333,996) (333,996)
NET INCOME ................................ -- -- 500,061 -- -- 500,061
------- ---------- ----------- ----- ----------- ----------
BALANCE AT MAY 31, 1994 ................... 24,696 1,562,973 9,174,180 -0- (2,954,043) 7,807,806
NET INCOME ................................ -- -- 801,660 -- -- 801,660
------- ---------- ----------- ----- ----------- ----------
BALANCE AT MAY 31, 1995 ................... 24,696 1,562,973 9,975,840 -0- (2,954,043) 8,609,466
CASH DIVIDENDS ($0.40 PER SHARE) .......... -- -- (605,828) -- -- (605,828)
PURCHASE OF TREASURY STOCK ................ -- -- -- -- (332,756) (332,756)
NET INCOME ................................ -- -- 964,265 -- -- 964,265
------- ---------- ----------- ----- ----------- ----------
BALANCE AT MAY 31, 1996 ................... $24,696 $1,562,973 $10,334,277 $ -0- $(3,286,799) $8,635,147
======= ========== =========== ===== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 964,265 $ 801,660 $ 500,061
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ................................... 141,708 127,534 101,533
Provision for losses (recovery) on accounts receivable .......... 10,000 (5,000) 106,000
Gain on sale of marketable securities, net ...................... (23,508) -- (10,334)
Loss on sale of long-term marketable equity securities, net ..... -- -- 1,101
Loss (gain) on sale of fixed assets ............................. 424 (15,425) --
Deferred income taxes ........................................... 16,000 (84,000) (30,000)
Changes in assets and liabilities:
Accounts receivable-trade .................................... (987,153) (1,099,882) (1,151,562)
Other accounts receivable .................................... 82,220 (7,047) 44,002
Prepaid expenses ............................................. (3,979) 24,411 (6,422)
Prepaid and recoverable income taxes ......................... 9,817 (22,898) 67,617
Other assets ................................................. (10,770) 5,939 938
Accounts payable and accrued expenses ........................ 315,212 405,042 238,868
Advances from customers ...................................... 161,354 238,591 --
Income taxes payable ......................................... 35,583 (7,581) 51,606
----------- ----------- -----------
Total adjustments ............................................... (253,092) (440,316) (586,653)
----------- ----------- -----------
Net cash provided by (used in) operating activities ................. 711,173 361,344 (86,592)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity and sale of marketable securities ........ 8,079,734 3,006,577 6,961,883
Purchase of marketable securities ............................... (5,393,507) (5,835,390) (4,554,813)
Proceeds from sale of long-term marketable equity securities .... -- -- 5,418
Proceeds from sale of fixed assets .............................. 15,756 16,763 --
Purchase of fixed assets ........................................ (149,306) (176,936) (91,761)
----------- ----------- -----------
Net cash provided by (used in) investing activities ................. 2,352,677 (2,988,986) 2,320,727
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid ............................................. (605,828) -- --
Purchase of treasury stock ...................................... (332,756) -- (333,996)
----------- ----------- -----------
Net cash used in financing activities ............................... (938,584) -- (333,996)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... 2,325,266 (2,627,642) 1,900,139
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .......................... 633,656 3,261,298 1,361,159
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................................ $ 2,958,922 $ 633,656 $ 3,261,298
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE:
Income taxes paid ................................................... $ 681,000 $ 800,000 $ 361,000
=========== =========== ===========
Interest paid ....................................................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS
The Company is engaged primarily in the business of providing contract
programming services. In addition, the Company provides maintenance and
support for its conversion software, and provides program updating and
consulting services to American Express Bank, Ltd. (AEBL). Previously,
until March 1, 1996, the Company provided construction specifications
data bases on magnetic media, primarily to architectural and engineering
firms, and, until October 8, 1995, provided temporary nurses and nurses'
aides to health care facilities and home care patients.
On October 8, 1995, the Company discontinued its health care services
business by transferring the existing caseload to another licensed home
care agency, which did not result in a gain or loss to the Company.
Based on the agreement, the purchasing agency pays the Company 50% of
the gross profit generated from the transferred accounts for a period of
two years, which amounted to $46,000 included in revenue in fiscal 1996.
The Company's exclusive license to market construction specifications
databases expired March 1, 1996. In June 1996, the Company sold its
customer database for $76,850 which will be recorded as non-operating
income in fiscal 1997. As of May 31, 1996, the Company had an accrued
liability of $182,600, which it deems adequate for ongoing customer
support costs associated with the terminated business.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of TSR, Inc.
and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
(C) REVENUE RECOGNITION POLICY
The Company recognizes contract programming services revenues as
services are provided. Revenues from the maintenance and support of the
Company's proprietary software are recognized monthly as services are
rendered. The revenues from the licensing of construction specifications
data bases were recognized at shipment. The revenues from health care
services were recognized as services were provided.
(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, 1996 and 1995:
1996 1995
---------- --------
Cash in banks............................ $ 208,946 $493,974
Money Market Funds....................... 1,258,406 139,682
US Treasury Bills........................ 1,491,570 --
---------- --------
$2,958,922 $633,656
========== ========
(E) MARKETABLE SECURITIES
Marketable securities consist primarily of United States treasury bills
with a maturity at acquisition in excess of 90 days. Such investments
are expected to be held to maturity and are carried at amortized cost.
In fiscal 1995 the Company adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115
generally requires that debt and equity securities that have readily
determinable fair values be carried at fair value unless they are
classified as held to maturity.
(Continued)
17
<PAGE>
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MAY 31, 1996, 1995 AND 1994
Securities can be classified as held to maturity and carried at
amortized cost only if the reporting entity has a positive intent and
ability to hold those securities to maturity. If not classified as held
to maturity, such securities must be classified as trading securities or
securities available for sale. Unrealized gains or losses for securities
available for sale are to be excluded from earnings and reported as a
net amount as a separate component of stockholders' equity. Unrealized
holding gains and losses for trading securities are to be included in
earnings. The Company's marketable debt securities are classified as
held to maturity securities and, therefore, this statement did not have
a material effect on the Company's financial condition or results of
operations. The amortized cost, gross unrealized holding gains, gross
unrealized holding losses and fair value for marketable securities by
major security type at May 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding
Cost Gains Losses Fair Value
---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
1996: US TREASURY SECURITIES.............. $1,691,462 $ 14,086 $ -- $1,705,548
========== ======== ======= ==========
1995: US Treasury Securities.............. $4,299,802 $112,686 $ -- $4,412,488
Equity Securities................... 54,379 -- (3,629) 50,750
---------- -------- ------- ----------
$4,354,181 $112,686 $(3,629) $4,463,238
========== ======== ======= ==========
</TABLE>
(F) 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 3-5 years
Furniture and fixtures 3-5 years
Automobiles 3 years
Leasehold improvements Lesser of lease term or useful life
(G) NET INCOME PER COMMON SHARE
Net income per common share has been computed on the weighted average
number of shares outstanding during the year of 1,498,257 in 1996,
1,514,569 in 1995 and 1,551,680 in 1994. Since the assumed exercise of
stock options and warrants would be less than 3% dilutive, shares
issuable have not been included in the weighted average shares
outstanding for those years.
(H) INCOME TAXES
In fiscal 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires
recognition of deferred tax liabilities and assets for the future tax
consequences attributable to temporary differences between the financial
reporting bases and the 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. Prior years'
financial statements were not restated and the adoption of the statement
had no significant impact on the net income for fiscal 1994.
(I) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair
value of certain financial instruments. Cash and cash equivalents,
accounts receivable, accounts and other payables, accrued liabilities
and advances from customers are reflected in the financial statements at
fair value because of the short-term maturity of these instruments.
Marketable securities are carried at amortized cost, which approximates
their fair value because of the short-term maturity of these
instruments.
(Continued)
18
<PAGE>
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MAY 31, 1996, 1995 AND 1994
(J) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(2) INCOME TAXES
A reconciliation of the provisions for income taxes computed at the
federal statutory rates for fiscal 1996, 1995 and 1994 to the reported
amounts is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
Amount % Amount % Amount %
------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Amounts at statutory federal tax rate ............ $580,000 34.0% $506,000 34.0% $323,000 34.0%
State and local taxes, net of
federal income tax effect ...................... 123,000 7.2 142,000 9.5 94,000 9.9
Meal and entertainment disallowance .............. 39,000 2.3 39,000 2.6 22,000 2.3
Other, net ....................................... -- -- (1,000) -- 11,000 1.2
-------- ---- -------- ---- -------- ----
$742,000 43.5% $686,000 46.1% $450,000 47.4%
======== ==== ======== ==== ======== ====
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Federal State Total
<S> <C> <C> <C> <C>
1996: CURRENT......................... $539,000 $187,000 $726,000
DEFERRED........................ 16,000 - 16,000
-------- -------- --------
$555,000 $187,000 $742,000
======== ======== ========
1995: Current......................... $556,000 $214,000 $770,000
Deferred........................ (84,000) - (84,000)
-------- -------- --------
$472,000 $214,000 $686,000
======== ======== ========
1994: Current......................... $338,000 $142,000 $480,000
Deferred........................ (30,000) - (30,000)
-------- -------- --------
$308,000 $142,000 $450,000
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets at May 31, 1996 and 1995 are
as follows:
1996 1995
-------- --------
Accrued Customer Support....................... $ 62,000 $ 82,000
Allowance for doubtful accounts receivable..... 56,000 54,000
Equipment and leasehold improvement
depreciation and amortization................ 22,000 20,000
-------- --------
Total deferred income tax assets......... $140,000 $156,000
======== ========
(Continued)
19
<PAGE>
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MAY 31, 1996, 1995 AND 1994
Realization of the Company's deferred income tax assets of $140,000 at May
31, 1996 is contingent on future taxable earnings of at least $412,000.
Management believes that it is more likely than not that such assets will
be realized based on the Company's recent earnings. However, there can be
no assurance that the Company will generate sufficient taxable earnings in
future years to fully realize recorded deferred income tax assets.
(3) SEGMENT REPORTING AND MAJOR CUSTOMERS
The Company currently operates in one business segment, computer software,
and is engaged primarily in the business of providing contract computer
programming services. Previously, from fiscal 1993 through fiscal 1996, the
Company also provided temporary nurses and nurses' aides to health care
facilities and home care patients. The following table summarizes certain
financial information for the computer software segment and the health care
services segment as of and for the years ended May 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
COMPUTER HEALTH CONSOLIDATED
SOFTWARE CARE CORPORATE TOTAL
----------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues to 1996.............. $31,365,091 $ 445,072 $ -- $31,810,163
=========== ========= =========== ===========
unaffiliated customers 1995.............. 25,726,756 947,630 -- 26,674,386
=========== ========= =========== ===========
1994.............. 21,005,792 920,499 -- 21,926,291
=========== ========= =========== ===========
Operating profit (loss) 1996.............. 1,374,076 81,921 -- 1,455,997
=========== ========= =========== ===========
1995.............. 1,263,351 640 -- 1,263,991
=========== ========= =========== ===========
1994.............. 1,047,007 (247,584) -- 799,423
=========== ========= =========== ===========
Identifiable assets 1996.............. 6,345,536 896 4,820,259(1) 11,166,691
=========== ========= =========== ===========
1995.............. 5,251,621 193,711 5,183,529(1) 10,628,861
=========== ========= =========== ===========
1994.............. 4,084,483 247,000 4,859,666(1) 9,191,149
=========== ========= =========== ===========
Capital expenditures 1996.............. 135,084 14,222 -- 149,306
=========== ========= =========== ===========
1995.............. 176,936 -- -- 176,936
=========== ========= =========== ===========
1994.............. 84,223 7,538 -- 91,761
=========== ========= =========== ===========
Depreciation and amortization 1996.............. 134,419 7,289 -- 141,708
=========== ========= =========== ===========
1995.............. 113,360 14,174 -- 127,534
=========== ========= =========== ===========
1994.............. $ 87,250 $ 14,283 $ -- $ 101,533
=========== ========= =========== ===========
</TABLE>
(1) Corporate identifiable assets consist of cash, marketable securities
and prepaid, recoverable and deferred income taxes.
In the fiscal years ended May 31, 1996, 1995 and 1994 the Company derived
22%, 13%, and 13% respectively, of consolidated revenues from one customer
for contract programming services.
(Continued)
20
<PAGE>
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MAY 31, 1996, 1995 AND 1994
(4) STOCK OPTIONS
The Company maintained two stock option plans, the 1980 Employee Stock
Option Plan and the 1983 Employee Stock Option and Incentive Plan. The
plans provided for the granting of options to purchase up to 180,000 shares
of the Company's common stock at prices equal to market values at the grant
dates. Options were generally exercisable 25% after one year from date of
grant and an additional 25% each year thereafter. The 1980 Employee Stock
Option Plan terminated in May 1990 and the 1983 Employee Stock Option and
Incentive Plan terminated in July, 1993.
STOCK OPTIONS OUTSTANDING
--------------------------
SHARES OPTION PRICE
---------------------------
Balance May 31, 1993................... 160,000 $2.00-3.50
Options cancelled................ (30,000) 3.50
------- ----------
Balance May 31, 1994................... 130,000 $2.00-3.00
Options cancelled................ (40,000) 3.00
------- ----------
Balance May 31, 1995................... 90,000 $2.00-3.00
Options cancelled................ (90,000) 2.00-3.00
------- ----------
BALANCE AT MAY 31, 1996................ -- --
======= ==========
(5) COMMITMENTS
A summary of noncancellable long-term operating lease commitments for
facilities as of May 31, 1996 follows:
FISCAL YEAR AMOUNT
----------- ------
1997................ $156,000
1998................ 63,000
1999................ 63,000
2000................ 63,000
Thereafter.......... 11,000
Total rent expenses under all lease agreements amounted to $210,961,
$190,175 and $197,406 in 1996, 1995 and 1994, respectively.
(6) EMPLOYEE BENEFITS
In June 1994, an employment agreement was entered into with the President
of the contract programming subsidiary providing for an annual base salary
of $150,000 and additional incentive compensation based upon a formula
which is agreed upon from time to time and is currently based on the
profitability of the Company's contract programming subsidiary. During both
fiscal 1996 and fiscal 1995, $253,000 was paid as incentive compensation.
This agreement is for a five year term and provides for severance, in the
event of termination, of the base salary for the shorter of three years or
the remainder of the original term.
(Continued)
21
<PAGE>
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MAY 31, 1996, 1995 AND 1994
In March 1994, an employment agreement was entered into with the Chairman
of the Board, Chief Executive Officer, President and Treasurer which
terminates May 31, 1997. This agreement provides for an initial base salary
of $332,000 with annual adjustments based upon increases in the Consumer
Price Index, such increases to be no less than 3% and no more than 8% per
year. Additionally, the agreement provides for an annual discretionary
bonus for each fiscal year, the maximum to be $50,000 if pre-tax profits
are less than $1,000,000 and a minimum of 7.5% of pre-tax profit if such
profits exceed $1,000,000. In fiscal 1996 and 1995, the minimum bonus of
7.5% of pre-tax profit was awarded, which amounted to $139,000 and $120,000
respectively.
(7) TREASURY STOCK
During fiscal 1996, under a buy-back plan authorized by the Board of
Directors to repurchase up to 150,000 shares of the Company's common stock,
the Company purchased for $332,756, 57,500 shares of its common stock at
the market value of the stock on the purchase date. Additionally, on
October 12, 1993, the Company purchased 111,332 shares of its outstanding
common stock from a former officer and significant shareholder at the
market value of the stock at that date.
(8) CASH DIVIDEND
On July 18, 1995 the Board of Directors of the Company declared a cash
dividend of $0.40 per share on Common Stock payable on August 28, 1995 to
shareholders of record on July 31, 1995. The Company funded such dividend
from its available cash and maturing marketable securities. This dividend,
which amounted to $605,828, did not have a material impact on the liquidity
of the Company. The Company has not adopted a policy of paying dividends on
a regular periodic basis, and does not expect to declare a dividend for
fiscal 1996.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
22
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Registrant's executive officers are elected by, and serve at the discretion
of, the Board of Directors. The following table sets forth certain information
concerning the executive officers and directors of the Registrant as of May 31,
1996:
<TABLE>
<CAPTION>
YEAR FIRST YEAR FIRST
NAME AGE POSITIONS BECAME AN OFFICER BECAME A DIRECTOR
---- --- --------- ----------------- -----------------
<S> <C> <C> <C> <C>
Joseph F. Hughes 64 Chairman of the Board, 1969 1969
Chief Executive Officer,
President, Treasurer and Director
Ernest G. Bago 56 President, TSR Consulting 1990 1990
Services, Inc. and Director
John G. Sharkey 36 Vice President, Finance, 1990 --
Controller and Secretary
John H. Hochuli, Jr. 65 Director -- 1993
James J. Hill 62 Director -- 1989
</TABLE>
Mr. Joseph F. Hughes, prior to forming the Registrant in 1969, and since 1953,
was employed by IBM in various systems engineering, marketing and administrative
positions. Immediately prior to his employment with the Registrant, Mr. Hughes
was responsible for managing the market and technical sales group serving
colleges and universities with IBM in Long Island and Westchester County.
Mr. Ernest G. Bago, prior to joining the Registrant in March 1990, and since
1986, was employed by Cap Gemini America as New Jersey Branch Manger. Prior to
1986, Mr. Bago was employed by Computer Sciences Corporation (CSC) for 14 years.
During his tenure at CSC, Mr. Bago held various sales and marketing positions.
His last position was Vice President of Sales and Marketing for the
Communications Industry Division.
Mr. John G. Sharkey has a Masters degree in Finance. He is a Certified Public
Accountant in the State of New York. Prior to joining with the Registrant in
October 1990, and since 1987, he was Controller of Algorex Corporation, a
publicly held electronics manufacturer. From 1984 to 1987, he served as Deputy
Auditor of Long Island Trust Company, having responsibility over the internal
audit department. Prior to 1984, Mr. Sharkey was with KPMG Peat Marwick LLP.
Mr. John H. Hochuli, Jr. became a Director of the Registrant in April 1993. In
1955 he founded Diamond Manufacturing Corp., a maker of aluminum windows and
doors, and has served as President since inception.
Mr. James J. Hill became Director of the Registrant in December 1989. Since 1979
he has been Executive Vice President of Sales and Marketing for MRA
Publications, Inc., a medical publishing business. Mr. Hill received a Bachelor
of Science Degree in Business Administration from the University of Arizona in
1958 and a Bachelor of Foreign Trade Degree from the American Institute of
Foreign Trade in Arizona in 1959.
Item 11. Executive Compensation.
The information required by this Item 11 is incorporated by reference to the
Registrant's definitive proxy statement in connection with the 1996 Annual
Meeting of Shareholders.
23
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item 12 is incorporated by reference to the
Registrant's definitive proxy statement in connection with the 1996 Annual
Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item 13 is incorporated by reference to the
Registrant's definitive proxy statement in connection with the 1996 Annual
Meeting of Shareholders.
PART IV
Item 14. Exhibits; Financial Statement Schedules, and Reports on Form 8-K.
(a) Exhibits:
3.1 Articles of Incorporation of the Registrant, as amended, incorporated
by reference to Exhibit 3.1 to the Annual Report on Form 10-K filed
by the Registrant for the fiscal year ended May 31, 1992.
3.2 Bylaws of the Registrant, as amended, incorporated by reference to
Exhibit 3.2 to the Annual Report on Form 10-K filed by the Registrant
for the fiscal year ended May 31, 1992.
10.1 Employment Agreement between TSR, Inc. and Ernest G. Bago, dated as
of June 1, 1994, incorporated by reference to Exhibit 10.2 to the
Annual Report on Form 10-KSB filed by the Registrant for the fiscal
year ended May 31, 1995.
10.2 Lease for premises in Hauppauge, Long Island, dated as of June 7,
1990, incorporated by reference to Exhibit 10.18 to the Annual Report
on Form 10-K filed by the Registrant for the fiscal year ended May
31, 1990.
10.3 Employment Agreement dated March 1, 1994 between the Registrant and
Joseph F. Hughes, incorporated by reference to Exhibit 10.5 to the
Annual Report on Form 10-KSB filed by the Registrant for the fiscal
year ended May 31, 1994.
21 List of Subsidiaries, incorporated by reference to Exhibit 22 to the
Annual Report on Form 10-KSB filed by the Registrant for the fiscal
year ended May 31, 1993.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None
24
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the Undersigned, thereunto duly authorized.
TSR, INC.
By: /s/ J.F. HUGHES, CHAIRMAN
---------------------------
J. F. Hughes, Chairman
Dated: August 23, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By: /s/ J.F. HUGHES, PRESIDENT
--------------------------------------------------
J. F. Hughes, President, Treasurer and Director
By: /s/ JOHN G. SHARKEY
---------------------------------------------------------------------
John G. Sharkey, Vice President, Finance, Controller and Secretary
By: /s/ ERNEST G. BAGO
------------------------------------------------------------------------
Ernest G. Bago, President, TSR Consulting Services, Inc. and Director
By: /s/ JOHN H. HOCHULI, JR.
---------------------------------
John H. Hochuli, Jr., Director
By: /s/ JAMES J. HILL
--------------------------
James J. Hill, Director
Dated: August 23, 1996
25
<PAGE>
<TABLE>
<CAPTION>
TSR, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Form 10-K May 31, 1996
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT PAGE #
------- ------- ----------
<S> <C> <C>
3.1 Articles of Incorporation of the Registrant, as amended, incorporated by reference to
Exhibit 3.1 to the Annual Report on Form 10-K filed by the Registrant for the fiscal N/A
year ended May 31, 1992.
3.2 Bylaws of the Registrant, as amended, incorporated by reference to Exhibit 3.2 to the
Annual Report on Form 10-K filed by the Registrant for the fiscal year ended May 31, N/A
1992.
10.1 Employment Agreement between TSR, Inc. and Ernest G. Bago, dated as of
June 1, 1994, incorporated by reference to Exhibit 10.2 to the Annual Report
on Form 10-KSB filed by the Registrant for the fiscal year ended May 31, 1995. N/A
10.2 Lease for premises in Hauppauge, Long Island, dated as of June 7, 1990, incorporated by
reference to Exhibit 10.18 to the Annual Report on Form 10-K filed by the Registrant for
the fiscal year ended May 31, 1990. N/A
10.3 Employement Agreement dated March 1, 1994 between the Registrant and Joseph F.
Hughes, incorporated by reference to Exhibit 10.5 to the Annual Report on Form
10-KSB filed by the Registrant for the fiscal year ended May 31, 1994. N/A
21 List of Subsidiaries, incorporated by reference to Exhibit 22 to the Annual Report on
Form 10-KSB filed by the Registrant for the fiscal year ended May
31, 1993. N/A
27. Financial Data Schedule 27
</TABLE>
26
<TABLE> <S> <C>
<ARTICLE> 5
<CAPTION>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 2,958,922
<SECURITIES> 1,691,462
<RECEIVABLES> 6,185,814
<ALLOWANCES> 163,550
<INVENTORY> 0
<CURRENT-ASSETS> 10,889,877
<PP&E> 919,821
<DEPRECIATION> 220,723
<TOTAL-ASSETS> 11,166,691
<CURRENT-LIABILITIES> 2,531,544
<BONDS> 0
0
0
<COMMON> 24,696
<OTHER-SE> 8,610,451
<TOTAL-LIABILITY-AND-EQUITY> 11,166,691
<SALES> 0
<TOTAL-REVENUES> 31,810,163
<CGS> 0
<TOTAL-COSTS> 23,317,141
<OTHER-EXPENSES> 7,037,025
<LOSS-PROVISION> 10,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,706,265
<INCOME-TAX> 742,000
<INCOME-CONTINUING> 964,265
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 964,265
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.64
</TABLE>
