As filed with the Securities and Exchange Commission on February 23, 1998
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TSR, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-2635899
(State or other (I.R.S. employer
jurisdiction of incorporation) identification number)
400 Oser Avenue
Hauppauge, New York 11788
(516) 231-0333
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
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Joseph F. Hughes
President and Chairman of the Board
TSR, Inc.
400 Oser Avenue
Hauppauge, New York 11788
(516) 231-0333
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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Copies to:
Steven A. Fishman
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
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Approximate date of commencement of proposed
sale to the public: As soon as practicable after
this Registration Statement becomes effective.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell, or the
solicitation of an offer to buy, nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
624906.6
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If only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
Amount to Proposed Maximum Proposed Maximum Amount of
Title of Each Class of be Offering Price Per Aggregate Offering Registration
Securities to be Registered Registered Share(1) Price Fee(2)
Shares of Common Stock, $.01 660,000 $24.3125 $16,046,250 $4,733.64
par value...................
(1) Estimated solely for purposes of calculating the registration fee.
Based on the average of the high and low price of the Common Stock as
reported on the Nasdaq National Market System on February 18, 1998.
</TABLE>
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The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
624906.6
<PAGE>
PROSPECTUS
660,000 Shares
TSR, INC.
Common Stock
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This Prospectus relates to the public offering of up to 660,000 shares
of Common Stock, $.01 par value (the "Common Stock") by the holders thereof (the
"Selling Stockholders"). The Selling Stockholders directly, through agents
designated from time to time, or through dealers or underwriters also to be
designated, may sell the Common Stock from time to time on terms to be
determined at the time of sale. To the extent required, the specific Common
Stock to be sold, names of the Selling Stockholders, purchase price, public
offering price, the names of any such agent, dealer or underwriter, and any
applicable commission or discount with respect to a particular offer will be set
forth in an accompanying Prospectus Supplement. See "Plan of Distribution."
The Selling Stockholders and any broker-dealer, agents or underwriters
that participate with the Selling Stockholders in the distribution of the Common
Stock may be deemed to be "underwriters" within the meaning of the Securities
Act and any commission received by them and any profit on the resale of the
Common Stock purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. See "Plan of Distribution" herein for
indemnification arrangements.
The Common Stock is traded on the Nasdaq National Market under the
symbol "TSRI." On February 20, 1998, the last reported sale price of the Common
Stock was $26.25 per share.
The Company is paying all the expenses of registering the Common Stock
under the Securities Act (including filing, legal, and miscellaneous expenses in
connection with the registration) which are estimated at $90,000. The Company
will not receive any of the proceeds from any sale of the Common Stock by the
Selling Stockholders. Each of the Selling Stockholders will severally pay or
assume underwriting discounts, brokerage commissions or other charges incurred
in any respective sale by them of the Common Stock.
---------------
The Common Stock offered hereby involves
certain risks. See "Risk Factors" beginning
at page 4.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is __________ __, 1998.
624906.6
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<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"),
covering the securities offered by this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance such statement is qualified by reference to each such contract or
document. The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information filed by
the Company can be inspected and copied at the public reference facilities
maintained by the Commission at the following addresses: New York Regional
Office, Seven World Trade Center, 13th Floor, New York, New York 10048; and
Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains a site
on the World Wide Web, the address of which is http://www.sec.gov., that
contains reports, proxy and information statements and other information
regarding issuers, such as the Company, that file electronically with the
Commission. Such reports, proxy statements and other information concerning the
Company can also be inspected at the office of the National Association of
Securities Dealers, 1735 K Street, N.W., Washington, D.C. 20006, which
supervises the NASDAQ National Market on which the Company's Common Stock is
traded under the symbol TSRI.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission are incorporated in
this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1997 (File No. 08656), including any documents or portions thereof
incorporated by reference therein;
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 1997 and November 30, 1997;
3. The Company's Definitive Proxy Statement dated September 29, 1997
for the Annual Meeting of Shareholders held on October 22, 1997 (File No.
08656), including any documents or portions thereof incorporated by reference
therein;
4. All other documents filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Prospectus and prior to the termination of this offering.
Any statement contained in any document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. The Company hereby
undertakes to provide without charge to each person to whom a copy of this
Prospectus has been delivered, upon written or oral request of any such person,
a copy of any or all of the information incorporated herein by reference (other
than exhibits to such documents which are not specifically incorporated by
reference into such documents). Requests for such documents should be directed
to the Company, TSR, Inc. 400 Oser Avenue, Hauppauge, New York 11788, (516)
231-0333, Attn: John G. Sharkey, Vice President, Finance.
The Company furnishes to its shareholders annual reports containing
audited financial statements.
624906.6
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere in this
Prospectus. Except as otherwise noted, the number of Shares have been adjusted
to reflect the two-for-one stock split effected as a dividend on November 17,
1997. Unless the context otherwise requires, all references in this Prospectus
to the Company refer to TSR, Inc. and its subsidiaries. Investors should
carefully consider the information set forth under the heading "Risk Factors."
The Company
TSR, Inc. (the "Company") provides contract computer programming
services and Year 2000 compliance solutions to its clients. The Company, in its
contract computer services business, provides technical computer personnel to
companies to supplement their in-house information technology ("IT")
capabilities. In addition, the Company has developed Catch/21 Year 2000
Compliance Software Solution ("Catch/21 Software Solution"), a software solution
that corrects, on a substantially automated basis, problems that may occur in
computer software as a result of the century change in the Year 2000 and
provides conversion services to customers to make their software applications
Year 2000 compliant.
The Company's clients for its contract computer programming services
consist primarily of Fortune 1000 companies with significant technology budgets.
These clients are faced with the problem of maintaining and improving the
service level of increasingly complex information systems. Accelerating
technological changes make it increasingly difficult and expensive for IT
managers to maintain the necessary in-house capabilities. In addition, IT
managers are often subject to corporate pressures to downsize staff levels and
reduce expenses relating to IT personnel, which makes outsourcing of computer
personnel requirements an attractive alternative. In the year ended May 31,
1997, the Company provided IT staffing services to approximately 85 clients.
In recent years, there has been increased awareness of the problems
resulting from the inability of many existing software applications to properly
interpret dates after the year 1999. The Year 2000 problem has been recognized
as a significant challenge facing the IT industry. The Company believes that a
significant number of enterprises that use computers have a Year 2000 problem.
When the Year 2000 arrives, many software applications will recognize the year
2000 as "00" and interpret it as the year 1900. As a result, many computer
applications will generate faulty calculations and companies could suffer
serious adverse consequences as a result. It has been estimated by the Gartner
Group, an industry research firm, that approximately $300 to $600 billion will
be spent by companies and governmental entities to modify applications to
address the Year 2000 problem.
The Company's Catch/21 Software Solution automates to a significant
extent the conversion process. Using the Catch/21 Software Solution, the Company
provides the full range of services necessary to make a software application
Year 2000 compliant, including analysis of the client's code, conversion of the
code, implementation of the solution and testing. The Company believes that its
Catch/21 Software Solution converts software to be Year 2000 compliant at what
the Company believes to be a lower cost and more rapidly than other approaches
used by competitors known to the Company. The Catch/21 Software Solution
utilizes a sliding century approach, an internal modification technique, which
dynamically adjusts the dates in the software application using a separate
subroutine and then reinserts the information into the application without
changing the program logic or the form in which data is stored. Currently, the
Catch/21 Software Solution can be used to convert COBOL and RPG applications.
The Company commenced providing Year 2000 conversion services during its 1997
fiscal year.
The Company was incorporated in Delaware in 1969. The Company's
executive offices are located at 400 Oser Avenue, Hauppauge, New York 11788, and
its telephone number is (516) 231-0333.
624906.6
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Certain statements contained in "Prospectus Summary - The Company" and
"Risk Factors", including statements concerning the development of the Company's
Catch/21 product, future prospects and the Company's future cash flow
requirements are forward-looking statements, as defined in the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those projections in the forward-looking statements which statements
involve risks and uncertainties, including but not limited to the following:
risks relating to the competitive nature of the markets for contract computer
programming services and the Year 2000 conversion market, concentration of the
Company's business with certain customers and uncertainty as to the Company's
ability to attract new customers, and the risk that the Catch/21 Software
Solution will not perform satisfactorily or achieve commercial acceptance.
Investors are also directed to the risks discussed under the heading "Risk
Factors" and elsewhere herein.
RISK FACTORS
The following risk factors should be carefully considered in addition
to the other information contained in this Prospectus before purchasing the
Common Stock offered hereby.
Dependence Upon Key Personnel and Need for Additional Management
Personnel. The Company is dependent on its Chairman of the Board, Chief
Executive Officer and President, Joseph Hughes, William Connor, who developed
the Catch/21 Software Solution, and Ernest Bago, the President of TSR's contract
computer programming services subsidiary. The Company has entered into an
employment agreement with Mr. Hughes for a term expiring on May 31, 2002. The
Company has also entered into employment agreements with William Connor and
Ernest Bago that expire on September 30, 2000 and May 31, 1999, respectively. In
addition, the Company will need to add additional management personnel,
particularly in its Year 2000 conversion business, as its business continues to
grow. Consequently, the Company's success will depend, in part, on its ability
to attract such personnel. There can be no assurance that the Company will be
able to retain its existing personnel or to find and attract additional
qualified employees. The loss of the services of any of the Company's senior
management personnel could have a material adverse effect on the Company.
Dependence on Significant Relationships. In the fiscal year, ended May
31, 1997, the Company's two largest clients, AT&T Corp. ("AT&T") and
International Business Machines Corp. ("IBM"), accounted for 16.3% and 10.3%,
respectively, of the Company's consolidated revenues. The services provided to
IBM related primarily to projects outsourced to IBM by Lucent Technologies, Inc
("Lucent"). In the fiscal year ended May 31, 1996, AT&T (prior to the separation
of Lucent from AT&T) accounted for 22.4% of the Company's consolidated revenues.
Client contract terms vary depending on the nature of the engagement, and there
can be no assurance that a client will renew a contract when it terminates. In
addition, the Company's contracts, including those with IBM, Lucent and AT&T,
are generally cancellable by the client at any time on short notice, and clients
may unilaterally reduce their use of the Company's services under such contracts
without penalty. The termination or significant reduction of its business
relationship with any of its significant clients would have a material adverse
effect on the Company's financial condition and results of operations. The
Company has recently increased its marketing staff and is focusing its marketing
624906.6
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efforts on expanding its client base in the contract computer programming
business. However, there can be no assurance that these efforts will be
successful.
Competitive Market for Technical Personnel. The Company's success is
dependent upon its ability to attract and retain qualified professional computer
professionals to provide as temporary personnel to its clients and to work on
its Year 2000 conversion projects. In particular, competition for the limited
number of qualified professionals with a working knowledge of certain
sophisticated computer languages, which the Company requires for its contract
computer services business, is intense. The Company believes that there is a
shortage of, and significant competition for, software professionals with the
skills and experience necessary to perform the services offered by the Company.
The Company's ability to maintain and renew existing engagements and
obtain new business in its contract computer programming business depends, in
large part, on its ability to hire and retain technical personnel with the IT
skills that keep pace with continuing changes in software evolution, industry
standards and technologies and client preferences. Although the Company
generally has been successful in attracting employees with the skills needed to
fulfill customer engagements, demand for qualified professionals conversant with
certain technologies may outstrip supply as new and additional skills are
required to keep pace with evolving computer technology or as competition for
technical personnel increases. Increasing demand for qualified personnel could
also result in increased expenses to hire and retain qualified technical
personnel and could adversely affect the Company's profit margins.
While the Company may also face competition for technical personnel in
its Year 2000 conversion business, the Company does not expect the competition
to materially affect its ability to retain or attract necessary personnel for
its Year 2000 conversion business. Due to the extent of the automation of the
conversion process using the Catch/21 Software Solution, the Company does not
require sophisticated technical personnel for most of the work associated with a
conversion project.
Risks Associated with Year 2000 Market
Risk Relating to Expanding Into New Business. The Company's revenues
in recent years have resulted primarily from its contract computer programming
services business. The Company expects that the Year 2000 business will become a
significant part of its business. Accordingly, the Company's future success will
be dependent in part on its Year 2000 business and its ability to manage the
expansion in the Company's business. As a result of the expansion into the Year
2000 business, the Company will be subject to risks to which it was not
previously exposed. In addition, the demand for Year 2000 conversion services is
not likely to continue significantly after the end of 1999. There can be no
assurance that the Company will be successful in applying the experience it
gains in connection with its Year 2000 conversion services to enable it to
provide services for other conversion projects.
Recent Entry in and Dependence on Year 2000 Market. The Year 2000
conversion market is relatively new and the Company has only recently entered
into this market. A key element of the
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Company's business strategy and a significant component of the Company's
potential for future growth is the development of its Year 2000 conversion
business. Although the Company believes that the demand for services relating to
the Year 2000 problem will grow, there can be no assurance that this market will
develop to the extent anticipated by the Company, if at all. The Company's Year
2000 conversion business is in the early stages. While the Company has entered
into agreements with customers relating to Year 2000 conversion projects, such
agreements do not provide for any minimum number of lines of code in an
application to be converted and there can be no assurance customers will
continue to provide application for conversion by the Company, that the Company
will continue to attract new customers or that the Company will achieve
commercial success in the Year 2000 market. There can be no assurance that
potential clients will understand or acknowledge the problem or allocate the
resources to address the problem in a timely manner.
Many organizations may attempt to resolve the Year 2000 problem
internally rather than contract with outside firms such as the Company. In
addition, due in part to the magnitude of the financial commitment and the
commitment of resources necessary to address the Year 2000 problem, the Company
believes that there is an extended decision-making process before potential
clients commit to a Year 2000 conversion project. Due to these factors,
development of the market for Year 2000 products and services is uncertain and
unpredictable. While the Company believes that the Year 2000 business will
continue for a period after the Year 2000 and will result in additional
conversion business, there can be no assurance as to the extent that there will
be demand for services relating to the Year 2000 problem after the Year 2000 or
to the extent any other conversion services provided by the Company will achieve
commercial acceptance.
Costs Relating to Year 2000 Problem. The Company uses salaried
employees for its Year 2000 conversion business resulting in costs which are
incurred whether or not anticipated revenues are realized. In contrast, the
Company's contract computer programming services business uses per diem
employees who are only hired to staff particular projects. If the market for
Year 2000 products and services fails to grow, or grows more slowly than
anticipated or the Company's Catch/21 Software Solution does not achieve
anticipated levels of acceptance, the Company's results of operations and future
growth could be materially adversely affected.
Fixed Price Contracts; Risks of Termination. The Company's strategy in
the Year 2000 conversion field is to offer its Year 2000 conversion services for
analysis, conversion and testing of software applications on a fixed-price basis
rather than pursuant to contracts in which payment to the Company is determined
solely on a time-and-materials basis. Pursuant to these agreements, the Company
is compensated based on the number of lines of code in an application converted,
and the Company's revenues from a project are dependent on successful acceptance
testing and satisfactory performance of the client's converted software
application. These contracts are generally terminable by either party upon
written notice. In addition, if the contract is terminated prior to completion
of a project, the Company will not be entitled to revenues from a conversion
project. Although the Company believes that, using its proprietary Catch/21
Software Solution, it can successfully complete conversion projects on a timely
basis, there can be no assurance that the Company will be successful and that,
as a result of these contract terms, the Company's expenses on a project will
not exceed its
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revenues or that the converted program will perform satisfactorily and the
Company will receive revenues from a conversion project.
Rapid Technological Change. The market for the Year 2000 conversion
services is relatively new and is expected to be characterized by rapidly
changing technology, evolving industry standards and new product introductions
and enhancements that may render existing products obsolete. In particular, a
number of companies are currently engaged in developing Year 2000 software
solutions and the Company's success in the Year 2000 conversion field could be
adversely affected if more automated or efficient software solutions are
developed by others. As a result, the Company's market position could erode
rapidly due to unforeseen changes in the features and functionality of competing
products. There can be no assurance that competitors will not develop a fully
automated solution to the Year 2000 problem which is superior to the Company's
approach. The development by a competitor of a fully automated system (or other
improved software systems) would adversely affect the Company's ability to
compete. The Company's future success will depend in part upon its ability to
enhance its existing services to meet changing client requirements.
Intellectual Property Rights. The Company's success in the Year 2000
compliance solution services business is dependent upon its Catch/21 Software
Solution and other proprietary intellectual property rights. The Company has
filed a patent application covering certain aspects of its Catch/21 software
solution. There can be no assurance that this patent application will result in
patents being issued. Even if the Company obtains patent rights, the Company
believes that the protection of its rights will depend primarily on its
proprietary technology and techniques which constitute "trade secrets." There
can be no assurance that any patents which may be issued to the Company will
afford adequate protection to the Company or not be challenged, invalidated,
infringed or circumvented. The Company is aware of other patent applications
that have been filed with respect to Year 2000 compliance software programs. It
is possible that others may have been or will be granted patents claiming
products or processes that are necessary for or useful to the development or
continued use of the Catch/21 Software Solution and that legal action could be
brought against the Company claiming infringement. In the event that the Company
is unsuccessful in any action with respect to any such a claim, the Company may
be required to obtain licenses to such patents or to other patents or
proprietary technology in order to continue to utilize the Catch/21 Software
Solution. There can be no assurance the Company will be able to obtain such
licenses on commercially reasonable terms, if at all.
The Company relies primarily upon a combination of trade secret,
nondisclosure and other contractual arrangements, technical measures and
copyright and trademark laws to protect its proprietary rights. The Company
generally enters into confidentiality agreements with its employees,
consultants, clients and potential clients and limits access to and distribution
of its proprietary information. There can be no assurance that the steps taken
by the Company in this regard will be adequate to deter misappropriation of its
proprietary information or that the Company will be able to detect unauthorized
use and take appropriate steps to enforce its intellectual property rights.
Dependence on Computer Industry Trends. The Company's future success
in the contract computer programming services business is dependent upon the
continuation of a number of trends
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in the computer industry, including the overall increase in the sophistication
and interdependency of computing technology and a focus by IT managers on
cost-efficient solutions. The Company believes these trends have resulted in an
increased demand for supplemental technical personnel to meet specific needs in
the contract computer services business. The Company's business and growth will
depend in large part on this movement continuing. There can be no assurance that
these trends will continue, as organizations may elect to perform such services
in-house or out-source such functions to companies that do not utilize temporary
staffing, such as that provided by the Company, or that the trends, should they
continue, will not serve as an inducement to other companies to enter the
Company's market. A significant reversal of current trends could have a material
adverse effect on the Company's financial condition and results of operations.
Fluctuations in Quarterly Operating Results. The Company's revenues
and operating results are subject to significant variations from quarter to
quarter. Revenues are subject to fluctuation based upon a number of factors,
including the timing and number of client projects commenced and completed
during the quarter, delays incurred in connection with projects, the growth rate
of the market for contract computer programming services and the Year 2000
conversion services, the timing of agreements for, and the completion of, Year
2000 conversion projects and general economic conditions. For example, the
growth rate of the Company's contract computer programming services agreements
was accelerated as a result of a few large projects, and at the end of the
Company's quarter ended May 31, 1997, a large contract computer programming
services project for AT&T ended, which has slowed the rate of the Company's
revenue growth in its 1998 fiscal year. In addition, the timing of revenues in
the Company's Year 2000 conversion business has been affected by the timing of
entering into new agreements and the receipt of lines of code for conversion
from existing and new customers. Unanticipated termination of a project or the
decision by a client not to proceed to the next stage of a project anticipated
by the Company could result in decreased revenues and lower utilization rates
which could have a material adverse effect on the Company's business, operating
results and financial condition. The principal factors affecting the Company's
gross margin are the level of salary and other compensation related expenses
necessary to retain qualified technical personnel and the mix of contract
computer programming services versus Year 2000 conversion services, which is a
higher margin business than the contract computer programming services, during
the quarter. Compensation levels can be impacted by a variety of factors,
including competition for highly skilled employees and inflation. The Company's
operating results are also subject to fluctuation as a result of other factors.
Competition. The technical staffing industry is highly competitive and
fragmented and has low barriers to entry. The Company competes for potential
clients with providers of outsourcing services, systems integrators, computer
systems consultants, other providers of technical staffing services and, to a
lesser extent, temporary personnel agencies. The Company competes for technical
personnel with other providers of technical staffing services, systems
integrators, providers of outsourcing services, computer systems consultants,
clients and temporary personnel agencies. Many of the Company's competitors are
significantly larger and have greater financial resources than the Company. The
Company believes that the principal competitive factors in obtaining and
retaining clients are accurate assessment of clients' requirements, timely
assignment of technical employees with appropriate skills and the price of
services. The principal competitive factors in attracting qualified
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technical personnel are compensation, availability, quality and variety of
projects and schedule flexibility. The Company believes that many of the
technical personnel included in its database may also be pursuing other
employment opportunities. Therefore, the Company believes that its
responsiveness to the needs of technical personnel is an important factor in the
Company's ability to fill projects. Although the Company believes it competes
favorably with respect to these factors, it expects competition to increase, and
there can be no assurance that the Company will remain competitive.
The market for IT services addressing the Year 2000 problem is highly
competitive and is expected to become more competitive as others enter this
segment of the business. The Company's competitors include systems consulting
and implementation firms, application software firms, service groups of computer
equipment companies, general management consulting firms and programming
companies. Many of these competitors have significantly greater financial,
technical and marketing resources and greater name recognition than the Company.
In addition, the Company competes with its clients' internal IT personnel. Such
competition may impose additional pricing pressures on the Company. The
principal competitive factors involve speed and reliability in the conversion
process and the price charged for the services. There can be no assurance that
the Company can compete successfully with its existing competitors or with any
new competitors.
Potential for Contract and Other Liability. The Company's products and
services relating to solutions addressing the Year 2000 problem involve key
aspects of its clients' software application. A failure in a client's
application or errors in the Year 2000 conversion of the application could
result in a claim for substantial damages against the Company, regardless of the
Company's responsibility for such failure. The Company attempts to limit
contractually its liability for damages arising from negligence or omissions in
rendering services. Despite this precaution, there can be no assurance that the
limitations of liability set forth in its contracts would be enforceable or
would otherwise protect the Company from liability for damages. Additionally,
the Company maintains general liability insurance coverage, including coverage
for errors and omissions. However, there can be no assurance that such coverage
will continue to be available on acceptable terms, or will be available in
sufficient amounts to cover one or more large claims, or that the insurer will
not disclaim coverage as to any future claim. The successful assertion of one or
more large claims against the Company that exceed available insurance coverage
or change in the Company's insurance policies, including premium increases or
the imposition of large deductible or co-insurance requirements, could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, litigation, regardless of its outcome, could
result in substantial cost to the Company and divert management's attention from
the Company's operations. Any contract liability claim or litigation against the
Company could, therefore, have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's contract computer programming services business involves
assigning technical personnel to the workplace of the client, typically under
the client's supervision. Although the Company has little control over the
client's workplace, the Company may be exposed to claims of discrimination and
harassment and other similar claims as a result of inappropriate actions
allegedly taken against technical personnel by clients. As an employer, the
Company is also exposed to other
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possible employment-related claims. The Company is also exposed to liability
with respect to actions taken by its technical personnel while on a project,
such as damages caused by technical personnel errors, misuse of client
proprietary information or theft of client property. To reduce such exposures,
the Company maintains insurance policies and a fidelity bond covering general
liability, worker's compensation claims, errors and omissions and employee
theft. In certain instances, the Company indemnifies its clients from the
foregoing. There can be no assurance that insurance coverage will continue to be
available, continue to be available at its current price or that it will be
adequate to cover any such liability.
Volatility of Stock Price. The market prices for securities of
technology companies and, particularly, companies engaged in the Year 2000
conversion market, have historically been highly volatile. In particular, the
Company's Common Stock has experienced periods of high volume and large price
movements. Future announcements concerning the Company or its competitors, as
well as period-to-period variances in financial results, could cause the market
price of the Common Stock to fluctuate substantially. In addition, the stock
market has experienced extreme price and volume fluctuations that have
particularly affected the market price for many technology companies and that
have often been unrelated to the operating performance of these companies. These
broad market fluctuations may adversely affect the market price of the Common
Stock.
Shares Available for Resale. All of the outstanding shares of Common
Stock will be eligible for immediate sale in the public market, subject in
certain cases to compliance with the provisions of Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"). Sales of substantial amounts of
Common Stock pursuant to Rule 144 or otherwise may have an adverse effect on the
market price of the Common Stock.
Certain Anti-Takeover Provisions May Inhibit a Change of Control. In
addition to the significant ownership of Common Stock by Joseph F. Hughes,
certain provisions of the Company's charter and by-laws may have the effect of
discouraging a third party from making an acquisition proposal for the Company
and may thereby inhibit a change in control of the Company under circumstances
that could give the holders of Common Stock the opportunity to realize a premium
over the then-prevailing market prices. Such provisions include a classified
Board of Directors, advance notice requirements for nomination of directors and
certain shareholder proposals set forth in the Company's Certificate of
Incorporation and by-laws.
New Classes and Series of Stock. The Company's charter authorizes the
Board of Directors to create new classes and series of preferred stock and to
establish the preferences and rights of any such classes and series without
further action of the shareholders. The issuance of additional classes or series
of Capital Stock may have the effect of delaying, deferring or preventing a
change in control of the Company.
624906.6
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USE OF PROCEEDS
The Common Stock offered hereby are offered by the Selling
Stockholders. See "Selling Securityholders" and "Plan of Distribution". The
Company will not receive any proceeds from the sale of the Common Stock.
SELLING SECURITYHOLDERS
The following table sets forth certain information as of the date
hereof, with respect to the Common Stock held by each Selling Stockholder.
Except as set forth below, none of the Selling Stockholders has had a material
relationship with the Company within the past three years other than as a result
of the ownership of the Common Stock. The Common Stock offered by this
Prospectus may be offered from time to time by the Selling Stockholders named
below:
A B C D
Numbers of Percentage
Shares of Number of Shares Represented
Common Stock Offered for Sale by Column B
Beneficially Pursuant to this of Shares
Name and Address Owned Prospectus Outstanding
---------------- ----- ---------- -----------
Massachusetts Mutual Life 92,000(1) 92,000 1.54%
Insurance Company
1295 State Street
Springfield, MA 01111-0001
MassMutual Corporate Value 46,000(1) 46,000 0.77%
Partners Limited
c/o Bank of America Trust
and Banking Corporation
(Cayman) Limited
P. O. Box 1092
George Town
Grand Cayman
Cayman Islands, B.W.I.
MassMutual High Yield 62,000(1) 62,000 1.04%
Partners, LLC
c/o HYP Management, Inc.
1295 State Street
Springfield, MA 01111-0001
624906.6
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<PAGE>
A B C D
Numbers of Percentage
Shares of Number of Shares Represented
Common Stock Offered for Sale by Column B
Beneficially Pursuant to this of Shares
Name and Address Owned Prospectus Outstanding
---------------- ----- ---------- -----------
Special Situations Cayman 104,000(2) 70,000 1.74%
Fund, L.P.
153 East 53rd Street, 51st Fl.
New York, NY 10022
Special Situations Fund III, 291,000(2) 203,000 4.86%
L.P.
153 East 53rd Street, 51st Fl.
New York, NY 10022
Special Situations Private 95,000(2) 95,000 1.59%
Equity Fund, L.P.
153 East 53rd Street, 51st Fl.
New York, NY 10022
Special Situations 58,000(2) 36,000 0.97%
Technology Fund, L.P.
153 East 53rd Street, 51st Fl.
New York, NY 10022
William J. Barrett 62,000(3) 45,000(4) 1.04%
c/o Janney Montgomery
Scott Inc.
26 Broadway
New York, NY 10004
Herbert M. Gardner 27,000(5) 15,000 0.45%
c/o Janney Montgomery
Scott Inc.
26 Broadway
New York, NY 10004
(1) MassMutual Corporate Value Partners Ltd. is owned 93% by MassMutual
Corporate Value Limited, which in turn is owned 46% by MassMutual
Holding MSC, Inc., which in turn is wholly owned by MassMutual Holding
Company, a wholly owned subsidiary of Massachusetts Mutual Life
Insurance Company. MassMutual High Yield Partners LLC is owned 36% by
MMHC Investment Inc., 5% by Massachusetts Mutual Life Insurance
Company and 2% by HYP
624906.6
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<PAGE>
Management, Inc. MMHC Investment Inc. and HYP Management, Inc. are
wholly owned by MassMutual Holding Trust II, which in turn is wholly
owned by MassMutual Holding Company, a wholly owned subsidiary of
Massachusetts Mutual Life Insurance Company.
(2) AWM Investment Company, Inc. ("AWM") is the general partner of and the
investment adviser to Special Situations Cayman Fund, L.P. (the
"Cayman Fund"), and may be deemed to beneficially own the shares shown
in this table as owned by the Cayman Fund. MGP Advisers Limited
Partnership ("MGP") is the general partner of and the investment
adviser to Special Situations Fund III, L.P. ("SSF"), and may be
deemed to beneficially own the shares shown in this table as owned by
SSF. MG Advisers, L.L.C. ("MG") is the general partner of and the
investment adviser to Special Situations Private Equity Fund, L.P.
(the "Private Equity Fund"), and may be deemed to beneficially own the
shares shown in this table as owned by the Private Equity Fund. SST
Advisers LLC ("SSA") is the general partner of Special Situations
Technology Fund, L.P. ("SST"), and may be deemed to beneficially own
the shares shown in this table as owned by SST. Austin W. Marxe and
David M. Greenhouse, in their capacities as officers, directors and
members or principal shareholders of AWM, MGP, MG and SSA, may be
deemed to beneficially own the shares shown in this table as owned by
the Cayman Fund, SSF, the Private Equity Fund and SST.
(3) Includes 4,000 shares owned of record by Mr. Barrett's wife and 28,000
shares owned of record by JMS Inc. as Custodian for the benefit of the
William J. Barrett Keogh.
(4) Includes 15,000 shares owned of record by JMS Inc. as Custodian for
the benefit of the William J. Barrett Keogh.
(5) Includes 1,000 shares owned of record by Mr. Gardner's wife, 4,000
shares owned of record by Mr. Gardner's qualified plan, and 7,000
shares owned of record by Mr. Gardner's IRA-Rollover.
The Selling Stockholders may offer all or part of the Common Stock which they
hold pursuant to the offering contemplated by this Prospectus. Therefore, no
estimate can be given as to the amount of Common Stock that will be held by the
Selling Stockholders upon completion of such offering.
PLAN OF DISTRIBUTION
The Common Stock may be sold from time to time to purchasers directly
by any of the Selling Stockholders. Alternatively, the Selling Stockholders may
from time to time offer the Common Stock through underwriters, dealers or
agents, who may receive compensation in the
624906.6
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<PAGE>
form of underwriting discounts, concessions or commissions from the Selling
Stockholders and/or the purchasers of Common Stock for whom they may act as
agent. The Selling Stockholders and any underwriters, dealers or agents that
participate in the distribution of Common Stock may be deemed to be
underwriters, and any profit on the sale of Common Stock by them and any
discounts, commissions or concessions received by any such underwriters, dealers
or agents might be deemed to be underwriting discounts and commissions under the
Securities Act. At the time a particular offer of Common Stock is made, to the
extent required, a Prospectus Supplement will be distributed which will set
forth the terms of the offering, including the name or names of any
underwriters, dealers or agents, any discounts, commissions and other items
constituting compensation from the Selling Stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers.
The Common Stock may be sold from time to time in one or more
transactions at a fixed offering price, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices.
The Company will pay substantially all of the expenses incident to the
offering and sale of the Common Stock to the public other than commissions and
discounts of underwriters, dealers or agents. Under agreements entered into with
the Company, the Selling Stockholders, and any underwriter they may utilize,
will be indemnified by the Company against certain civil liabilities, including
liabilities under the Securities Act.
DISCLOSURE OF COMMISSION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Indemnification of Directors and Officers
The Certificate of Incorporation and By-Laws of the Company provide
that the Company shall indemnify any person to the full extent permitted by the
Delaware General Corporation Law (the "GCL"). Section 145 of the GCL, relating
to indemnification, is hereby incorporated herein by reference.
In accordance with Section 102(a)(7) of the GCL, the Certificate of
Incorporation of the Company eliminates the personal liability of directors to
the Company or its shareholders for monetary damages for breach of fiduciary
duty as a director with certain limited exceptions set forth in Section
102(a)(7).
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
624906.6
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<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Battle Fowler LLP, New York, New York.
EXPERTS
The financial statements of TSR, Inc. and subsidiaries as of May 31,
1997 and 1996, and for each of the years in the three-year period ended May 31,
1997, have been incorporated by reference herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
624906.6
15
<PAGE>
660,000 Shares
TSR, INC.
Common Stock
---------------
PROSPECTUS
_______, 1998
---------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or the Underwriters. This
Prospectus does not constitute an offer of any securities other than those to
which it relates or an offer to sell, or a solicitation of an offer to buy, to
any person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that the information
contained herein is correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION........................................................2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..............................2
PROSPECTUS SUMMARY...........................................................3
RISK FACTORS.................................................................4
USE OF PROCEEDS.............................................................11
SELLING SECURITYHOLDERS.....................................................11
PLAN OF DISTRIBUTION........................................................13
DISCLOSURE OF COMMISSION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES............................................................14
LEGAL MATTERS...............................................................15
EXPERTS.....................................................................15
624906.6
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<PAGE>
PART II
Information Not Required in Prospectus
Item 14. Other Expenses of Issuance and Distribution
The estimated expenses payable by the Registrant in connection with
the issuance and distribution of the securities being registered (other than
underwriting discounts and commissions) are as follows:
Amount
- --------------------------------------------------------------------------------
SEC Registration Fee............................................$4,733.64
Accounting Fees and Expenses...................................30,000.00
Legal Fees and Expenses........................................50,000.00
Miscellaneous Expenses......................................... 5,266.36
- --------------------------------------------------------------------------------
Total................................................$90,000.00
================================================================================
Item 15. Indemnification of Directors and Officers
The Certificate of Incorporation and By-Laws of the Company provide
that the Company shall indemnify any person to the full extent permitted by the
Delaware General Corporation Law (the "GCL"). Section 145 of the GCL, relating
to indemnification, is hereby incorporated herein by reference.
In accordance with Section 102(a)(7) of the GCL, the Certificate of
Incorporation of the Registrant eliminates the personal liability of directors
to the Company or its shareholders for monetary damages for breach of fiduciary
duty as a director with certain limited exceptions set forth in Section
102(a)(7).
Item 16. Exhibits
3.1* Certificate of Incorporation of the Registrant.
3.2* By-laws of the Registrant.
4.1* Form of Common Stock certificate.
5.1 Opinion of Battle Fowler LLP.
23.1 Consent of Battle Fowler LLP (Included in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP, Independent Auditors.
624906.6
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<PAGE>
24.1 Power of Attorney (Included on signature page).
- ----------
* Incorporated by reference.
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suite or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
624906.6
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, New York on the 11th day of February, 1997.
TSR, INC.
By: s/ Joseph F. Hughes
-------------------------
Joseph F. Hughes
President, Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below under the heading "Signature" constitutes and appoints Joseph F.
Hughes, or John G. Sharkey, his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities to sign any or all amendments to this
registration statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
s/ Joseph F. Hughes President, Chairman of Feb. 11, 1998
- -----------------------------
Name: Joseph F. Hughes the Board and Chief Executive
Officer (principal
executive officer)
s/ John G. Sharkey Vice President, Finance Feb. 11, 1998
- -----------------------------
Name: John G. Sharkey (Chief Financial and
Accounting Officer)
624906.6
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<PAGE>
s/ Ernest G. Bago Director February 17, 1998
- -----------------------------
Name: Ernest G. Bago
s/ John H. Hochuli, Jr. Director February 17, 1998
- -----------------------------
Name: John H. Hochuli, Jr.
s/ Michael P. Dowd Director February 17, 1998
- -----------------------------
Name: Michael P. Dowd
s/ James J. Hill Director February 19, 1998
- -----------------------------
Name: James J. Hill
624906.6
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<PAGE>
Exhibit 5.1
BATTLE FOWLER LLP
A LIMITED LIABILITY PARTNERSHIP
75 East 55th Street
New York, New York 10022
(212) 856-7000
(212) 339-9150
Board of Directors
TSR, Inc.
400 Oser Avenue
Hauppauge, New York 11788
Re: TSR, Inc.
Public Offering of Common Stock
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel for TSR, Inc., a Delaware corporation (the
"Company"), in connection with the preparation of the registration statement on
Form S-3, and any amendments thereto (the "Registration Statement"), as filed
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"), for the registration under the Securities Act of
up to 660,000 shares (the "Shares") of the Company's common stock, par value
$0.01 per share (the "Common Stock") (the "Shares") all of which have been
issued and are outstanding. The Shares are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act by certain
selling stockholders (the "Selling Stockholders") named in the Registration
Statement. Capitalized terms used and not defined in this opinion have the
meanings ascribed to them in the Registration Statement. You have requested that
we furnish our opinion as to matters hereinafter set forth.
In rendering this opinion, we have relied upon, among other things, our
examination of such records of the Company, including without limitation, the
Company's Certificate of Incorporation as amended, and the Company's Bylaws, as
amended, resolutions of the Board of Directors and certificates of its officers
and of public officials as we have deemed necessary for the purpose of the
opinion expressed below.
685715.1
<PAGE>
Board of Directors
TSR, Inc.
In addition, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals, and the conformity
to original documents of all documents submitted to us as certified or
photostatic copies. As to various questions of fact material to this opinion, we
have relied, to the extent we deem reasonably appropriate, upon representations
or certificates of officers or directors of the Company and upon documents,
records and instruments furnished to us by the Company, without independently
checking or verifying the accuracy of such documents, records and instruments
furnished to us by the Company.
We do not express any opinion as to the laws of states or jurisdictions
other than the laws of the State of New York, the Delaware General Corporation
Law and the federal law of the United States. No opinion is expressed as to the
effect that the law of any other jurisdiction may have upon the subject matter
of the opinion expressed herein under conflicts of law principles, rules and
regulations or otherwise.
Based on and subject to the foregoing, we are of the opinion that: the
Shares offered by the Selling Stockholders pursuant to the Registration
Statement have been duly and validly authorized and issued and are fully paid
and nonassessable.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the use
of our name under the caption "Legal Matters" in the Prospectus included
therein. In giving this consent, we do not admit that we are within the category
of persons whose consent is required by Section 7 of the Securities Act of 1933
or the rules and regulations promulgated thereunder by the Securities and
Exchange Commission.
Very truly yours,
Battle Fowler LLP
685715.1
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
-------------------------------
The Board of Directors
and Stockholders
TSR, Inc.:
We consent to the use of our report incorporated by reference herein and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Jericho, New York
February 16, 1998
624906.6
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