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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the period ended August 31, 1998
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number: 0-8656
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
incorporation or organization) Identification No.)
400 OSER AVENUE, HAUPPAUGE, NY 11788
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(Address of principal executive offices)
516-231-0333
-------------------------------
(Registrant's telephone number)
NONE
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(Former name, former address and former fiscal year,
if changed since last report)
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
SHARES OUTSTANDING
-----------------------------------------------------------
5,988,276 shares of common stock, par value $.01 per share,
as of September 30, 1998.
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Page 1
<PAGE>
TSR, INC. AND SUBSIDIARIES
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets --
August 31, 1998 and May 31, 1998....................... 3
Consolidated Condensed Statements of Earnings --
For the three months ended August 31, 1998 and 1997.... 4
Consolidated Condensed Statements of Cash Flows --
For the three months ended August 31, 1998 and 1997.... 5
Notes to Consolidated Condensed Financial Statements..... 6
Item 2. Management's Discussion and Analysis..................... 7
PART II. OTHER INFORMATION................................................ 10
SIGNATURES................................................................. 11
Page 2
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
August 31, May 31,
ASSETS 1998 1998
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 6) ........................................ $ 4,806,433 $ 2,425,122
Marketable securities (Note 7) ............................................ 1,535,218 1,575,945
Accounts receivable (net of allowance for
doubtful accounts of $173,000) ........................................ 15,044,964 15,037,995
Other receivables ......................................................... 110,592 86,772
Prepaid expenses .......................................................... 13,198 67,449
Prepaid and recoverable income taxes ...................................... 31,132 90,823
Deferred income taxes ..................................................... 59,000 59,000
----------- -----------
Total current assets .................................................. 21,600,537 19,343,106
Equipment and leasehold improvements, at cost (net of accumulated
depreciation and amortization of $1,083,000 and $952,000) ................. 899,556 1,008,776
Other assets ................................................................... 105,162 90,995
Deferred income taxes .......................................................... 85,000 73,000
----------- -----------
$22,690,255 $20,515,877
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts and other payables ............................................... $ 160,268 $ 278,410
Accrued and other liabilities ............................................. 3,639,198 2,950,986
Income taxes payable ...................................................... 654,240 173,377
Advances from customers ................................................... 981,873 946,257
----------- -----------
Total current liabilities ............................................. 5,435,579 4,349,030
----------- -----------
Shareholders' Equity:
Preferred stock, $1 par value, authorized
1,000,000 shares; none issued ......................................... -- --
Common stock, $.01 par value, authorized
25,000,000 shares; issued 5,988,276 shares * .......................... 59,883 59,883
Additional paid-in capital ................................................ 3,183,246 3,183,246
Retained earnings ......................................................... 14,011,547 12,923,718
----------- -----------
17,254,676 16,166,847
----------- -----------
$22,690,255 $20,515,877
=========== ===========
- -------------
* Adjusted for a stock split in the form of a 100% stock dividend on November 17, 1997.
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
Page 3
<PAGE>
<TABLE>
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED AUGUST 31, 1998 AND 1997
<CAPTION>
Three Months Ended
August 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues ............................................................. $20,465,532 $15,778,845
Cost of sales ........................................................ 15,060,372 11,947,018
Selling, general and administrative expenses ......................... 3,359,264 2,814,215
Research and development expenses .................................... 148,171 165,254
----------- -----------
18,567,807 14,926,487
Income from operations ............................................... 1,897,725 852,358
Other income:
Interest and dividend income .................................... 67,886 31,195
Gain (loss) from marketable securities, net ..................... (27,782) 3,950
Gain from sales of assets ....................................... -- 8,600
----------- -----------
Income before income taxes ........................................... 1,937,829 896,103
Provision for income taxes ........................................... 850,000 427,000
----------- -----------
Net income ...................................................... $ 1,087,829 $ 469,103
=========== ===========
Basic net income per common share .................................... $ 0.18 $ 0.08
=========== ===========
Weighted average number of common shares outstanding* ................ 5,988,276 5,985,324
=========== ===========
Diluted net income per common share .................................. $ 0.18 $ 0.08
=========== ===========
Weighted average number of diluted common shares outstanding* ........ 5,988,276 5,985,324
=========== ===========
- -------------
* Adjusted for a stock split in the form of a 100% stock dividend on November 17, 1997.
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
Page 4
<PAGE>
<TABLE>
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 1998 AND 1997
<CAPTION>
Three Months Ended
August 31,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................................... $1,087,829 $ 469,103
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization .................................. 139,534 77,598
Gain from sales of assets ...................................... -- (8,600)
Deferred income taxes .......................................... (12,000) (7,000)
Loss (gain) from marketable securities, net .................... 27,782 (3,950)
Changes in assets and liabilities:
Accounts receivable ........................................ (6,969) (903,545)
Other receivables .......................................... (23,820) (2,299)
Prepaid expenses ........................................... 54,251 3,860
Prepaid and recoverable income taxes ....................... 59,691 11,045
Other assets ............................................... (22,500) 12,587
Accounts payable and accrued expenses ...................... 570,070 250,973
Income taxes payable ....................................... 480,863 185,449
Advances from customers .................................... 35,616 73,317
---------- ----------
Total adjustments .............................................. 1,302,518 (310,565)
---------- ----------
Net cash provided by operating activities .......................... 2,390,347 158,538
---------- ----------
Cash flows from investing activities:
Proceeds from maturities and sales of marketable securities .... 487,185 --
Purchases of marketable securities ............................. (474,240) --
Purchases of fixed assets ...................................... (21,981) (373,329)
Proceeds from sales of assets .................................. -- 8,600
---------- ----------
Net cash used in investing activities .......................... (9,036) (364,729)
---------- ----------
Net increase (decrease) in cash and cash equivalents .................... 2,381,311 (206,191)
Cash and cash equivalents at beginning of period ........................ 2,425,122 2,931,180
---------- ----------
Cash and cash equivalents at end of period .............................. $4,806,433 $2,724,989
========== ==========
Supplemental Disclosures:
Income tax payments ................................................ $ 321,000 $ 238,000
========== ==========
Interest paid ...................................................... $ -- $ --
========== ==========
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
Page 5
<PAGE>
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
AUGUST 31, 1998
1. The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions of Form 10- Q
of Regulation S-X. Accordingly, they do not include all the information and
notes required by generally accepted accounting principles for complete
financial statements. For further information refer to the Company's
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended May 31, 1998.
2. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the consolidated
financial position, the consolidated results of operations, and
consolidated cash flows for the periods presented.
3. The Company is primarily engaged in the business of providing computer
programming consulting services. The Company provides technical computer
personnel to companies to supplement their in-house information technology
capabilities. In addition, during fiscal 1997, the Company developed
Catch/21, a Year 2000 compliance software solution which enables the
Company to correct, on a substantially automated basis, problems which may
occur in computer software as a result of the century change in the year
2000. Toward the end of fiscal 1997 the Company commenced providing
services to customers to make applications Year 2000 compliant.
4. The consolidated condensed financial statements include the accounts of
TSR, Inc. and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
5. The Company recognizes computer programming consulting 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. Provided that acceptance is probable, revenue from Catch/21 code
conversion is recognized when the converted code is delivered.
6. 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 August 31,
1998:
Cash in banks ............................. $ 40,632
Money Market Funds......................... 4,765,801
----------
$4,806,433
==========
7. Marketable securities consists of United States Treasury Bills and equity
securities. The treasury bills with maturities at acquisition in excess of
90 days, are classified as held to maturity investments. The Company's
equity securities are classified as trading securities. The amortized
cost, gross unrealized holding gains, gross unrealized holding losses and
fair value for marketable securities by major security type at August 31,
1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
United States Treasury Bills.. $1,435,200 -- -- $1,435,200
Equity Securities............. 133,289 5,323 (38,594) 100,018
---------- ------ --------- ---------
$1,568,489 $5,323 $(38,594) $1,535,218
========== ====== ========= ==========
</TABLE>
8. On October 22, 1997 the Board of Directors of the Company declared a stock
split in the form of a 100% stock dividend on the shares of Common Stock
payable November 17, 1997 to stockholders of record as of November 3,
1997. All data for prior periods has been adjusted accordingly.
9. On January 30, 1998, the Company sold 160,000 shares of common stock at
$16 per share in a private placement. The net proceeds to the Company
after expenses were $2,306,400.
Page 6
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2.
TSR, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with the
consolidated condensed financial statements and the notes to the consolidated
condensed financial statements.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
information derived from the Company's consolidated statements of earnings.
There can be no assurance that trends in sales growth or operating results will
continue in the future:
<TABLE>
<CAPTION>
3 Months Ended August 31,
----------------------------------------
1998 1997
------------------ ------------------
% of % of
Amount Revenues Amount Revenues
------- -------- ------- --------
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Revenues ...................................... $20,466 100.0 $15,779 100.0
Cost of Sales ................................. 15,061 73.6 11,947 75.7
------- ----- ------- -----
Gross Profit .................................. 5,405 26.4 3,832 24.3
Selling, General, and Administrative expenses.. 3,359 16.4 2,815 17.8
Research and Development expenses ............. 148 0.7 165 1.1
------- ----- ------- -----
Income from Operations ........................ 1,898 9.3 852 5.4
Other Income .................................. 40 0.2 44 0.3
------- ----- ------- -----
Income Before Income Taxes .................... 1,938 9.5 896 5.7
Provision for Income Taxes .................... 850 4.2 427 2.7
------- ----- ------- -----
Net Income .................................... $ 1,088 5.3 $ 469 3.0
======= ===== ======= =====
</TABLE>
REVENUES
Revenues consist primarily of revenues from computer programming consulting
services. In addition, the Company's revenues for the quarter ended August 31,
1998 included revenues from its Year 2000 business which was commenced in fiscal
1997. Revenues for the quarter ended August 31, 1998 increased $4,687,000 or
29.7% over the comparable period in fiscal 1998.
Computer programming consulting services revenues increased $2,960,000 from
$15,175,000 in the quarter ended August 31, 1997 to $18,135,000 in the quarter
ended August 31, 1998. This increase resulted from an overall increase in the
number of programmers on billing with clients from an average of approximately
448 in the quarter ended August 31, 1997 to approximately 477 in the quarter
ended August 31, 1998.
Revenues from the Company's Year 2000 business, which was commenced in fiscal
1997, were $2,331,000 for the quarter ended August 31, 1998. During the current
quarter the Company used its proprietary Catch/21 Software Solution on
conversion projects to remediate approximately 9,000,000 lines of code for
client software applications for a total of fifteen customers. The Company's
Year 2000 revenues during the first quarter of fiscal 1999 were slightly less
than the fiscal 1998 fourth quarter revenues and the Company expects these
revenues may decline more rapidly during the remainder of fiscal 1999. The
Company has received less code from customers than it had expected based on
customers' original estimates. In addition, the Company is experiencing more
intense competition which has impacted obtaining new customers.
Page 7
<PAGE>
The agreements under which the revenues were recognized provide that all
payments under the agreements are subject to satisfactory conversion of the
applications. Revenues include certain amounts billed or paid prior to the final
acceptance by the customer only for conversion projects where upon management
believes that acceptance is probable.
COST OF SALES
Cost of sales as a percentage of revenues decreased from 75.7% in the quarter
ended August 31, 1997 to 73.6% in the quarter ended August 31, 1998. This
decrease is primarily attributable to the increase in Year 2000 revenues for
which cost of sales as a percentage of revenues is less than the computer
programming consulting business.
In the computer programming consulting services business, cost of sales as a
percentage of sales increased from 76.2% in the quarter ended August 31, 1997 to
77.1% in the quarter ended August 31, 1998. This increase is attributable to
increases in amounts being paid to qualified programming professionals outpacing
the Company's ability to pass these increases on to customers due to competitive
market pressures in the industry.
The Year 2000 business incurred cost of sales of $1,080,000 in the quarter ended
August 31, 1998 versus $386,000 in the prior year quarter. These costs consisted
primarily of salaries of software analysts and quality assurance personnel. The
Company expects cost of sales from the Year 2000 business to decrease in the
coming quarters due to a significant decrease in the number of analysts working
in this area.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses consist primarily of expenses
relating to account executives, technical recruiters, facilities costs,
management and corporate overhead. These expenses increased $544,000 or 19.3%
from $2,815,000 in the quarter ended August 31, 1997 to $3,359,000 in the
quarter ended August 31, 1998. Selling, general and administrative expenses
related to computer programming consulting services increased $460,000 over the
prior year period to $2,721,000. The increase was primarily attributable to
additional commission based compensation based on higher gross profits. In
addition, this increase resulted from expenses relating to the hiring of
additional account executives and technical recruiting professionals to broaden
the Company's client base and recruit additional technical consultants in
connection with the continuation of the Company's planned expansion.
In the quarter ended August 31, 1998, approximately $638,000 in selling, general
and administrative expenses were attributable to the Year 2000 business. These
expenses consist primarily of marketing, management, and facilities expenses.
Such expenses decreased from the fourth quarter of fiscal 1998 and are expected
to continue to decline due to lower demand for Year 2000 remediation services.
Comparable Year 2000 selling, general and administrative expenses in the quarter
ended August 31, 1997 were $554,000.
RESEARCH AND DEVELOPMENT
Research and development costs of $148,000 in the quarter ended August 31, 1998
represent amounts expended by the Company to expand Catch/21, the Company's Year
2000 compliance solution, product offerings including XRAY/2000 which stands for
Examination, Repair, and Audit for Year 2000 Compliance, and various testing
utilities. Research and development expenses in the quarter ended August 31,
1997 were $165,000.
INCOME FROM OPERATIONS
In the quarter ended August 31, 1998, the computer programming consulting
service business contributed $1,433,000 or 75.5% of the income from operations,
while the Year 2000 business contributed the remaining $465,000 or 24.5%. In the
prior year quarter, the computer programming consulting service business
contributed $1,353,000 of income from operations, the Year 2000 business
incurred a loss of $520,000, and there was $19,000 from other sources.
OTHER INCOME
Other income resulted primarily from interest and dividend income which
increased by $37,000 to $68,000 due to higher average available investable funds
in the quarter ended August 31, 1998. This interest and dividend increase was
offset, to some extent, by an unrealized loss of $28,000 on the Company's
equity securities.
Page 8
<PAGE>
INCOME TAXES
The effective income tax rate decreased to 43.9% in the quarter ended August 31,
1998 from 47.7% in the quarter ended August 31, 1997 because the losses incurred
in the prior year quarter by the Year 2000 business, operated out of the
Company's Hauppauge, New York location, were not available to offset state and
local income taxes other than for New York State.
LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION
The Company expects that cash flow generated from operations together with its
cash and marketable securities and available credit facilities will be
sufficient to provide the Company with adequate resources to meet its cash
requirements.
At August 31, 1998, the Company had working capital of $16,165,000 and cash and
cash equivalents of $4,806,000 as compared to working capital of $14,994,000 and
cash and cash equivalents of $2,425,000 at May 31, 1998. Working capital and
cash and cash equivalents increased primarily due to the Company's net income in
the quarter ended August 31, 1998.
The Company had positive net cash flow of $2,390,000 from operations during the
quarter ended August 31, 1998 as compared to positive net cash flow from
operations of $159,000 in the quarter ended August 31, 1997. The Company had net
income of $1,088,000, in the quarter ended August 31, 1998. The Company also had
additional cash flow as a result of the increase in the accounts payable and
accrued expenses of $570,000 and an increase in income taxes payable of
$481,000. The increase in accounts payable and accrued expenses resulted
primarily from the increase in cost of sales. The increase in income taxes
payable occurred because the federal income tax payment for the quarter was due
after the end of the quarter.
Cash flow used in investing activities resulted primarily from the purchase of
fixed assets in the current quarter of $22,000. The fixed asset additions were
$373,000 in the prior year period. The significant decrease occurred due to
equipment purchased in the prior year period to emulate client computer
environments to enable sufficient testing and quality assurance of the Catch/21
Software Solution.
The Company's capital resource commitments at August 31, 1998 consisted of lease
obligations on its branch and corporate facilities. The Company intends to
finance these lease commitments from cash flow provided by operations, available
cash and short-term marketable securities.
Although the Company's cash and marketable securities were sufficient to enable
it to meet its cash requirements during the quarter ended August 31, 1998, the
Company may require a credit facility to finance its accounts receivable if its
accounts receivable continue to grow as a result of a significant increase in
revenues. The Company has available a revolving line of credit of $5,000,000
with a major money center bank. As of August 31, 1998 no amounts were
outstanding under this line of credit.
YEAR 2000 INFORMATION
The Company is in the process of reviewing the potential impact of the Year 2000
on its computer systems. The Company uses computer systems throughout its entire
operations. The Company has not completed its assessment, but currently believes
that its computer systems are substantially Year 2000 compliant and that any
costs of addressing this issue will not have a material adverse impact on the
Company's financial position. However, if the Company, or third parties upon
which the Company relies, are unable to address the Year 2000 issue in a timely
manner, it could result in a material financial risk to the Company.
FORWARD-LOOKING STATEMENTS
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations", including statements concerning
the development of the Company's Catch/21 solution, 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
computer programming consulting services and the Year 2000 compliance solution
market, concentration of the Company's business with certain customers and
uncertainty as to the Company's ability to bring in new customers and the risk
that the Catch/21 software solution will not achieve increased commercial
acceptance.
Page 9
<PAGE>
TSR, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K
(a). Exhibit 10.1: Employment Agreement dated June 1, 1998 between
TSR Consulting Services, Inc. and Ernest G. Bago
(b). Exhibit 27: Financial Data Schedule
(c). Reports on Form 8K: None
Page 10
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
Date: October 9, 1998
/s/ J.F. HUGHES
--------------------------------------
J.F. Hughes, Chairman, President
and Treasurer
Date: October 9, 1998
/s/ JOHN G. SHARKEY
------------------------------------------
John G. Sharkey, Vice President,
Finance
Page 11
EMPLOYMENT AGREEMENT
AGREEMENT effective this 1st day of June, 1998 by and between TSR
Consulting Services, Inc., a Delaware corporation, with offices at 400 Oser
Avenue, Hauppauge, New York 11788 (hereinafter called the "Corporation") and
Ernest G. Bago, residing at 6 Greenbriar Lane, Montvale, New Jersey 07645
(hereinafter called "Executive").
W I T N E S S E T H :
WHEREAS, the Corporation desires to employ Executive and Executive is
willing to undertake such employment on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. The Corporation hereby employs Executive as President of the
Corporation or such other position as he may be elected or appointed
to by the Corporation's Board of Directors, to perform such
supervisory or executive duties on behalf of the Corporation as the
Board of Directors of the Corporation may from time to time determine.
2. Executive hereby accepts such employment and agrees that throughout
the period of his employment hereunder, he will devote his full time,
attention, knowledge and skills, faithfully, diligently and to the
best of his ability, in furtherance of the business of the Corporation
and to promote the interest of the Corporation, will perform the
duties assigned to him pursuant to Paragraph 1 hereof, subject, at all
times, to the direction and control of the Board of Directors of the
Corporation. Executive shall at all times be subject to, observe and
carry out such rules, and regulations as the Corporation from time to
time shall establish. During the period of Executive's employment
hereunder, Executive shall not be entitled to additional compensation
for serving in any office of the Corporation or any of its
subsidiaries or parent corporation to which he is elected, including
without limitation as a director of the Corporation or parent
corporation.
3. Executive shall be employed for a term of four (4) years commencing as
of the 1st day of June, 1998 and ending on the 31st day of May, 2002
(the "Term"), unless his employment is terminated prior to the
expiration of the Term pursuant to the provisions hereof.
<PAGE>
4. As full compensation for his services hereunder, the Corporation will
pay to Executive a salary (the "Base Salary") at the rate of Two
Hundred Thousand ($200,000) Dollars per annum, payable in equal
installments in arrears no less frequently than semi-monthly. In
addition, the parent corporation's Board of Directors, shall in good
faith, prior to the end of each contract year consider and cause the
Corporation to grant to Executive a discretionary bonus, based upon
standards which the President of the parent corporation shall
establish with Executive at the beginning of the contract year and may
be modified thereafter. The bonus provided for hereunder shall be
payable by the Corporation to Executive within 120 days of the end of
the contract year, for the period to which such bonus relates. In
addition to such salary, Executive shall be entitled to participate,
to the extent he is eligible under the terms and conditions thereof,
in any pension, profit-sharing, retirement, hospitalization,
insurance, medical services, or other employee benefit plan generally
available to executives of the Corporation which may be in effect from
time to time during the period of his employment hereunder. The
Corporation shall be under no obligation to institute or continue the
existence of any such employee benefit plan. Executive also shall be
entitled to a leased car and payment or reimbursement of a country
club membership is such amounts for the car and the country club
membership as shall be determined by the Board of Directors of the
Corporation and executive medical benefits. Any or all of such
entitlements may be discontinued at the end of any contract year at
the discretion of the President of the parent corporation.
5. The Corporation shall reimburse Executive for all expenses reasonably
incurred by him in connection with the performance of his duties
hereunder and the business of the Corporation, upon the submission to
the Corporation of appropriate vouchers therefor and approval thereof
by the Treasurer of the Corporation. Such reimbursements shall be
subject to the expense reimbursement policies of the Corporation which
are in effect from time to time. Executive shall be entitled to three
(3) weeks vacation time per annum in accordance with the regular
procedures of the Corporation governing executive officers as
determined from time to time by the Corporation's Board of Directors.
6. (a) Notwithstanding any provision contained herein to the contrary, if
on or after the date hereof and prior to the end of the Term,
Executive is terminated for "Cause" (as defined below) then the
Corporation shall have the right to give notice of termination of
Executive's services hereunder as of a date to be specified in such
notice and this Agreement shall terminate as of the date so specified.
Termination for "Cause shall mean Executive shall (i) be charged with
a felony crime, (ii) commit any act or omit to take any action in bad
faith and to the detriment of the Corporation, (iii) commit an act of
fraud against the Corporation
<PAGE>
or (iv) materially breach any term of this Agreement and fail to
correct such breach within ten days after written notice of commission
thereof.
(b) If, during the Term, Executive is unable to perform his duties
hereunder on account of illness, accident or other physical or mental
incapacity and such illness or other incapacity shall continue for a
period of six (6) consecutive months or an aggregate of one hundred
and eighty (180) days in any consecutive twelve (12) month period, the
Corporation shall have the right, on fifteen (15) days written notice
(given after such period) to Executive, to terminate this Agreement.
In such event, the Corporation shall be obligated to pay to Executive
his Base Salary to the end of the calendar month in which such
termination occurs. However, if prior to the date specified in such
notice, Executive's illness or incapacity shall have terminated and he
shall have taken up the performance of his duties hereunder, Executive
shall be entitled to resume his employment hereunder, as though such
notice had not been given.
(c) In the event of Executive's death during the Term, this Agreement
shall terminate immediately, and Executive's legal representatives
shall be entitled to receive the Base Salary due Executive through the
last day of the calendar month during which his death shall have
occurred together with any approved expenses as contemplated under
Section 5 and as may otherwise be provided under any insurance policy
or similar instrument.
(d) In the event that this Agreement is terminated for "Cause"
pursuant to Section 6(a), then Executive shall be entitled to receive
only the Base Salary to the date on which such termination shall take
effect.
(e) In the event the Corporation terminates Executive for any reason
other than as provided under Section 6(a), (b), or (c), then this
Agreement shall terminate upon thirty (30) days' written notice to
Executive and the Corporation shall be obligated to pay to Executive
an amount equal to any unpaid, approved expenses as contemplated under
Section 5 and a severance payment equal to twelve (12) months' salary
at the Base Salary, payable in twelve (12) equal monthly installments.
Notwithstanding the foregoing, if Executive obtains employment within
the one (1) year period following termination, the severance payment
payable by the Corporation hereunder shall be reduced to the extent of
the compensation received by Executive from such employment. Executive
shall use best efforts to obtain substitute employment in a timely
manner following termination.
<PAGE>
In the event the Corporation terminates Executive for any reason other
than as provided under Section 6(a), (b), or (c), Executive will
remain eligible for a period of one year after termination to
participate in the health benefit program provided to all employees of
the Corporation which may then be in effect. The health benefit
program will be paid by the Corporation.
7. In the event of a "Change in Control of the Corporation" whereas (a)
the shareholders of the Corporation approve a merger or consolidation
involving the Corporation resulting in a change of ownership of a
majority of the outstanding shares of capital stock of the
Corporation, or (b) the shareholders of the Corporation approve a plan
of liquidation or dissolution of the Corporation or the sale or
disposition by the Corporation of all or substantially all the
Corporation's assets (c) or there has been a public announcement of a
Change in Control of the Corporation (provided, however, that
consummation of the Change in Control of the Corporation shall be a
condition precedent to the effectiveness of this provision) and the
acquiring or surviving corporation does not assume all of the
Corporation's rights and obligations under this Agreement, then:
(i) the Corporation shall pay to Executive his full salary through
the date of termination at the Base Salary in effect at the time
notice of termination is given plus his bonus prorated through
the date of termination; and
(ii) in lieu of any further salary or bonus payments to Executive for
periods subsequent to the date of termination, the Corporation
shall pay on the date of termination as severance pay to
Executive an amount equal to 2.99 times the average annual total
compensation (cash plus the cash value of all benefits not
generally provided to all employees of the Corporation) paid to
Executive over the Corporation's last three fiscal years prior to
the date of termination up to a maximum of One Million
($1,000,000) Dollars in the event of a Change in Control of the
Corporation prior to June 1, 1999, up to a maximum of Seven
Hundred Fifty Thousand ($750,000) Dollars in the event of a
Change in Control of the Corporation on or after June 1, 1999 and
prior to June 1, 2000, up to a maximum of Five Hundred Thousand
($500,000) Dollars in the event of the Change in Control of the
Corporation on or after June 1, 2000 and prior to June 1, 2001
and up to a maximum of Two Hundred Fifty Thousand ($250,000)
Dollars in the event of a Change in Control of the Corporation on
or after June 1, 2001.
8. The Corporation and Executive are on this day entering into a
Maintenance of Confidence and Non-Compete Agreement, the terms of
which are hereby expressly incorporated into this Agreement, provided,
however, that the
<PAGE>
Maintenance of Confidence and Non-Compete Agreement shall continue to
be effective notwithstanding any termination of Executive's employment
hereunder and shall continue in effect upon expiration of this
Agreement pursuant to the terms of the Maintenance of Confidence and
Non-Compete Agreement.
9. (a) The Corporation shall have the right from time to time to
purchase, increase, modify or terminate insurance policies on the life
of Executive for the benefit of the Corporation, in such amounts as
the Corporation shall determine in its sole discretion.
(b) In connection with paragraph 9(a) above, Executive shall, at such
time or times and at such place or places as the Corporation may
reasonably direct, submit himself to such physical examinations and
Executive shall deliver such documents as the Corporation may deem
necessary or desirable.
10. Executive shall hold in a fiduciary capacity for the benefit of the
Corporation all information, knowledge and data relating to or
concerned with its operations, sales, business and affairs, and he
shall not, at any time hereafter, use, disclose or divulge any such
information, knowledge or data to any person, firm or corporation
other than the Corporation or its designees or except as may otherwise
be required in connection with the business and affairs to the
Corporation.
11. The parties hereto acknowledge that Executive's services are unique
and that, in the event of a breach by Executive of any of his
obligations under this Agreement, the Corporation will not have an
adequate remedy at law. Accordingly, in the event of any such breach
or threatened breach by Executive, the Corporation shall be entitled
to such equitable and injunctive relief as may be available to
restrain Executive from the violation of the provisions thereof.
Nothing herein shall be construed as prohibiting the Corporation from
pursuing any other remedies at law or in equity for such breach or
threatened breach, including the recovery of damages and the immediate
termination of the employment of Executive hereunder.
12. This Agreement together with the Maintenance of Confidence and
Non-Compete Agreement executed on the same date hereof, constitute the
entire agreement of the parties hereto with respect to the subject
matter hereof and no amendment or modification hereof shall be valid
or binding unless made in writing and signed by the party against whom
enforcement thereof is sought.
13. Any notice required, permitted or desired to be given pursuant to any
of the provisions of this Agreement shall be deemed to have been
sufficiently given or served for all purposes if delivered in person
or sent by certified mail, return receipt requested, postage and fees
prepaid as follows:
<PAGE>
If to the Corporation at:
Chairman of the Board
TSR Consulting Services, Inc.
400 Oser Avenue
Hauppauge, New York 11788
With a copy to:
Mr. John Sharkey
Vice President of Finance
TSR Consulting Services, Inc.
400 Oser Avenue
Hauppauge, New York 11788
If to the Executive at:
Mr. Ernest G. Bago
6 Greenbriar Lane
Montvale, New Jersey 07645
Either of the parties hereto may at any time and from time to time
change the address to which notice shall be sent hereunder by notice
to the other party given under this paragraph 13. The date of the
giving of any notice sent by mail shall be the date of the posting of
the mail
14. Neither this Agreement nor the right to receive any payments hereunder
may be assigned by Executive. This Agreement shall be binding upon
Executive, his heirs, executors and administrators and upon the
Corporation, its successors and assigns.
15. No course of dealing nor any delay on the part of the Corporation in
exercising any rights hereunder shall operate as a waiver of any such
rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
16. This shall be governed, interpreted and construed in accordance with
the laws of the State of New York applicable to agreements entered
into and to be performed entirely therein.
17. If any clause, paragraph, section or part of this Agreement shall be
held or declared to be void, invalid or illegal, for any reason, by
any court of competent jurisdiction, such provisions shall be
ineffective but shall not in any way invalidate or affect any other
clause, paragraph, section or part of this Agreement.
<PAGE>
18. Executive acknowledges that he is not subject to any agreement which
would in any way restrict him from carrying out his employment as
contemplated hereunder.
19. This Agreement supersedes any prior employment agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day in year first above written.
/s/ ERNEST G. BAGO
------------------------
Ernest G. Bago
Executive
TSR CONSULTING SERVICES, INC.
By: /s/ J.F. HUGHES
------------------------
Name: J.F. Hughes
Title: Chairman
Solely for purposes of Section 4 only
TSR, Inc.
By: /s/ J.F. HUGHES
------------------------
Name: J.F. Hughes
Title: Chairman
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TSR, INC. AND SUBSIDIARIES
EXHIBIT 27
FINANCIAL DATA SCHEDULE TO REPORT ON FORM 10-Q
THREE MONTHS ENDED AUGUST 31, 1998
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> AUG-31-1998
<CASH> 4,806,433
<SECURITIES> 1,535,218
<RECEIVABLES> 15,218,228
<ALLOWANCES> 173,264
<INVENTORY> 0
<CURRENT-ASSETS> 21,600,537
<PP&E> 1,982,800
<DEPRECIATION> 1,083,244
<TOTAL-ASSETS> 22,690,255
<CURRENT-LIABILITIES> 5,435,579
<BONDS> 0
0
0
<COMMON> 59,883
<OTHER-SE> 17,194,793
<TOTAL-LIABILITY-AND-EQUITY> 22,690,255
<SALES> 0
<TOTAL-REVENUES> 20,465,532
<CGS> 0
<TOTAL-COSTS> 15,060,372
<OTHER-EXPENSES> 3,507,435
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,937,829
<INCOME-TAX> 862,000
<INCOME-CONTINUING> 1,087,829
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,087,829
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
