-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L4qUoArJoKlotvzHo2yRuDaNLBqF9uzKR5Kf1SnV7oSzg2wzqzhT8ZaQjbCRDb6p E/PmeUvaROk1EKC7EKdUBw== 0000950110-98-001187.txt : 19981015 0000950110-98-001187.hdr.sgml : 19981015 ACCESSION NUMBER: 0000950110-98-001187 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980831 FILED AS OF DATE: 19981014 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TSR INC CENTRAL INDEX KEY: 0000098338 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 132635899 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-08656 FILM NUMBER: 98725208 BUSINESS ADDRESS: STREET 1: 400 OSER AVE CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5162310333 MAIL ADDRESS: STREET 1: 400 OSER AVENUE CITY: HAUPPAUGE STATE: NY ZIP: 11788 FORMER COMPANY: FORMER CONFORMED NAME: TIME SHARING RESOURCES INC DATE OF NAME CHANGE: 19840129 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------- 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. ------------------------------------------------------ (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 ---------------------------------------- (Address of principal executive offices) 516-231-0333 ------------------------------- (Registrant's telephone number) NONE ---------------------------------------------------- (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. ================================================================================ Page 1 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 PART I. FINANCIAL INFORMATION Item 1. Financial Statements TSR, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
August 31, May 31, ASSETS 1998 1998 ----------- ----------- 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.
Page 3 TSR, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED AUGUST 31, 1998 AND 1997
Three Months Ended August 31, ----------------------------- 1998 1997 ----------- ----------- 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.
Page 4 TSR, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED AUGUST 31, 1998 AND 1997
Three Months Ended August 31, -------------------------- 1998 1997 ---------- ---------- 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.
Page 5 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:
Gross Gross Unrealized Unrealized Amortized Holding Holding Cost Gains Losses Fair Value ---------- ---------- ---------- ---------- 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 ========== ====== ========= ==========
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 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:
3 Months Ended August 31, ---------------------------------------- 1998 1997 ------------------ ------------------ % of % of Amount Revenues Amount Revenues ------- -------- ------- -------- (Amounts in Thousands) 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 ======= ===== ======= =====
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 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 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 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 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 EX-10.1 2 EMPLOYMENT AGREEMENT 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. 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 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. 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 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: 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. 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. 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 EX-27 3 FDS
5 TSR, INC. AND SUBSIDIARIES EXHIBIT 27 FINANCIAL DATA SCHEDULE TO REPORT ON FORM 10-Q THREE MONTHS ENDED AUGUST 31, 1998 3-MOS MAY-31-1999 AUG-31-1998 4,806,433 1,535,218 15,218,228 173,264 0 21,600,537 1,982,800 1,083,244 22,690,255 5,435,579 0 0 0 59,883 17,194,793 22,690,255 0 20,465,532 0 15,060,372 3,507,435 0 0 1,937,829 862,000 1,087,829 0 0 0 1,087,829 0.18 0.18
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