-----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, Fxpfi55oeuGC5SDcZAhpHNH4IrqVHOaXeNHaULpoSNtnLBmF4Cdo06BtjWZdPf2I Sm8tzj3GuKp+8Pk0a1e6xQ== 0000950110-98-000998.txt : 19980827 0000950110-98-000998.hdr.sgml : 19980827 ACCESSION NUMBER: 0000950110-98-000998 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980826 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-K SEC ACT: SEC FILE NUMBER: 000-08656 FILM NUMBER: 98698142 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-K 1 FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------- FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act Of 1934 For the fiscal year ended May 31, 1998 or [ ] Transition Report Under Section 13 or 15(d) of The Securities Exchange Act Of 1934 For the transition period from __________ to __________ Commission File Number: 0-8656 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) Registrant's telephone number: 516-231-0333 Securities registered pursuant to Section 12(b) of the Exchange Act: None --------------- (Title of Class) Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, par value $0.01 per share --------------------------------------- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] ================================================================================ State the aggregate market value of the voting stock held by non-affiliates of the Registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. (See definition of affiliate in Rule 12b-2 of the Exchange Act). The aggregate market value was approximately $38,232,000 based on the market price of the Registrant's Common Stock at July 31, 1998 of $11.38 and excluding shares of common stock held by officers, directors and beneficial holders of 5% of the outstanding common stock of the Registrant, many of which persons may not be affiliates of the Registrant. State the number of shares outstanding of each of the Registrant's classes of common equity, as of the latest practicable date. 5,988,276 shares of Common Stock, par value $0.01 per share, as of July 31, 1998. Documents incorporated by Reference: The information required in Part III, Items 10, 11, 12 and 13 is incorporated by reference to the Registrant's Proxy Statement in connection with the 1998 Annual Meeting of Shareholders, which will be filed by the Registrant within 120 days after the close of its fiscal year. -2- PART I Item 1. Business. General TSR, Inc. (the "Company") is primarily engaged in the business of providing contract computer programming services to its clients. The Company provides technical computer personnel to companies to supplement their in-house information technology ("IT") capabilities. In addition, the Company has developed Catch/21, a Year 2000 compliance software solution ("Catch/21") 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. The Company's contract computer programming services business has been the Company's primary focus and the Company believes that this business will be the Company's primary source of growth in the future. 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, 1998 the Company provided IT staffing services to approximately 115 clients. The Company has developed a software solution, called Catch/21, which automates to a significant extent the conversion process for applications which may not properly interpret dates after the year 1999. Catch/21 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, Catch/21 can be used to convert IBM mainframe, COBOL, RPG, PL/1, Assembler, CA-ADS, and CA- IDEAL applications. Additionally, several of the languages are supported in AS/400 and DEC/VAX environments. The Company has provided Year 2000 conversion services to approximately 20 companies and is engaged in discussions with potential clients concerning the Company's Year 2000 conversion services. The Company was incorporated in Delaware in 1969. The Company's executive offices are located at 400 Oser Avenue, Hauppauge, NY 11788, and its telephone number is (516) 231-0333. Contract Computer Programming Services STAFFING SERVICES The Company's contract computer programming services involve the provision of technical staff to clients to meet the specialized requirements of their IT operations. The technical personnel provided by the Company generally supplement the in-house capabilities of the Company's clients. The Company's approach is to make available to its clients a broad range of technical personnel to meet their requirements rather than focusing on specific specialized areas. The Company has staffing capabilities in the areas of main-frame and mid-range computer operations, personal computers and client-server support, voice and data communications (including local and wide area networks) and help desk support. The Company's services provide clients with flexibility in staffing their day-to-day operations, as well as special projects, on a short-term or long-term basis. The Company provides technical employees for projects which usually range from three months to one year. Generally, clients may terminate projects at any time. Staffing services are provided at the client's facility and are billed primarily on an hourly basis based on the actual hours worked by technical personnel provided by the Company and with reimbursement for out-of-pocket expenses. The Company pays its technical personnel on a semi-monthly basis and invoices its clients, not less frequently than monthly. -3- The Company's success is dependent upon its ability to attract and retain qualified professional computer personnel. 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. 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 increase. 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. OPERATIONS The Company provides contract computer programming services in the New York metropolitan area, New England, and the Mid-Atlantic region. The Company provides its services principally through an office located in New York, New York and also maintains branch offices in Edison, New Jersey, Long Island, New York and Farmington, Connecticut. The Company does not currently intend to open additional offices, but will continue to seek to grow its business by adding account executives and technical recruiters in its existing offices. At these offices, as of May 31, 1998, the Company employed 19 persons who are responsible for recruiting technical personnel and 14 persons who are account executives. MARKETING AND CLIENTS The Company focuses its marketing efforts on large businesses and institutions with significant IT budgets and recurring staffing and software development needs. The Company provided services to approximately 115 clients during the year ended May 31, 1998 as compared to 85 in the prior fiscal year. The Company has historically derived a significant percentage of its total revenues from a relatively small number of clients. However, in the fiscal year ended May 31, 1998, the Company did not have any clients which constituted more than 10% of consolidated revenues. Additionally, the Company's top ten clients accounted for only 40% of consolidated revenues in fiscal 1998 as compared to 50% in fiscal 1997. While continuing its efforts to expand further its client base, the Company's marketing efforts are focused primarily on increasing business from its existing accounts. To this end, the Company expects to expand its sales force by 40%. This will give the account executives more time to spend with each account, as they will have fewer accounts to cover. The Company's marketing is conducted through account executives who are responsible for customers in an assigned territory. Account executives call on potential new customers and are also responsible for maintaining existing client contacts within an assigned territory. Instead of utilizing technical managers to oversee the services provided by technical personnel to each client, the account executives are responsible for this role. As a result of the cost savings due to the combined functions of the account executives, the Company is able to provide its account executives with significantly higher incentive- based compensation. In addition, the Company generally pairs each account executive with a recruiter of technical personnel, who also receives incentive-based compensation. The Company believes that this approach allows the Company to more effectively serve its clients' needs for technical personnel, as well as providing its account executives and recruiters with incentives to maximize revenues in their territories. In accordance with industry practice, most of the Company's contracts for contract computer programming services are terminable by either the client or the Company on short notice. The Company does not believe that backlog is material to its business. PROFESSIONAL STAFF AND RECRUITMENT The Company maintains a database of over 35,000 technical personnel with a wide range of skills. The Company uses a sophisticated proprietary computer system to match a potential employee's skills and experience with client requirements. The Company periodically contacts personnel in its database to update their availability, skills, employment interests and other matters and continually updates its database. This database is made available to the account executives and recruiters at each of the Company's offices. The Company considers its database to be a valuable asset. The Company employs technical personnel on an hourly basis, as required in order to meet the staffing requirements under particular contracts or for particular projects. The Company recruits technical personnel by publishing weekly advertisements in local newspapers and attending job fairs on a periodic basis. The Company devotes significant resources to recruiting technical personnel, maintaining 19 recruiters. Potential applicants are generally interviewed and tested by the Company's recruiting personnel or by third parties who have the required technical backgrounds to review the qualifications of the applicants. -4- Year 2000 Compliance Solution Services The Company commenced in fiscal 1997 providing services to correct problems in software applications which occur as a result of the inability of software applications to correctly interpret date information after 1999. The Company uses an innovative approach through its proprietary Catch/21 Year 2000 compliance software solution. The Company's Catch/21 software solution does not modify the software application. Instead of expanding the date, changing the date format or otherwise modifying the program logic, the Catch/21 software uses a separate subroutine that dynamically adjusts the date information within the application. A command which calls up the separate subroutine is inserted into the source code by the Catch/21 software each time a date is required to be calculated. The subroutine shifts the dates in the application by designated number of years, referred to as the base year. The shifted dates are then used to calculate the date-related information and after such calculations are completed, the dates are restored to their original value and restored to the program. In those instances where dates used in calculations span more than one century, those specific date fields are manually expanded. The Company believes that, due to the extent of the automation of its conversion process and the fact that the program logic is not modified, both the conversion time and testing time are reduced significantly. As a result, the Company believes that its approach reduces the time and cost of converting applications to be Year 2000 compliant. The Company believes that its cost structure for providing conversion services using Catch/21 permits it to charge less than other parties providing similar conversion services. As of May 31, 1998 the Company charges a fixed price of $0.30 and up per line of code. Currently, the Company's Catch/21 conversion software is designed for conversion of IBM mainframe COBOL, RPG, PL/1, Assembler, CA-ADS, and CA-IDEAL programs. The Company uses a team of three analysts and an employee responsible for quality assurance on each conversion project. The Company estimates that presently each such team can analyze and convert approximately 300,000 lines of code per week, although there can be no assurance that the Company will be able to continue to achieve these levels. As of July 31, 1998, the Company has 48 employees directly involved in its Year 2000 business. The Company had previously hired analysts in anticipation of significant growth in its Year 2000 business. Due to slower than anticipated growth in its Year 2000 business, the Company reduced the number of employees in its Year 2000 business subsequent to its fiscal year end. The Company has converted an aggregate of 27,000,000 lines of code pursuant to agreements with twenty companies. Revenue growth and contracts with new customers have been below Company expectations. In addition, the Company is experiencing more intense competition. Because of these factors it is difficult to accurately predict near term Year 2000 compliance solution revenues and the Company expects revenues may decline in its Year 2000 business. However, the Company is in the process of reducing expenses to appropriate levels to match its revenue stream. The Company's agreements relating to Year 2000 conversion projects generally do not provide for a minimum number of lines of code or applications to be converted by the Company. The agreements generally provide that the Company will convert applications that are agreed to by the Company and the client. In addition, the agreements are generally terminable by the client after short notice periods. The Company's revenues under these agreements with respect to each application are subject to satisfactory acceptance testing of such converted application. In addition, the Company has agreed to refund any amounts paid if the converted application does not perform in accordance with mutually agreed upon acceptance criteria. -5- 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 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 reemployment 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. Intellectual Property Rights The Company's success in the Year 2000 compliance solution services business is dependent upon its Catch/21 Year 2000 software solution and other proprietary intellectual property rights. The Company has filed a patent application covering certain aspects of Catch/21. 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 or be granted patents claiming products or processes that are necessary for or useful to the development or continued use of Catch/21 and that legal actions could be brought against the Company claiming infringement. In the event that the Company is unsuccessful against such a claim, it may be required to obtain licenses to such patents or to other patents or proprietary technology in order to continue to utilize Catch/21. 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. Personnel As of July 31, 1998, the Company employs 387 people including its 3 executive officers. Of such employees 20 are engaged in sales, 19 are recruiters for programmers, 320 are technical and programming consultants, and 25 are in administration and clerical functions. Of the 387 employees, approximately 326 are employed in the contract computer programming business, 48 in the Year 2000 business and 13 are employed directly by the Company. -6- Item 2. Properties. The Company leases 8,000 square feet of space in Hauppauge, New York for a term expiring December 31, 1998, with annual rentals of approximately $70,000. This space is used as executive and administrative offices as well as by the Registrant's operating subsidiaries. The Company leases an additional 8,000 square feet of space in Hauppauge, New York for a term expiring July, 2000 with annual rentals of approximately $84,000. This space is used for its Year 2000 compliance solution business. The Company also leases sales and technical recruiting offices in New York City (lease expires July, 2002), Edison, New Jersey (lease expires August, 2000), and Farmington, Connecticut (lease expires November, 1999), with aggregate monthly rentals of approximately $17,000. The Company believes the present locations are adequate for its current needs as well as for the future expansion of its existing business. Item 3. Legal Proceedings. None Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable -7- PART II Item 5. Market for Common Equity and Related Stockholder Matters. The Company's shares of Common Stock trade on the NASDAQ National Market System under the symbol TSRI. The following are the high and low sales prices for each quarter during the fiscal years ended May 31, 1998 and 1997: JUNE 1, 1997 - MAY 31, 1998 ------------------------------------------- 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- High Sales Price............... 19-1/8 16-1/2 28-3/8 27 Low Sales Price................ 8-3/8 9-1/4 13-3/4 10-1/4 JUNE 1, 1996 - MAY 31, 1997 ------------------------------------------- 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- High Sales Price............... 3-3/8 5-5/8 25-1/8 14-3/16 Low Sales Price................ 1-15/16 2-1/16 4-3/4 6-1/2 There were 220 holders of record of the Company's Common Stock as of July 31, 1998. Additionally, the Company estimates that there were approximately 3,000 beneficial holders as of that date. On October 22, 1997, the Company declared a stock split in the form of a 100% stock dividend on the shares of common stock payables November 17, 1997 to shareholders of record on November 3, 1997. Additionally, on October 10, 1996, the Company declared a stock split in the form of a 100% stock dividend on the shares of Common Stock payable November 14, 1996 to shareholders of record on October 28, 1996. All share prices and cash dividends have been adjusted for these splits. Historically, no cash dividends have been paid by the Company on its Common Stock except that on July 18, 1995, the Board of Directors declared a special cash dividend of $0.10 per share on its Common Stock payable on August 28, 1995 to shareholders of record as of July 31, 1995. The Company has not adopted a policy of paying cash dividends on a regular periodic basis and does not intend to declare a cash dividend for fiscal 1998. Item 6. Selected Financial Data. (Amounts in Thousands, Except Per Share Data)
MAY 31, May 31, May 31, May 31, May 31, 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- Revenues.................................. $ 70,435 $ 49,704 $ 31,810 $ 26,674 $ 21,926 Income From Operations.................... 6,064 2,970 1,456 1,264 799 Net Income................................ 3,430 1,796 964 802 500 Diluted Net Income Per Common Share....... 0.57 0.31 0.16 0.13 0.08 Working Capital........................... 14,994 9,884 8,358 8,337 7,525 Total Assets.............................. 20,516 14,044 11,167 10,629 9,191 Shareholders' Equity...................... 16,167 10,431 8,635 8,609 7,808 Book Value Per Common Share............... 2.70 1.79 1.48 1.42 1.29 Cash Dividends Declared Per Common Share........................ -- -- 0.10 -- -- - ---------- Note: Net Income, Book Value and Cash Dividends Per Common Share have been adjusted for stock splits in the form of 100% stock dividends paid in November 1996 and November 1997.
-8- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with the financial statements and the notes to the consolidated financial statements presented elsewhere in this report. Overview The Company is primarily engaged in the business of providing contract computer programming services to its clients. The Company provides technical computer personnel to companies to supplement their in-house IT capabilities. In addition, the Company has 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. In its fiscal year ended May 31, 1997 the Company commenced providing services to customers to make applications Year 2000 compliant. The Company's contract computer programming services business has been the Company's primary focus and the Company believes that this business will be the Company's primary source of growth in the future. In the year ended May 31, 1998, the Company provided IT staffing services to approximately 115 clients as compared to 85 in the prior fiscal year. The Company has historically derived a significant percentage of its total revenues from a relatively small number of clients. However, in the fiscal year ended May 31, 1998, the Company did not have any clients who constituted more than 10% of consolidated revenues. Additionally, the Company's top ten clients accounted for only 40% of consolidated revenues in fiscal 1998 as compared to 50% in fiscal 1997. While continuing its efforts to expand further its client base, the Company's marketing efforts are focused primarily on increasing business from its existing accounts. The Company's Year 2000 compliance solution business represented approximately 10% of consolidated revenues in fiscal 1998. The Company has converted an aggregate of 27,000,000 lines of code pursuant to agreements with twenty companies. Revenue growth and contracts with new customers have been below Company expectations. In addition, the Company is experiencing more intense competition. Because of these factors it is difficult to accurately predict near term Year 2000 compliance solution revenues. However, the Company is in the process of reducing expenses to appropriate levels to match its revenue stream. While the Company initially experienced growth in its Year 2000 business during its 1998 fiscal year and anticipated that such growth would continue, the Company experienced a slow-down in obtaining contracts with new customers during the latter part of the 1998 fiscal year. The Company does not presently anticipate significant growth in its Year 2000 business in the near term. The Company's agreements relating to Year 2000 conversion projects generally do not provide for a minimum number of lines of code or applications to be converted by the Company. The Company's revenues for applications converted under these agreements are subject to satisfactory acceptance testing of such converted applications and the Company agrees to refund any amounts paid if the converted application does not perform in accordance with mutually agreed upon acceptance criteria. -9- Results of Operations The following table sets forth for the periods indicated certain financial information derived from the Company's consolidated statement of operations. There can be no assurance that trends in sales growth or operating results will continue in the future:
YEAR ENDED MAY 31, ---------------------------------------------------------------- 1998 1997 1996 ------------------ ------------------ ------------------ % OF % of % of AMOUNT REVENUE Amount Revenue Amount Revenue ------- ------- ------- ------- ------- ------- (Amounts in Thousands) Revenues ...................................... $70,435 100.0 $49,704 100.0 $31,810 100.0 Cost of Sales ................................. 51,332 72.9 37,485 75.4 23,317 73.3 ------- ----- ------- ----- ------- ----- Gross Profit .................................. 19,103 27.1 12,219 24.6 8,493 26.7 Selling, General, and Administrative expenses.. 12,208 17.3 8,924 18.0 7,037 22.1 Research and Development expenses ............. 831 1.2 325 0.6 -- -- ------- ----- ------- ----- ------- ----- Income from Operations ........................ 6,064 8.6 2,970 6.0 1,456 4.6 Other Income .................................. 164 0.3 297 0.6 250 0.8 ------- ----- ------- ----- ------- ----- Income Before Income Taxes..................... 6,228 8.9 3,267 6.6 1,706 5.4 Provision for Income Taxes .................... 2,798 4.0 1,471 3.0 742 2.4 ------- ----- ------- ----- ------- ----- Net Income .................................... $ 3,430 4.9 $ 1,796 3.6 $ 964 3.0 ======= ===== ======= ===== ======= =====
Revenues Revenues consist primarily of revenues from contract computer programming services. In addition, the Company's revenues included revenues from its Year 2000 software solution business which was commenced in 1997, and the construction specifications business and health care services business which were terminated in fiscal 1996. Revenues for fiscal 1998 increased $20,731,000 or 41.7% over fiscal 1997. For fiscal 1998 89.6% of revenues were from contract computer programming services and 10.3% of revenues were from the Year 2000 business. Contract computer programming services revenues increased $13,757,000 from $49,361,000 in fiscal 1997 to $63,118,000 in fiscal 1998. This increase resulted from an increase in technical personnel on billing from several new accounts and an overall increase in the number of programmers on billing with clients in fiscal 1998. The Company's contract computer programming services revenues for fiscal 1998 increased by 27.9% over fiscal 1997, as compared to an increase of 65.0% from fiscal 1997 over fiscal 1996. The growth in revenues in the contract computer programming services business in fiscal 1997 resulted, to a significant extent, from several large projects with the Company's largest customer, which were discontinued by such customer at the end of fiscal 1997 and during the first half of fiscal 1998. The rate of growth of the Company's contract computer programming services business from fiscal 1998 over fiscal 1997, would have been significantly higher if the effects of such large projects were eliminated. Such increased growth in the remaining contract computer programming services business resulted from an increase in accounts from 85 to 115, including several new significant accounts and further penetration at existing accounts. The number of programmers on billing with clients increased from 450 at May 31, 1997 to 460 at May 31, 1998. The number of programmers on billing with clients at May 31, 1997 included approximately 50 programmers involved in the larger projects which were discontinued as discussed above. The Company expects to continue to broaden its account base by adding additional sales executives and pursuing new accounts. Revenues from the Company's Catch/21 Year 2000 compliance business, which was commenced in fiscal 1997, were $7,268,000 for the year versus $171,000 in fiscal 1997. These revenues consisted mainly of line of code charges for the remediation of approximately 27,000,000 lines of code for approximately 20 customers. The Company's Year 2000 revenues during the fourth quarter of fiscal 1998 were approximately the same as the third quarter revenues and the Company expects these revenues may decline. Quarterly revenues from the Company's Year 2000 business can be significantly impacted by the timing of releases of code by the Company's customers to the Company's conversion facility, as well as the timing of entering into agreements with new customers. At the present time, the Company has received less code from customers than it had expected based on customer's original estimates. In addition, the Company is experiencing more intense competition which has impacted obtaining new customers. While the Company believes that its customers have been satisfied with the Company's Year 2000 conversion services and the performance of its Catch/21 software, the above factors and conditions of the Year 2000 industry generally make it difficult to predict near term revenues. -10- Revenues for fiscal 1997 increased $17,894,000 or 56.3% over fiscal 1996. Contract computer programming services revenues contributed an increase of $19,452,000 which was offset by decreases in construction specifications and health care services of $1,729,000 which businesses were terminated during the 1996 fiscal year. In fiscal 1997, the Company had its first revenues from its Year 2000 compliance business of $171,000. The increase in revenues in contract computer programming services resulted primarily from several larger projects with the Company's largest account during fiscal 1997. Cost of Sales Cost of sales increased by $13,847,000 or 36.9% in fiscal 1998 over fiscal 1997. This increase included an increase in cost of sales in contract computer programming of $11,171,000 from $37,348,000 in fiscal 1997 to $48,519,000 for fiscal 1998. The increase in costs resulted primarily from the increase in amounts paid to technical personnel resulting primarily from the increase in technical personnel assigned to client projects and was related to the above-mentioned revenue increase. The Year 2000 business incurred cost of sales of $2,813,000 in fiscal 1998 versus $137,000 in fiscal 1997. These costs consisted primarily of salaries of analysts and quality assurance personnel. Cost of sales as a percentage of revenues decreased to 72.9% in fiscal 1998 from 75.4% in fiscal 1997. This decrease is primarily attributable to the cost of sales as a percentage of revenue in the Year 2000 business being less than the contract computer programming business. Costs of sales in the contract computer programming business as a percentage of revenue increased to 76.9% in fiscal 1998 from 75.7% in fiscal 1997. This resulted primarily from increased amounts paid to programmers outpacing the Company's ability to pass increases on to customers. The cost of sales for the Company's contract computer programming business are variable because technical personnel are generally hired on a per diem basis to staff particular projects for clients. However, the cost of sales for the Catch/21 solution business are fixed. A substantial portion of these cost of sales consist of technical personnel hired to perform the conversion services. The technical personnel are hired and trained in advance of the time the Company has conversion projects and these expenses are incurred by the Company whether or not the Company is generating anticipated revenues from the Year 2000 solutions business. Due to slower than anticipated growth in its Year 2000 business, the Company reduced the number of employees in its Year 2000 business subsequent to its fiscal year end. Fiscal 1997 cost of sales increased $14,168,000 or 60.8% over fiscal 1996. The increase included additional costs of $14,520,000 from contract computer programming which primarily resulted from the above mentioned revenue increase. Construction specifications and health care services costs decreased by $489,000 due to the termination of these businesses during fiscal year 1996. The Year 2000 business incurred costs of $137,000, for fiscal 1997. 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 $3,284,000 or 36.8% from $8,924,000 in fiscal 1997 to $12,208,000 in fiscal 1998. Contract computer programming services expenses increased $1,056,000 over the prior year to $9,467,000. The increase was primarily attributable to additional commission-based compensation due to the increased revenues. Also, these expenses increased as a result of the expenses relating to the hiring of additional account executives and technical recruiting professionals to broaden the Company's client base in connection with the continuation of the Company's planned expansion. In fiscal 1998 approximately $2,741,000 in selling, general and administrative expenses were attributable to the Catch/21 solution business which commenced operations in fiscal 1997. These expenses consisted primarily of marketing, advertising, management and facilities expenses. In fiscal 1997, selling, general and administrative expenses increased $1,887,000 or 26.8% over the prior year. The contract computer programming business incurred increases amounting to $2,406,000 which resulted primarily from increased personnel in recruiting and sales, including those hired to staff a new office in Connecticut. The increase also included additional commission-based compensation due to the increased revenues. Expenses decreased in construction specifications and health care by $815,000 due to the termination of those businesses. -11- Research and Development Research and development costs of $831,000 in the current year represent amounts expended to expand Catch/21, the Company's Year 2000 compliance solution, product offerings into additional computer platforms and languages such as PL/1, Assembler and several fourth generation languages. Fiscal 1997 expenditures of $325,000 primarily related to the development of the Catch/21 solution. Research and development costs are expected to decline in fiscal 1999 as the millennium approaches. Other Income Fiscal 1998 other income resulted primarily from interest and dividend income of $158,000. The Company also sustained a net loss of $3,000 from marketable securities due to mark to market adjustments of its equity portfolio. Fiscal 1997 other income also resulted primarily from interest and dividend income which decreased by $68,000 to $159,000 due to a lower average investable base. During fiscal 1997 the Company recorded other income of $77,000 in connection with the termination agreement for its construction specifications subsidiary. Gains from marketable securities of $59,000 in fiscal 1997 resulted from the purchase and sale of marketable equity securities during the period. Income Taxes The effective income tax rate decreased slightly from 45.0% in fiscal 1997 to 44.9% in fiscal 1998 because non-deductible expenses did not grow as rapidly as taxable income. The effective income tax rate increased to 45.0% in fiscal 1997 from 43.5% in fiscal 1996 because the losses incurred by the Year 2000 code conversion business 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 May 31, 1998, the Company had working capital of $14,994,000 and cash and cash equivalents of $2,425,000 as compared to working capital of $9,884,000 and cash and cash equivalents of $2,931,000 at May 31, 1997. Working capital increased due to the Company's net income in the 1998 fiscal year and $2,306,400 of proceeds from the sale of common stock. Cash and equivalents declined from May 31, 1997 to May 31, 1998 due to the cash used in operations, as discussed below, and cash used to purchase marketable securities and fixed assets, partially offset by the cash generated from the sale of common stock. -12- Net cash flow of $308,000 was used in operations during fiscal 1998 as compared to $1,405,000 of net cash flow used by operations in fiscal 1997. While the Company had net income of $3,430,000, in fiscal 1998 the Company had cash flow used in operations as a result of an increase in accounts receivable of $4,629,000 from $10,409,000 at May 31, 1997 to $15,038,000 at May 31, 1998. The increase in accounts receivable occurred primarily because of the substantial revenue increase. The cash used in operations as a result of the increase in accounts receivable was offset to some extent by the increase in the Company's accounts payable and accrued expenses of $536,000 from $2,694,000 at May 31, 1997 to $3,229,000 at May 31, 1998. The increase in accounts payable and accrued expenses resulted primarily from the increase in cost of sales. Cash flow used by investing activities resulted primarily from the Company's purchase of United States Treasury Bills and fixed assets. The increase in the purchase of fixed assets from $425,000 in fiscal 1997 to $960,000 in 1998 related primarily to the ramping up of the Year 2000 compliance solution business. The significant increase was required for equipment to emulate client computer environments to enable sufficient testing and quality assurance of the Catch/21 software solution. Cash flow from financing activities of $2,306,400 resulted primarily from the sale of 160,000 shares of common stock at $16 per share, less expenses, in a private placement on January 30, 1998. The Company's capital resource commitments at May 31, 1998 consisted of lease obligations on its branch and corporate facilities amounting to $844,000 over the next five years. The Company intends to finance these 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 fiscal 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 continued significant increase in revenues. The Company has available a revolving line of credit of $5,000,000 from a major money center bank. As of May 31, 1998 there were no amounts 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" and "Business", 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 contract computer programming 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. -13- Item 8. Financial Statements. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- Independent Auditors' Report ............................................. 15 Financial Statements: Consolidated Balance Sheets as of May 31, 1998 and 1997 .................. 16 Consolidated Statements of Earnings for the years ended May 31, 1998, 1997 and 1996 ............................. 18 Consolidated Statements of Shareholders' Equity for the years ended May 31, 1998, 1997 and 1996 ..................... 19 Consolidated Statements of Cash Flows for the years ended May 31, 1998, 1997 and 1996 ............................. 20 Notes to Consolidated Financial Statements ............................... 21 -14- INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders TSR, Inc.: We have audited the accompanying consolidated balance sheets of TSR, Inc. and subsidiaries as of May 31, 1998 and 1997, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the years in the three-year period ended May 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TSR, Inc. and subsidiaries as of May 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended May 31, 1998, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Jericho, New York July 15, 1998 -15- TSR, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MAY 31, 1998 AND 1997 ASSETS 1998 1997 ----------- ----------- CURRENT ASSETS: Cash and cash equivalents (note 1(e)) ............ $ 2,425,122 $ 2,931,180 Marketable securities (note 1(f)) ................ 1,575,945 26,175 Accounts receivable: Trade (net of allowance for doubtful accounts of $173,000 in 1998 and 1997) ............... 15,037,995 10,408,542 Other ......................................... 86,772 57,333 ----------- ----------- 15,124,767 10,465,875 Prepaid expenses ................................. 67,449 3,860 Prepaid and recoverable income taxes ............. 90,823 11,095 Deferred income taxes ............................ 59,000 59,000 ----------- ----------- TOTAL CURRENT ASSETS ................... 19,343,106 13,497,185 ----------- ----------- EQUIPMENT AND LEASEHOLD IMPROVEMENTS, AT COST: Equipment ........................................ 1,297,551 641,862 Furniture and fixtures ........................... 222,709 169,330 Automobiles ...................................... 252,553 252,553 Leasehold improvements ........................... 188,006 82,804 ----------- ----------- 1,960,819 1,146,549 Less accumulated depreciation and amortization ... 952,043 686,647 ----------- ----------- 1,008,776 459,902 OTHER ASSETS ....................................... 90,995 57,782 DEFERRED INCOME TAXES (NOTE 2) ..................... 73,000 29,000 ----------- ----------- $20,515,877 $14,043,869 =========== =========== See accompanying notes to consolidated financial statements. (Continued) -16- TSR, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, CONTINUED MAY 31, 1998 AND 1997 LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997 ----------- ----------- CURRENT LIABILITIES: Accounts and other payables .................... $ 278,410 $ 207,074 Accrued and other liabilities: Salaries, wages and commissions ............. 2,481,964 2,204,254 Legal and professional fees ................. 79,578 97,570 Other ....................................... 389,444 184,964 ----------- ----------- 2,950,986 2,486,788 Advances from customers ........................ 946,257 783,892 Income taxes payable ........................... 173,377 135,173 ----------- ----------- TOTAL CURRENT LIABILITIES ............ 4,349,030 3,612,927 ----------- ----------- COMMITMENTS AND CONTINGENCIES (NOTES 6 AND 7) SHAREHOLDERS' EQUITY (NOTES 4, 8, 9 AND 10): Preferred stock, $1.00 par value, authorized 1,000,000 shares; none issued .... -- -- Common stock, $.01 par value, authorized 25,000,000 shares; issued 5,988,276 and 5,828,276 shares ............................ 59,883 58,283 Additional paid-in capital ..................... 3,183,246 878,446 Retained earnings .............................. 12,923,718 9,494,213 ----------- ----------- TOTAL SHAREHOLDERS' EQUITY ........ 16,166,847 10,430,942 ----------- ----------- $20,515,877 $14,043,869 =========== =========== See accompanying notes to consolidated financial statements. -17- TSR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS YEARS ENDED MAY 31, 1998, 1997 AND 1996
1998 1997 1996 ----------- ----------- ----------- REVENUES ............................................. $70,434,925 $49,704,325 $31,810,163 COST OF SALES ........................................ 51,332,267 37,485,148 23,317,141 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ......... 12,208,090 8,924,027 7,037,025 RESEARCH AND DEVELOPMENT EXPENSES .................... 830,441 324,768 -- ----------- ----------- ----------- 64,370,798 46,733,943 30,354,166 ----------- ----------- ----------- INCOME FROM OPERATIONS ............................... 6,064,127 2,970,382 1,455,997 ----------- ----------- ----------- OTHER INCOME: Interest and dividend income .................... 158,155 159,324 227,184 Gain (loss) from marketable securities, net ..... (3,377) 59,439 23,508 Gain (loss) from sales of assets ................ 8,600 77,650 (424) ----------- ----------- ----------- 163,378 296,413 250,268 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES ........................... 6,227,505 3,266,795 1,706,265 PROVISION FOR INCOME TAXES (NOTE 2) .................. 2,798,000 1,471,000 742,000 ----------- ----------- ----------- NET INCOME ...................................... $ 3,429,505 $ 1,795,795 $ 964,265 =========== =========== =========== BASIC NET INCOME PER COMMON SHARE .................... $ 0.58 $ 0.31 $ 0.16 =========== =========== =========== WEIGHTED AVERAGE NUMBER OF BASIC COMMON SHARES OUTSTANDING * .................. 5,881,609 5,828,276 5,993,028 =========== =========== =========== DILUTED NET INCOME PER COMMON SHARE .................. $ 0.57 $ 0.31 $ 0.16 =========== =========== =========== WEIGHTED AVERAGE NUMBER OF DILUTED COMMON SHARES OUTSTANDING * ................ 6,035,038 5,831,226 5,993,028 =========== =========== =========== - ---------- * Adjusted for stock splits in the form of 100% stock dividends on November 14, 1996 and November 17, 1997. See accompanying notes to consolidated financial statements.
-18- TSR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED MAY 31, 1998, 1997 AND 1996
ADDITIONAL TOTAL COMMON PAID-IN RETAINED TREASURY SHAREHOLDERS' STOCK* CAPITAL* EARNINGS STOCK EQUITY -------- ---------- ----------- ----------- ----------- BALANCE AT MAY 31, 1995 .................. $ 98,784 $1,488,885 $ 9,975,840 $(2,954,043) $ 8,609,466 CASH DIVIDENDS ($0.10 PER SHARE) ......... -- -- (605,828) -- (605,828) PURCHASE OF TREASURY STOCK ............... -- -- -- (332,756) (332,756) NET INCOME ............................... -- -- 964,265 -- 964,265 -------- ---------- ----------- ----------- ----------- BALANCE AT MAY 31, 1996 .................. 98,784 1,488,885 10,334,277 (3,286,799) 8,635,147 NET INCOME ............................... -- -- 1,795,795 -- 1,795,795 RETIRED TREASURY STOCK ................... (40,501) (610,439) (2,635,859) 3,286,799 -- -------- ---------- ----------- ----------- ----------- BALANCE AT MAY 31, 1997 .................. 58,283 878,446 9,494,213 -- 10,430,942 SALE OF COMMON STOCK ..................... 1,600 2,304,800 -- -- 2,306,400 NET INCOME ............................... -- -- 3,429,505 -- 3,429,505 -------- ---------- ----------- ----------- ----------- BALANCE AT MAY 31, 1998 .................. $ 59,883 $3,183,246 $12,923,718 $ -- $16,166,847 ======== ========== =========== =========== =========== - --------------- * Amounts adjusted for stock splits in the form of 100% stock dividends on November 14, 1996 and November 17, 1997. See accompanying notes to consolidated financial statements.
-19- TSR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MAY 31, 1998, 1997 AND 1996
1998 1997 1996 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ........................................................ $ 3,429,505 $ 1,795,795 $ 964,265 ----------- ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................................. 436,519 185,455 141,708 Provision for losses on accounts receivable ................... -- -- 10,000 Loss (gain) from marketable securities, net ................... 3,377 (59,439) (23,508) Loss (gain) on sale of fixed assets ........................... (8,600) (77,650) 424 Deferred income taxes ......................................... (44,000) 52,000 16,000 Changes in assets and liabilities: Accounts receivable-trade .................................. (4,629,453) (4,386,278) (987,153) Other accounts receivable .................................. (29,439) (22,018) 82,220 Prepaid expenses ........................................... (63,589) 30,179 (3,979) Prepaid and recoverable income taxes ....................... (79,728) 18,780 9,817 Other assets ............................................... (58,213) (23,691) (10,770) Accounts payable and accrued expenses ...................... 535,534 692,958 315,212 Advances from customers .................................... 162,365 383,947 161,354 Income taxes payable ....................................... 38,204 4,478 35,583 ----------- ----------- ----------- Total adjustments ............................................. (3,737,023) (3,201,279) (253,092) ----------- ----------- ----------- Net cash provided by (used in) operating activities ............... (307,518) (1,405,484) 711,173 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturity and sale of marketable securities ...... -- 4,846,275 8,079,734 Purchase of marketable securities ............................. (1,553,147) (3,121,549) (5,393,507) Proceeds from sale of fixed assets ............................ 8,600 77,650 15,756 Purchase of fixed assets ...................................... (960,393) (424,634) (149,306) ----------- ----------- ----------- Net cash provided by (used in) investing activities ............... (2,504,940) 1,377,742 2,552,677 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock ............................ 2,306,400 -- -- Cash dividends paid ........................................... -- -- (605,828) Purchase of treasury stock .................................... -- -- (332,756) ----------- ----------- ----------- Net cash provided by (used in) financing activities ............... 2,306,400 -- (938,584) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................. (506,058) (27,742) 2,325,266 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ........................ 2,931,180 2,958,922 663,656 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR .............................. $ 2,425,122 $ 2,931,180 $ 2,958,922 =========== =========== =========== SUPPLEMENTAL DISCLOSURE: Income taxes paid ................................................. $ 2,884,000 $ 1,396,000 $ 681,000 =========== =========== =========== Interest paid ..................................................... $ -- $ -- $ -- =========== =========== =========== See accompanying notes to consolidated financial statements.
-20- TSR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 1998, 1997 AND 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) BUSINESS The Company is primarily engaged in the business of providing contract computer programming 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. Previously, until March 1, 1996, the Company provided construction specifications databases on magnetic media, primarily to architectural and engineering firms, and, until October 8, 1995, provided temporary nurses and nurses' aides to health care facilities and home care patients. On October 8, 1995, the Company discontinued its health care services business by transferring the existing caseload to another licensed home care agency, which did not result in a gain or loss to the Company. Based on the agreement, the purchasing agency pays the Company 50% of the gross profit generated from the transferred accounts for a period of two years, which amounted to $48,000, $132,000 and $46,000 included in revenues in fiscal 1998, 1997 and 1996, respectively. The Company's exclusive license to market construction specifications databases expired March 1, 1996. In June 1996, in accordance with the terms of the termination agreement of its licensing contract, the Company sold its customer database for $76,850 which was recorded as non-operating income in fiscal 1997. (b) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of TSR, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. (c) REVENUE RECOGNITION POLICY The Company recognizes contract computer programming services revenues as services are provided. Revenues from the maintenance and support of the Company's proprietary software are recognized monthly as services are rendered. Provided that acceptance is probable, revenue from Catch/21 code conversion is recognized when the converted code is delivered. (d) RESEARCH AND DEVELOPMENT In fiscal 1997 the Company commenced efforts to develop an automated solution to the Year 2000 compliance problem. The resultant software, Catch/21, has been used successfully to convert legacy IBM mainframe applications to attain Year 2000 compliance. These expenditures, which are expensed as incurred, increased in fiscal 1998 as the Company expanded its product offerings into additional computer platforms and languages. (e) CASH AND CASH EQUIVALENTS The Company considers short-term highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents were comprised of the following as of May 31, 1998 and 1997: 1998 1997 ---------- ---------- Cash in banks ................. $ 904,370 $ 549,959 Money Market Funds............. 1,520,752 1,658,537 US Treasury Bills.............. -- 722,684 ---------- ---------- $2,425,122 $2,931,180 ========== ========== (Continued) -21- TSR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED MAY 31, 1997, 1996 AND 1995 (f) MARKETABLE SECURITIES The Company's marketable debt securities primarily consisting of U.S. Treasury Bills with a maturity at acquisition in excess of 90 days are classified as held to maturity securities and its equity securities are classified as trading securities. The Company classifies securities as held to maturity and carries them at amortized cost only if it has a positive intent and ability to hold those securities to maturity. If not classified as held to maturity, such securities are classified as trading securities or securities available for sale. Unrealized gains or losses from securities available for sale are excluded from earnings and reported as a net amount as a separate component of stockholders' equity. Unrealized holding gains and losses from trading securities are included in earnings. The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value for marketable securities by major security type at May 31, 1998 and 1997, are as follows:
Gross Gross Unrealized Unrealized Amortized Holding Holding Cost Gains Losses Fair Value ---------- ---------- ---------- ---------- 1998: US TREASURY SECURITIES ...... $1,448,144 $ -- $ -- $1,448,144 EQUITY SECURITIES ........... 133,290 6,842 (12,331) 127,801 ---------- ------ -------- ---------- $1,581,434 $6,842 $(12,331) $1,575,945 ========== ====== ======== ========== 1997: Equity Securities ........... $ 28,287 $ -- $ (2,112) $ 26,175 ========== ====== ======== ==========
(g) DEPRECIATION AND AMORTIZATION Depreciation and amortization of equipment and leasehold improvements has been computed using the straight-line method over the following useful lives: Equipment................... 3 years Furniture and fixtures...... 3 years Automobiles................. 3 years Leasehold improvements...... Lesser of lease term or useful life (h) NET INCOME PER COMMON SHARE Basic net income per common share has been computed based on the weighted average number of shares outstanding during the year of 5,881,609 in 1998, 5,828,276 in 1997, and 5,993,028 in 1996. Diluted net income per common share has been computed by increasing the above amounts by the weighted average number of common stock equivalents from employee stock options. The shares outstanding as adjusted are 6,035,038 in 1998, 5,831,226 in 1997, and 5,993,028 in 1996. The prior years' shares outstanding have been adjusted for stock splits in the form of 100% stock dividends paid in November 1996 and November 1997. (i) INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial reporting bases and the tax bases of the Company's assets and liabilities at enacted rates expected to be in effect when such amounts are realized or settled. The effect of enacted tax law or rate changes is reflected in income in the period of enactment. (Continued) -22- TSR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED MAY 31, 1998, 1997 AND 1996 (j) FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure of the fair value of certain financial instruments. Cash and cash equivalents, accounts receivable, accounts and other payables, accrued liabilities and advances from customers are reflected in the financial statements at fair value because of the short-term maturity of these instruments. The fair value of marketable securities is based upon quoted market values at May 31, 1998. (k) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (l) ACCOUNTING FOR STOCK-BASED COMPENSATION The Company records compensation expense for employee stock options only if the current market price of the underlying stock exceeds the exercise price on the date of the grant. On June 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." The Company has elected not to implement the fair value based accounting method for employee stock options, but has elected to disclose the pro forma net earnings and pro forma earnings per share for employee stock option grants made beginning in fiscal 1996 as if such method had been used to account for stock-based compensation cost as described in SFAS No. 123. (2) INCOME TAXES A reconciliation of the provisions for income taxes computed at the federal statutory rates for fiscal 1998, 1997, and 1996 to the reported amounts is as follows:
1998 1997 1996 ------------------ ------------------ ---------------- AMOUNT % Amount % Amount % ---------- ---- ---------- ---- -------- ---- Amounts at statutory federal tax rate ...... $2,117,000 34.0% $1,111,000 34.0% $580,000 34.0% State and local taxes, net of federal income tax effect ............... 616,000 9.9 313,000 9.6 123,000 7.2 Non-deductible expenses .................... 65,000 1.0 48,000 1.4 39,000 2.3 Other, net ................................. -- -- (1,000) -- -- -- ---------- ---- ---------- ---- -------- ---- $2,798,000 44.9% $1,471,000 45.0% $742,000 43.5% ========== ==== ========== ==== ======== ====
The components of the provision for income taxes are as follows: Federal State Total ---------- -------- ---------- 1998: CURRENT.............. $1,908,000 $934,000 $2,842,000 DEFERRED............. (44,000) -- (44,000) ---------- -------- ---------- $1,864,000 $934,000 $2,798,000 ========== ======== ========== 1997: Current.............. $ 945,000 $474,000 $1,419,000 Deferred............. 52,000 -- 52,000 ---------- -------- ---------- $ 997,000 $474,000 $1,471,000 ========== ======== ========== 1996: Current.............. $ 539,000 $187,000 $ 726,000 Deferred............. 16,000 -- 16,000 ---------- -------- ---------- $ 555,000 $187,000 $ 742,000 ========== ======== ========== (Continued) -23- TSR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED MAY 31, 1998, 1997 AND 1996 The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets at May 31, 1998 and 1997 are as follows: 1998 1997 -------- ------- Allowance for doubtful accounts receivable.... $ 59,000 $59,000 Equipment and leasehold improvement depreciation and amortization............... 73,000 29,000 -------- ------- Total deferred income tax assets........ $132,000 $88,000 ======== ======= The Company believes that it is more likely than not that it will realize its deferred tax asset of $132,000 at May 31, 1998 based on the Company's recent earnings. (3) SEGMENT REPORTING AND MAJOR CUSTOMERS The Company currently operates in one business segment, computer software, and is engaged primarily in the business of providing contract computer programming and Year 2000 compliance solution services. Previously, from fiscal 1993 through fiscal 1996, the Company also provided temporary nurses and nurses' aides to health care facilities and home care patients. The following table summarizes certain financial information for the computer software segment and the health care services segment as of and for the years ended May 31, 1998, 1997 and 1996. COMPUTER HEALTH CONSOLIDATED SOFTWARE CARE CORPORATE TOTAL ----------- -------- ---------- ----------- Revenues to unaffiliated customers 1998 ............. $70,386,487 $ 48,438 $ -- $70,434,925 =========== ======== ========== =========== 1997 ............. 49,571,888 132,437 -- 49,704,325 =========== ======== ========== =========== 1996 ............. 31,365,091 445,072 -- 31,810,163 =========== ======== ========== =========== Operating profit 1998 ............. 6,015,689 48,438 -- 6,064,127 =========== ======== ========== =========== 1997 ............. 2,839,329 131,053 -- 2,970,382 =========== ======== ========== =========== 1996 ............. 1,374,076 81,921 -- 1,455,997 =========== ======== ========== =========== Identifiable assets 1998 ............. 16,291,987 -- 4,223,890(1) 20,515,877 =========== ======== ========== =========== 1997 ............. 10,987,419 -- 3,056,450(1) 14,043,869 =========== ======== ========== =========== 1996 ............. 6,345,536 896 4,820,259(1) 11,166,691 =========== ======== ========== =========== Capital expenditures 1998 ............. 960,393 -- -- 960,393 =========== ======== ========== =========== 1997 ............. 424,634 -- -- 424,634 =========== ======== ========== =========== 1996 ............. 135,084 14,222 -- 149,306 =========== ======== ========== =========== Depreciation and amortization 1998 ............. 436,519 -- -- 436,519 =========== ======== ========== =========== 1997 ............. 184,262 1,193 -- 185,455 =========== ======== ========== =========== 1996 ............. $ 134,419 $ 7,289 $ -- $ 141,708 =========== ======== ========== =========== - ---------- (1) Corporate identifiable assets consist of cash, marketable securities and prepaid, recoverable and deferred income taxes. (Continued) -24- TSR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED MAY 31, 1998, 1997 AND 1996 In the fiscal year ended May 31, 1998 the Company did not derive more than 10% of consolidated revenues from any one customer. In the fiscal years ended May 31, 1997 and 1996 the Company derived 16.3%, and 22.4% respectively, of consolidated revenues from one customer for contract computer programming services. The Company also derived 10.3% of consolidated revenues from another contract computer programming services customer in fiscal 1997. (4) STOCK OPTIONS The 1997 Employee Stock Option Plan provides for the granting of options to purchase up to 800,000 shares of the Company's common stock at prices equal to fair market values at the grant dates. Options are exercisable as determined on the date of the grant and expire on the third anniversary of the date of grant. STOCK OPTIONS OUTSTANDING -------------------------------------- WEIGHTED EXERCISE AVERAGE SHARES PRICE PRICE ------- ------------ ------- Balance May 31, 1996.............. 0 $ 0.00 $ -- Options granted................... 220,000 9.125 9.125 ------- ------------ ------- Outstanding at May 31, 1997....... 220,000 $ 9.125 9.125 Options granted................... 390,000 11.75-14.75 12.65 ------- ------------ ------- OUTSTANDING AT MAY 31, 1998....... 610,000 $9.125-14.75 $11.38 ======= ============ ======= Exercisable at May 31, 1998....... 483,333 $9.125-13.50 $10.675 ======= ============ ======= The per share weighted-average fair value of stock options granted during 1998 and 1997 was approximately $5.80 and $4.97 respectively on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: expected dividend yield of 0%, risk free interest rate of 6%, expected stock volatility of 80% and 100% in 1998 and 1997 respectively, and an expected option life of two years. The Company applies APB Opinion No. 25 in accounting for its stock option grants and accordingly, no compensation cost has been recognized in the financial statements for its stock options which have an exercise price equal to or greater than the fair value of the stock on the date of the grant. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income and diluted net income per common share in fiscal 1998 and 1997 would have been reduced to the pro forma amounts indicated below: 1998 1997 ---------- ---------- Net Income: As reported.......................... $3,429,505 $1,795,795 Pro forma ........................... 1,832,000 1,746,000 Diluted net income per common share: As reported ......................... $ 0.57 $ 0.31 Pro forma............................ $ 0.30 $ 0.30 (5) LINE OF CREDIT The Company has an available line of credit of $5,000,000 with a major money center bank. As of May 31, 1998, no amounts were outstanding under this line of credit. The rate of interest on amounts drawn against the line of credit will be either the Eurodollar Rate plus 1% or the Prime Rate, determined at the time of the advance. (Continued) -25- TSR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED MAY 31, 1998, 1997 AND 1996 (6) COMMITMENTS A summary of noncancellable long-term operating lease commitments for facilities as of May 31, 1998 follows: FISCAL YEAR AMOUNT ----------- ------ 1999........................ $321,000 2000........................ 267,000 2001........................ 124,000 2002........................ 113,000 Thereafter.................. 19,000 Total rent expenses under all lease agreements amounted to $360,000, $236,000, and $211,000 in 1998, 1997 and 1996, respectively. (7) EMPLOYMENT AGREEMENTS In June 1994, an employment agreement was entered into with the President of the contract computer programming subsidiary providing for an annual base salary of $150,000 and additional incentive compensation based upon a formula which is agreed upon from time to time and is currently based on the profitability of the Company's contract computer programming subsidiary. During fiscal 1998, 1997, and 1996, $456,000, $407,000, and $253,000 was paid as incentive compensation. This agreement is for a five year term and provides for severance, in the event of termination, of the base salary for the shorter of three years or the remainder of the original term. In June 1997, an employment agreement was entered into with the Chairman of the Board, Chief Executive Officer, President and Treasurer which terminates May 31, 2002. This agreement provides for an initial base salary of $375,000 with annual adjustments based upon increases in the Consumer Price Index, such increases to be no less than 3% and no more than 8% per year. Additionally, the agreement provides for an annual discretionary bonus for each fiscal year, the maximum to be $50,000 if pre-tax profits are less than $1,000,000 and a minimum of 7.5% of pre-tax profit if such profits exceed $1,000,000. In fiscal 1998, 1997, and 1996, the minimum bonus of 7.5% of pre-tax profit was awarded, which amounted to $512,000, $265,000, and $139,000 respectively. The fiscal 1997 and 1996 amounts were awarded under a similar plan included in this executive's prior contract. (8) COMMON STOCK On January 30, 1998, the Company sold 160,000 shares of common stock at $16 per share in a private placement. The proceeds to the Company, net of expenses were $2,306,400. (9) TREASURY STOCK During fiscal 1996, under a buy-back plan authorized by the Board of Directors to repurchase up to 600,000 shares of the Company's common stock, the Company purchased for $332,756, 230,000 shares of its common stock at the market value of the stock on the purchase date. The remaining authorization under the buy-back plan has been canceled. During fiscal 1997, the Company retired all its previously acquired treasury stock, which amounted to 4,050,108 shares. (10) CASH DIVIDEND On July 18, 1995 the Board of Directors of the Company declared a cash dividend of $0.10 per share on Common Stock payable on August 28, 1995 to shareholders of record on July 31, 1995. The Company funded such dividend from its available cash and maturing marketable securities. This dividend, which amounted to $605,828, did not have a material impact on the liquidity of the Company. The Company has not adopted a policy of paying dividends on a regular periodic basis, and does not expect to declare a cash dividend for fiscal 1998. (11) STOCK DIVIDEND 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. On October 10, 1996 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 14, 1996 to stockholders of record as of October 28, 1996. All data for prior periods has been adjusted accordingly. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure -- None -26- PART III Item 10. Directors and Executive Officers of the Company. The information required by this Item 10 is incorporated by reference to the Company's definitive proxy statement in connection with the 1998 Annual Meeting of Shareholders. Item 11. Executive Compensation. The information required by this Item 11 is incorporated by reference to the Company's definitive proxy statement in connection with the 1998 Annual Meeting of Shareholders. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by this Item 12 is incorporated by reference to the Company's definitive proxy statement in connection with the 1998 Annual Meeting of Shareholders. Item 13. Certain Relationships and Related Transactions. The information required by this Item 13 is incorporated by reference to the Company's definitive proxy statement in connection with the 1998 Annual Meeting of Shareholders. PART IV Item 14. Exhibits; Financial Statement Schedules, and Reports on Form 8-K. (a) Exhibits: 3.1 Articles of Incorporation of the Company, as amended. 3.2 Bylaws of the Company, as amended. 10.1 Employment Agreement between TSR, Inc. and Ernest G. Bago, dated as of June 1, 1994, incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-KSB filed by the Company for the fiscal year ended May 31, 1995. 10.2 1997 Employee Stock Option Plan, incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended May 31, 1997. 10.3 Form of Employee Stock Option Agreement, incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended May 31, 1997. 10.4 Employment Agreement dated June 1, 1997 between the Company and Joseph F. Hughes, incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended May 31, 1997. 10.5 Agreement to purchase subsidiary minority interest between TSR, Inc. and William Connor dated September 1, 1997, incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by the Company for the quarter ended August 31, 1997. 10.6 Employment Agreement dated September 1, 1997 between TSR, Inc. and William Connor incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed by the Company for the quarter ended August 31, 1997. 10.7 Revolving Credit Agreement dated October 6, 1997 among TSR Consulting Services, Inc., TSR, Inc., Catch/21 Enterprises Incorporated and The Chase Manhattan Bank, incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed by the Company for the quarter ended August 31, 1997. -27- 21 List of Subsidiaries. 23 Consent of KPMG Peat Marwick LLP, Independent Auditors. 27 Financial Data Schedule. (b) Reports on Form 8-K: Filed March 23, 1998: Press Release of Earnings Report for the three and nine months ended February 28, 1998. -28- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the Undersigned, thereunto duly authorized. TSR, INC. By: /s/ J.F. HUGHES ---------------------------------- J.F. Hughes, Chairman Dated: August 14, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated. By: /s/ J.F. HUGHES ---------------------------------- J.F. Hughes, President, Treasurer and Director By: /s/ JOHN G. SHARKEY ---------------------------------- John G. Sharkey, Vice President, Finance, Controller and Secretary By: /s/ ERNEST G. BAGO ---------------------------------- Ernest G. Bago, President, TSR Consulting Services, Inc. and Director By: /s/ JOHN H. HOCHULI, JR. ---------------------------------- John H. Hochuli, Jr., Director By: /s/ JAMES J. HILL ---------------------------------- James J. Hill, Director By: /s/ MICHAEL P. DOWD ---------------------------------- Michael P. Dowd, Director Dated: August 14, 1998 -29- TSR, INC. AND SUBSIDIARIES EXHIBIT INDEX FORM 10-K, MAY 31, 1998 EXHIBIT SEQUENTIAL NUMBER EXHIBIT PAGE # - ------- ------- ---------- 3.1 Articles of Incorporation of the Company, as amended. 3.2 Bylaws of the Company, as amended 10.1 Employment Agreement between TSR, Inc. and Ernest G. Bago, dated N/A as of June 1, 1994, incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-KSB filed by the Company for the fiscal year ended May 31, 1995. 10.2 1997 Employee Stock Option Plan, incorporated by reference to N/A Exhibit 10.2 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended May 31, 1997. 10.3 Form of Employee Stock Option Agreement, incorporated by N/A reference to Exhibit 10.3 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended May 31, 1997. 10.4 Employment Agreement dated July 1, 1997 between the Company and N/A Joseph F. Hughes, incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended May 31, 1997. 10.5 Agreement to purchase subsidiary minority interest between TSR, N/A Inc. and William Connor dated September 1, 1997, incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by the Company for the quarter ended August 31, 1997. 10.6 Employment Agreement dated September 1, 1997 between TSR, Inc. N/A and William Connor incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed by the Company for the quarter ended August 31, 1997. 10.7 Revolving Credit Agreement dated October 6, 1997 among TSR N/A Consulting Services, Inc., TSR, Inc., Catch/21 Enterprises Incorporated and the Chase Manhattan Bank, incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed by the Company for the quarter ended August 31, 1997. 21 List of Subsidiaries 23 Consent of KPMG Peat Marwick LLP, Independent Auditors. 27 Financial Data Schedule -30- EX-3.1 2 CERTIFICATE OF INCORPORATION CERTIFICATE OF INCORPORATION OF INTERNATIONAL TIME SHARING SERVICES, INC. ------------------------ FIRST. The name of the corporation is INTERNATIONAL TIME SHARING SERVICES, INC. SECOND. The address of its registered office in the State of Delaware is No. 100 West Tenth Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The nature of the business or purposes to be conducted or promoted is: To own, operate and lease computer and other data processing equipment, either on a time-sharing basis by itself or otherwise, and to own, operate, or in any way deal or engage in the business of a service bureau, rendering programing, computer and other data processing services, and to engage in the business of management consultants and in the business of rendering business marketing and technical analysis in all phases of business operations, to and for all kinds of business enterprises. To build, purchase or otherwise acquire, lease, own, hold, use, improve, equip, maintain, mortgage or otherwise encumber, sell or otherwise dispose of, convey, assign, and lease, factories, shops, offices, warehouses, buildings, and structures of every kind and description. To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. To acquire, and pay for in cash, stock or bonds of this corporation or otherwise, the good will, rights, assets and property, and to undertake or assume the whole or any part of the obligations or liabilities of any person, firm, association or corporation. To acquire, hold, use, sell, assign, lease, grant licenses in respect of, mortgage or otherwise dispose of letters patent of the United States or any foreign country, patent rights, licenses and privileges, inventions, improvements and processes, copyrights, trade-marks and trade names, relating to or useful in connection with any business of this corporation. To acquire by purchase, subscription or otherwise, and to receive, hold, own, guarantee, sell, assign, exchange, transfer, mortgage, pledge or otherwise dispose of or deal in and with any of the shares of the capital stock, or any voting trust certificates in respect of the shares of capital stock, scrip, warrants, rights, bonds, debentures, notes, trust receipts, and other securities, obligations, choses in action and evidences of indebtedness or interest issued or created by any corporations, joint stock companies, syndicates, associations, firms, trusts or persons, public or private, or by the government of the United States of America, or by any foreign government, or by any state, territory, province, municipality or other political sub-division or by any governmental agency, and as owner thereof to possess and exercise all the rights, powers and privileges of ownership, including the right to execute consents and vote thereon, and to do any and all acts and things necessary or advisable for the preservation, protection, improvement and enhancement in value thereof. To borrow or raise moneys for any of the purposes of the corporation and, from time to time without limit as to amount, to draw, make, accept, endorse, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures and other negotiable or non-negotiable instruments and evidences of indebtedness, and to secure the payment of any thereof and of the interest thereon by mortgage upon or pledge, conveyance or assignment in trust of the whole or any part of the property of the corporation, whether at the time owned or thereafter acquired, and to sell, pledge or otherwise dispose of such bonds or other obligations of the corporation for its corporate purposes. To purchase, receive, take by grant, gift, devise, bequest or otherwise, lease or otherwise acquire, own, hold, improve, employ, use and otherwise deal in and with real or personal property, or any interest therein, wherever situated, and to sell, convey, lease, exchange, transfer or otherwise dispose of, or mortgage or pledge, all or any of the corporation's property and assets, or any interest therein, wherever situated. In general, to possess and exercise all the powers and privileges granted by the General Corporation Law of Delaware or by any other law of Delaware or by this certificate of incorporation together with any powers incidental thereto, so far as such powers and privileges are necessary or convenient to the conduct, promotion or attainment of the business or purposes of the corporation. The business and purposes specified in the foregoing clauses shall, except where otherwise expressed, be in nowise limited or restricted by reference to, or inference from, the terms of any other clause in this certificate of incorporation, but the business and purposes specified in each of the foregoing clauses of this article shall be regarded as independent business and purposes. FOURTH. The total number of shares of stock which the corporation shall have authority to issue is two million (2,000,000) and the par value of each of such shares is One Cent (1(cent)), amounting in the aggregate to Twenty Thousand Dollars ($20,000.00). FIFTH. The name and mailing address of each incorporator is as follows: NAME MAILING ADDRESS ---- --------------- B. J. Consono 100 West Tenth Street Wilmington, Delaware F. J. Obara, Jr. 100 West Tenth Street Wilmington, Delaware A. D. Grier 100 West Tenth Street Wilmington, Delaware SIXTH. The corporation is to have perpetual existence. SEVENTH. In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized: To make, alter or repeal the by-laws of the corporation. To authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation. To set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. By a majority of the whole board, to designate one or more committees, each committee to consist of two or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution or in the by-laws of the corporation, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, however, the by-laws may provide that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. When and as authorized by the affirmative vote of the holders of a majority of the stock issued and outstanding having voting power given at a stockholders' meeting duly called upon such notice as is required by statute, or when authorized by the written consent of the holders of a majority of the voting stock issued and outstanding, to sell, lease or exchange all or Substantially all of the property and assets of the corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or property including shares of stock in, and/or other securities of, any other corporation or corporations, as its board of directors shall deem expedient and for the best interests of the corporation. EIGHTH. Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stock holders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. NINTH. Meetings of stockholders may be held within or without the State of Delaware, as the by-laws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation. Elections of directors need not be by written ballot unless the by-laws of the corporation shall so provide. TENTH. The corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. WE, THE UNDERSIGNED, being each of the incorporators hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is our act and deed and the facts herein stated are true, and accordingly have hereunto set our hands this 25th day of February, 1969. B.J. Consono ------------------------- F.J. Obara, Jr. ------------------------- A.D. Grier ------------------------- CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF INTERNATIONAL TIME SHARING SERVICES, INC. BEFORE PAYMENT OF CAPITAL --- oo0oo--- WE, THE UNDERSIGNED, being all of the incorporators of INTERNATIONAL TIME SHARING SERVICES, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That Article "First" of the Certificate of Incorporation be and it hereby is amended to read as follows: "First. The name of the Corporation is TIME SHARING SERVICES, INC." SECOND: That the corporation has not received any payment for any of its stock. THIRD: That the amendment was duly adopted in accordance with the provisions of section 241 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, we have signed this certificate this 28th day of March, 1969. B.J. Consono ------------------------- F.J. Obara, Jr. ------------------------- A.D. Grier ------------------------- CERTIFICATE OF AMENDMENT -of- CERTIFICATE OF INCORPORATION -of- TIME SHARING SERVICES, INC. TIME SHARING SERVICES, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of said corporation at a meeting duly held, adopted a resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation of said corporation: RESOLVED: that the Certificate of Incorporation of this corporation, as amended, be further amended by changing the Article thereof numbered "FIRST" so that as amended, said Article shall be and read as follows: "FIRST: The name of the corporation is, TIME SHARING RESOURCES, INC." SECOND: The aforesaid amendment has been approved by vote of the holders of a majority of the issued and outstanding stock entitled to vote at a meting of shareholders duly held pursuant to the provisions of Section 222 of the General Corporation Law of Delaware. THIRD: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of Delaware. FOURTH: That the capital of said corporation will not be reduced under or by reason of said amendment. IN WITNESS WHEREOF, said TIME SHARING SERVICES, INC., caused its corporate seal to be hereunto affixed and this Certificate to be signed by Joseph F. Hughes, its President, and attested by Joseph Kazmarick, its Secretary, this 27th day of day of May, 1969. TIME SHARING SERVICES, INC. By______________________________ Joseph F. Hughes, President ATTEST: - -------------------------- Joseph Kazmarick, Secretary CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION * * * TIME SHARING RESOURCES, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of TIME SHARING RESOURCES, INC. resolutions were duly adopted setting forth a proposed amendment to the Certificate of Incorporation of said corporation to increase the authorized number of shares of Common Stock from 2,000,000 to 4,000,000 and to create a class of Preferred Stock of 1,000,000 shares, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. SECOND: That thereafter, pursuant to resolution of its Board of Directors, an annual meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Sections 222 and 242 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That Article "Fourth" of the Certificate of Incorporation be and it hereby is amended to read in its entirety as follows: FOURTH: (a) The total number of shares which the corporation shall have authority to issue is five million (5,000,000) shares divided into classes as follows: four million (4,000,000) shares shall be Common Stock having a par value of One Cent (1 cent) per share and one million (1,000,000) shares shall be Preferred Stock having a par value of One Dollar ($1.00) per share, having such voting powers or no voting powers, designations, preferences and relative participating optional or other special rights, and qualifications, limitations or restrictions thereof as may be fixed by resolution of the Board of Directors. (b) The Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of the preferred shares in series, and by filing a certificate pursuant to the Delaware Corporation Law, to establish the number of shares to be included in each such series, and to fix voting powers, designations, preferences and relative participating optional or other special rights and qualifications, limitations or restrictions of the shares of each of such series. The authority of the Board with respect to each series shall include, but not be limited to, determination of the following: (a) The number of shares constituting that series and the distinctive designation of that series; (b) The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates; (c) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (d) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (e) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (f) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation; and (g) Any other relative rights, preferences and limitations of that series." TIME SHARING RESOURCES, INC. By: ____________________________ Joseph F. Hughes, Chief Executive Officer & President ATTEST: - ----------------------- Joseph M. Kazmarick Secretary - ----------------------- [Corporate Seal] Dated: September 19, 1983 STATE OF NEW YORK ) : ss.: COUNTY OF WESTCHESTER ) BE IT REMEMBERED, that on this 19th day of September 1983, personally came before me, a Notary Public in and for the County and State aforesaid, JOSEPH F. HUGHES, Chief Executive Officer and Joseph Kazmarick, Secretary of TIME SHARING RESOURCES, INC., a corporation of the State of Delaware, and the duly executed said certificate before me and acknowledged the said certificate to be their acts and deeds and the act and deed of said corporation and the facts stated therein are true; and that the seal affixed to said certificate is the common or corporate seal of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day and year aforesaid. ------------------------------- Notary Public (Notarial Seal) CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF TIME SHARING RESOURCES, INC. It is hereby certified that: 1. The name of the corporation (hereinafter called the "corporation") is Time Sharing Resources, Inc. 2. The certificate of incorporation of the corporation is hereby amended by striking of Article "FIRST" thereof and by substituting in lieu of said Article the following new Article: "FIRST: The name of the corporation is: TSR, INC." 3. The amendment of the certificate of incorporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. Signed and attested to on January 26, 1984. --------------------------------- Joseph F. Hughes - President Attest: - ------------------------------ Joseph M. Kazmarick, Secretary STATE OF NEW YORK ) : ss.: COUNTY OF NASSAU ) BE IT REMEMBERED that, on January 26, 1984, before me, a Notary Public duly authorized by law to take acknowledgment of deeds, personally came JOSEPH F. HUGHES, President of Time Sharing Resources, Inc., who duly signed the foregoing instrument before me and acknowledged that such signing is his act and deed, that such instrument as executed is the act and deed of said corporation, and that the facts stated therein are true. GIVEN under my hand on January 26, 1984. ---------------------------- Notary Public Notary Seal CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF TSR, INC. ---------------------------------- Adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware ---------------------------------- I, Joseph H. Hughes, President and Chairman of the Board of TSR, INC., a Corporation existing under the laws of the State of Delaware, do hereby certify as follows: FIRST: That the name of the Corporation is TSR, INC. (hereinafter called the "Corporation"). SECOND: That the Certificate of Incorporation of the Corporation has been amended as follows: A. Article FOURTH, Section A thereof shall be deleted in its entirety and replaced with the following: "FOURTH: A. The total number of shares which the Corporation shall have authority to issue is twenty-six million (26,000,000) shares, of which twenty-five million (25,000,000) shares shall be common stock, having a par value of One Cent (1(cent)) per share, and one million (1,000,000) shares shall be preferred stock, having a par value of One Dollar ($1.00) per share, having such voting powers or no voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof as may be fixed by resolution of the Board of Directors." B. The following shall be added as the second paragraph under Article Fifth: "Terms of Directors. The number of Directors of the Corporation shall be fixed by resolution duly adopted from time to time by the Board of Directors. The Directors, shall be classified, with respect to the term for which they hold office, into three classes, as nearly equal in number as possible. The initial Class III Director shall serve for a term expiring at the annual meeting of stockholders to be held in 1998, the initial Class II Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 1999, and the initial Class I Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2000. At each annual meeting of stockholders, the successor or successors of the class of Directors whose term expires at that meeting shall be elected by a plurality of the votes cast at such meeting and shall hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. The Directors elected to each class shall hold office until their successors are duly elected and qualified or until their earlier resignation or removal." C. The following shall be added as the third paragraph under Article Fifth: "Vacancies. Any and all vacancies in the Board of Directors, however occurring, including, without limitation, by reason of an increase in size of the Board of Directors, or the death, resignation, disqualification or removal of a Director, shall be filled solely by the affirmative vote of a majority of the remaining Directors then in office, even if less than a quorum of the Board of Directors. Any Director appointed in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of Directors in which the new directorship was created or the vacancy occurred and until such Director's successor shall have been duly elected and qualified or until his or her earlier resignation or removal. When the number of Directors is increased or decreased, the Board of Directors shall determine the class or classes to which the increased or decreased number of Directors shall be apportioned so as to maintain each class as nearly equal in number as possible; provided, however, that no decrease in the number of Directors shall shorten the term of any incumbent Director." D. The following shall be added as a new paragraph at the end of Article Tenth: "Amendment of Certificate of Incorporation. The affirmative vote of not less than two-thirds of the voting stock eligible to be cast by holders of voting stock, shall be required to amend or repeal the provisions of the second and third paragraphs of Article Fifth, this last paragraph of Article Tenth, Article Eleventh or Article Twelfth of this Certificate of Incorporation." E. The following shall be added as Article Eleventh: "Stockholder Action. Any action required or permitted to be taken by the stockholders of the Corporation at any annual or special meeting of stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders and may not be taken or effected by a written consent of stockholders in lieu thereof." F. The following shall be added as Article Twelfth of the Certificate: "Amendment of By-laws. Except as otherwise provided by law, the By-laws of the Corporation may be amended or repealed by the Board of Directors. In addition, the By-laws of the Corporation may be amended or repealed at any annual meeting of stockholders, or special meeting of stockholders called for such purpose, by the affirmative vote of at least two-thirds of the voting stock eligible to be cast by holders of voting stock on such amendment or repeal; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of a majority of the voting stock present and entitled to vote on such amendment or repeal." THIRD: The amendment of the Certificate of Incorporation has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, I have signed this certificate this ___ day of October, 1997. TSR, INC. By: ______________________________ Name: Joseph H. Hughes Title: President and Chairman of the Board EX-3.2 3 TIME SHARING SERVICES, INC. TIME SHARING SERVICES, INC. ----------------- B Y - L A W S ----------------- ARTICLE I OFFICES Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. All meetings of the stockholders for the election of directors shall be held in the City of New York, State of New York, at such place as may be fixed from time to time by the board of directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders, commencing with the year 1970, shall be held on the first Tuesday of May if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 A. M., or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which they shall elect by a plurality vote, by written ballot, a board of directors, and transact such other business as may properly be brought before the meeting. Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than fifty days before the date of the meeting. Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be 2 called by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than fifty days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the 3 adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Section 10. Each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 11. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, by any provision of the statutes, the meeting and vote of stockholders may be dispensed with if all of the stockholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken; or if the certificate of incorporation authorizes the action to be taken with the written consent of the holders of less than all of the stock who would have been entitled to vote upon the action if a meeting were held, then on the written consent of the stockholders having not less than such percentage of the number of votes as may be authorized in the certificate of incorporation; provided that in no case shall the written consent be by the holders of stock having less than the minimum 4 percentage of the vote required by statute for the proposed corporate action, and provided that prompt notice must be given to all stockholders of the taking of corporate action without a meeting and by less than unanimous written consent. ARTICLE III DIRECTORS Section 1. The number of directors which shall constitute the whole board shall be not less than three nor more than eight. The first board shall consist of three directors. Thereafter, within the limits above specified, the number of directors shall be determined by resolution of the board of directors or by the stockholders at the annual meeting. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote 5 for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 3. The business of the corporation shall be managed by its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. MEETINGS OF THE BOARD OF DIRECTORS Section 4. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. Section 6. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. Section 7. Special meetings of the board may be called by the president on three days' notice to each director, either personally or by mail or by telegram; special 6 meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors. Section 8. At all meetings of the board a majority of the directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. 7 COMMITTEES OF DIRECTORS Section 10. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of two or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Section 11. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. COMPENSATION OF DIRECTORS Section 12. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 8 Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE IV NOTICES Section 1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS Section 1. The officers of the corporation shall be chosen by the board of directors and shall be a president, a vice-president, a secretary and a treasurer. The board of directors may also choose additional vice-presidents, and one or more assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these by-laws otherwise provide. 9 Section 2. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, one or more vice-presidents, a secretary and a treasurer. Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. THE PRESIDENT Section 6. The president shall be the chief executive officer of the corporation, shall preside at all meetings of the stockholders and the board of directors, sh all have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. Section 7. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. 10 THE VICE PRESIDENTS Section 8. In the absence of the president or in the event of his inability or refusal to act, the vice-president (or in the event there be more than one vice-president, the vice-presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARIES Section 9. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 10. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such 11 determination, then in the order of their election), shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE TREASURER AND ASSISTANT TREASURERS Section 11. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. Section 12. He shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 13. If required by the board of directors, he shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. 12 Section 14. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. ARTICLE VI CERTIFICATES OF STOCK Section 1. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. Section 2. Where a certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or, (2) by a registrar other than the corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. 13 LOST CERTIFICATES Section 3. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFERS OF STOCK Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. FIXING RECORD DATE Section 5. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise 14 any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. REGISTERED STOCKHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. 15 Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ANNUAL STATEMENT Section 3. The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. CHECKS Section 4. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. FISCAL YEAR Section 5. The fiscal year of the corporation shall be fixed by resolution of the board of directors. SEAL Section 6. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal 16 may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII AMENDMENTS Section 1. These by-laws may be altered, amended or repealed or new by-laws may be adopted by the stockholders or by the board of directors, when such power is conferred upon the board of directors by the certificate of incorporation, at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if notice of such alteration, amendment, repeal or adoption of new by-laws be contained in the notice of such special meeting. ------------------------------ Joseph M. Kaczmarick Secretary 17 TSR INC. BY-LAWS AMENDMENT TO PARAGRAPH 12 INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES (a) To the maximum extent permitted by law, the Corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, whether or not an action by or in the right of the Corporation, by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. (b) The Corporation shall have the power to advance to officers, directors, employees and agents expenses incurred by them in defending a civil or criminal action, suit or proceeding relating to their service in such capacity in advance of the final disposition thereof, upon receipt of an undertaking for repayment if it shall ultimately be determined that such officer, director, employee or agent is not entitled to be indemnified under Delaware law and the Certificate of Incorporation and By-Laws of the Corporation. (c) The indemnification and advancement of expenses provided by the provisions of this Paragraph 12 shall not be deemed exclusive of any other right to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, any other By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (d) The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Paragraph 12. 18 AMENDMENT TO BY-LAWS OF TSR, INC. October 28, 1997 Article II, Section 11 of the By-Laws is deleted in its entirety. The following shall be added as Article II, Sections 11 and 12 of the By-Laws. Section 11, "Matters to be Considered at Annual Meetings. At any annual meeting of stockholders or any special meeting in lieu of annual meeting of stockholders (the "Annual Meeting"), only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before such Annual Meeting. To be considered as properly brought before an Annual Meeting, business must be: (a) specified in the notice of meeting, (b) otherwise properly brought before the meeting by, or at the direction of, the Board of Directors, or (c) otherwise properly brought before the meeting by any holder of record (both as of the time notice of such proposal is given by the stockholder as set forth below and as of the record date for the Annual Meeting in question) of any shares of voting stock of the Corporation entitled to vote at such Annual Meeting who complies with the requirements set forth in this Section. "In addition to any other applicable requirements, for business to be properly brought before an Annual Meeting by a stockholder of record of any shares of voting stock entitled to vote at such Annual Meeting, such stockholder shall: (i) give timely notice as required by this Section to the Secretary of the Corporation and (ii) be present at such meeting, either in person or by a representative. A stockholder's notice shall be timely if delivered to, or mailed to and received by, the Corporation at its principal executive office not less than 75 days nor more than 120 days prior to the anniversary date of the immediately preceding Annual Meeting (the "Anniversary Date"), provided, however, that in the event the Annual Meeting is scheduled to be held on a date more than 30 days before the Anniversary Date or more than 60 days after the Anniversary Date, a stockholder's notice shall be timely if delivered to, or mailed to and received by, the Corporation at its principal executive office not later than the close of business on the later of (A) the 75th day prior to the scheduled date of such Annual Meeting or (B) the 15th day following the day on which 19 public announcement of the date of such Annual Meeting is first made by the Corporation. "For purposes of these By-laws, "public announcement" shall mean: (i) disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service, (ii) a report or other document filed publicly with the Securities and Exchange Commission (including, without limitation, a Form 8-K), or (iii) a letter or report sent to stockholders of record of the Corporation at the time of the mailing of such letter or report. "A stockholder's notice to the Secretary shall set forth as to each matter proposed to be brought before an Annual Meeting: (i) a brief description of the business the stockholder desires to bring before such Annual Meeting and the reasons for conducting such business at such Annual Meeting, (ii) the name and address, as they appear on the Corporation's stock transfer books, of the stockholder proposing such business, (iii) the number of shares of the Corporation's voting stock beneficially owned by the stockholder proposing such business, (iv) the names and addresses of the beneficial owners, if any, of any voting stock of the Corporation registered in such stockholder's name on such books, and the class and number of shares of the Corporation's voting stock beneficially owned by such beneficial owners, (v) the names and addresses of other stockholders known by the stockholder proposing such business to support such proposal, and the class and number of shares of the Corporation's voting stock beneficially owned by such other stockholders, and (vi) any material interest of the stockholder proposing to bring such business before such meeting (or any other stockholders known to be supporting such proposal) in such proposal. "If the Board of Directors or a designated committee thereof determines that any stockholder proposal was not made in a timely fashion in accordance with the provisions of this Section or that the information provided in a stockholder's notice does not satisfy the information requirements of this Section in any material respect, such proposal shall not be presented for action at the Annual Meeting in question. If neither the Board of Directors nor such committee makes a determination as to the validity of any stockholder proposal in the manner set forth above, the presiding officer of the Annual Meeting shall determine whether the stockholder proposal was made in accordance with the terms of this 20 Section. If the presiding officer determines that any stockholder proposal was not made in a timely fashion in accordance with the provisions of this Section or that the information provided in a stockholder's notice does not satisfy the information requirements of this Section in any material respect, such proposal shall not be presented for action at the Annual Meeting in question. If the Board of Directors, a designated committee thereof or the presiding officer determines that a stockholder proposal was made in accordance with the requirements of this Section, the presiding officer shall so declare at the Annual Meeting and ballots shall be provided for use at the meeting with respect to such proposal. "Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder with respect to the matters set forth in this By-Law, and nothing in this By-Law shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act." Section 12, "Matters to be Considered at Special Meetings. Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders of the Corporation, unless otherwise provided by law." The following shall be added as the first paragraph of Article III, Section 1 of the By-Laws: "Director Nominations. Nominations of candidates for election as directors of the Corporation at any Annual Meeting may be made only (a) by, or at the direction of, a majority of the Board of Directors or of a committee of the Board of Directors specifically authorized to make such nominations or (b) by any holder of record (both as of the time notice of such nomination is given by the stockholder as set forth below and as of the record date for the Annual Meeting in question) of any shares of the voting stock of the Corporation entitled to vote at such Annual Meeting who complies with the timing, informational and other requirements set forth in this Section. Any stockholder who has complied with the timing, informational and other requirements set forth in this Section and who seeks to make such a nomination, or his, her or its representative, must be present in person at the Annual Meeting. 21 Only persons nominated in accordance with the procedures set forth in this Section shall be eligible for election as directors at an Annual Meeting. "Nominations, other than those made by, or at the direction of, the Board of Directors or a duly authorized committee thereof, shall be made pursuant to timely notice in writing to the Secretary of the Corporation as set forth in this Section. A stockholder's notice shall be timely if delivered to, or mailed to and received by, the Corporation at its principal executive office not less than 75 days nor more than 120 days prior to the Anniversary Date; provided, however, that in the event the Annual Meeting is scheduled to be held on a date more than 30 days before the Anniversary Date or more than 60 day after the Anniversary Date, a stockholder's notice shall be timely if delivered to, or mailed and received by, the Corporation at its principal executive office not later than the close of business on the later of (i) the 75th day prior to the scheduled date of such Annual Meeting or (ii) the 15th day following the day on which public announcement of the date of such Annual Meeting is first made by the Corporation. "A stockholder's notice to the Secretary shall set forth as to each person whom the stockholder proposes to nominate for election or re-election as a director: (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Corporation's voting stock which are beneficially owned by such person on the date of such stockholder notice, (iv) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the Board of Directors; and (v) the consent of each nominee to serve as a director if elected. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a Director of the Corporation. A stockholder's notice to the Secretary shall further set forth as to the stockholder giving such notice: (i) the names and addresses, as they appear on the Corporation's stock transfer books, of such stockholder and of the beneficial owners (if any) of the Corporation's voting stock registered in such stockholder's name and the names and addresses of other stockholders known by 22 such stockholder to be supporting such nominee(s), (ii) the class and number of shares of the Corporation's voting stock which are held of record, beneficially owned or represented by proxy by such stockholder and by any other stockholders known by such stockholder to be supporting such nominee(s) on the record date for the Annual Meeting in question (if such date shall then have been made publicly available) and on the date of such stockholder's notice, and (iii) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such stockholder. "If the Board of Directors or a designated committee thereof determines that any stockholder nomination was not made in accordance with the terms of this Section or that the information provided in a stockholder's notice does not satisfy the information requirements of this Section in any material respect, then such nomination shall not be considered at the Annual Meeting in question. If neither the Board of Directors nor such committee makes a determination as to whether a nomination was made in accordance with the provisions of this Section, the presiding officer of the Annual Meeting shall determine whether a nomination was made in accordance with such provisions. If the presiding officer determines that any stockholder nomination was not made in accordance with the terms of this Section or that the information provided in a stockholder's notice does not satisfy the informational requirements of this Section in any material respect, then such nomination shall not be considered at the Annual Meeting in question. If the Board of Directors, a designated committee thereof or the presiding, officer determines that a nomination was made in accordance with the terms of this Section, the presiding officer shall so declare at the Annual Meeting and ballots shall be provided for use at the meeting with respect to such nominee. "Notwithstanding anything, to the contrary in the second sentence of the second paragraph of this Section, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for directors or specifying the size of the increased Board of Directors at least 75 days prior to the Anniversary Date, a stockholder's notice required by this Section shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if such 23 notice shall be delivered to, or mailed to and received by, the Corporation at its principal executive office not later than the close of business on the 15th day following the day on which such public announcement is first made by the Corporation of such increase. "No person shall be elected by the stockholders as a Director of the Corporation unless nominated in accordance with the procedures set forth in this Section. Election of Directors at the Annual Meeting need not be by written ballot, unless otherwise provided by the Board of Directors or presiding officer at such Annual Meeting. If written ballots are to be used ballots bearing the names of all the persons who have been nominated for election as Directors at the Annual Meeting in accordance with the procedures set for this Section shall be provided for use at the Annual Meeting." Article III, Section 2 of the By-Laws is deleted in its entirety and replaced with the following: "Vacancies. Any and all vacancies in the Board of Directors, however occurring, including, without limitation, by reason of an increase in size of the Board of Directors, or the death, resignation, disqualification or removal of a Director, shall be filled solely by the affirmative vote of a majority of the remaining Directors then in office, even if less than a quorum of the Board of Directors. Any Director appointed in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of Directors in which the new directorship was created or the vacancy occurred and until such Director's successor shall have been duly elected and qualified or until his or her earlier resignation or removal. When the number of Directors is increased or decreased, the Board of Directors shall determine the class or classes to which the increased or decreased number of Directors shall be apportioned so as to maintain each class as nearly equal in number as possible; provided, however, that no decrease in the number of Directors shall shorten the term of any incumbent Director. The undersigned hereby certifies that the amendment to the by-laws set forth above were adopted by the Shareholders of TSR, Inc. on October 22, 1997. ------------------------------ John G. Sharkey, Secretary 24 EX-21 4 LIST OF SUBSIDIARIES TSR, INC. AND SUBSIDIARIES EXHIBIT 21 LIST OF SUBSIDIARIES TO REPORT ON FORM 10-K FISCAL YEAR ENDED MAY 31, 1998 NAME STATE OF INCORPORATION ---- ---------------------- TSR Consulting Services, Inc. New York Construction Data Services, Inc. New York TSR Health Care Services, Inc. New York Catch/21 Enterprises Incorporated Delaware EX-23 5 CONSENT OF INDEPENDENT AUDITORS TSR, INC. AND SUBSIDIARIES EXHIBIT 23 TO REPORT ON FORM 10-K FISCAL YEAR ENDED MAY 31, 1998 CONSENT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders TSR, Inc.: We consent to incorporation by reference in the registration statement (No. 333-46755) on Form S-3 and registration statement (No. 333-47531) on Form S-8 of TSR, Inc. of our report dated July 15, 1998 relating to the consolidated balance sheets of TSR, Inc. and subsidiaries as of May 31, 1998 and 1997, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the years in the three-year period ended May 31, 1998, which report appears in the May, 31 1998 annual report on Form 10-K of TSR, Inc. KPMG PEAT MARWICK LLP Jericho, New York August 24,1998 EX-27 6 FDS
5 TSR, INC. AND SUBSIDIARIES EXHIBIT 27 FINANCIAL DATA SCHEDULE TO REPORT ON FORM 10-K FISCAL YEAR ENDED MAY 31, 1998 12-MOS MAY-31-1998 MAY-31-1998 2,425,122 1,575,945 15,211,259 173,264 0 19,343,106 1,960,819 952,043 20,515,877 4,349,030 0 0 0 59,883 16,106,964 20,515,877 0 70,434,925 0 51,332,267 13,038,531 0 0 6,227,505 2,798,000 3,429,505 0 0 0 3,429,505 0.58 0.57
-----END PRIVACY-ENHANCED MESSAGE-----