UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K10-K/A

Amendment No. 1

☒ Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the fiscal year ended May 31, 2022

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: 001-38838

TSR, Inc.

(Exact name of registrant as specified in its charter)

400 Oser Avenue, Suite 150 , Hauppauge, NY 11788

(Address of principal executive offices)

Registrant’s telephone number: 631-231-0333

Securities registered pursuant to Section 12(b) of the Exchange Act:

Securities registered pursuant to Section 12(g) of the Exchange Act:

None

(Title of Class)

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Exchange Act. ☐ Yes ☒ No

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.
☒ Yes ☐ No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationsRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”, “non-accelerated filer”,filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the Registrant has elected not to use extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the SecuritiesExchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b)404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the Registrant is a shell Companycompany (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of voting and non-voting common equity held by non-affiliates of the Registrant based upon the closing price of $8.69 at November 30, 2021 was $8,474,000.

The number of shares of the Registrant’s common stock (“Common Stock”) outstanding as of August 15,September 14, 2022 was 2,146,448.

Documents incorporated by Reference:

The information required in Part III, Items 10, 11, 12, 13 and 14 is incorporated by reference to the Registrant’s Proxy Statement in connection with the 2022 Annual Meeting of Stockholders, which will be filed by the Registrant within 120 days after the close of its fiscal year.

EXPLANATORY NOTE

TSR, Inc.

Form 10-K

For (“TSR” or the Fiscal Year Ended May 31, 2022

Table of Contents

PART I

Item 1. Business

General

TSR, Inc. (the “Company,” “TSR,” “we,” “us” and “our”“Company”) is a leading staffing company focusedfiling this Amendment No. 1 on recruiting Information Technology (“IT”Form 10-K/A (this “Amendment”) professionals for short and long-term assignments, permanent placements, project work and providing contract computer programming services to its customers. The Company provides its customers with technical computer personnel to supplement their in-house IT capabilities. The Company’s customersForm 10-K for its contract computer programming services consist primarily of Fortune 1000 companies with significant technology budgets. In the fiscal year ended May 31, 2022, which was filed with the Company provided IT staffing services to 62 customers. Also, beginning in the year ended May 31, 2017, the Company has provided and continues to provide contract administrative (non-IT) workers to some of its significant IT customers, including services to provide administrative workers to new customers acquired following the acquisition of Geneva Consulting Group, Inc. (“Geneva”)SEC on September 1, 2020, as discussed in Note 10 to the Consolidated Financial Statements elsewhere in this report.August 15, 2022 (the “Original Filing”).

The CompanyThis Amendment is being filed for the purpose of providing the information required by Items 10 through 14 of Part III of Form 10-K. This information was previously omitted from the Original Filing in reliance on General Instruction G(3) to Form 10-K, which permits the above-referenced Items to be incorporated in Delaware in 1969. The Company’s executive offices are located at 400 Oser Avenue, Suite 150, Hauppauge, NY 11788, and its telephone number is (631) 231-0333. This annual report, and each of our other periodic and current reports, including any amendments, are available, free of charge, on our website, www.tsrconsulting.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. The information contained on our website is not incorporated by reference into this annual reportAnnual Report on Form 10-K and should not be considered partby reference from a definitive proxy statement, if such definitive proxy statement is filed no later than 120 days after the last day of this report.the Company’s fiscal year on May 31, 2022.

STAFFING SERVICESIn accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the cover page to the Original Filing and Items 10 through 14 of Part III of the Original Filing are hereby amended and restated in their entirety. In addition, pursuant to Rule 12b-15 under the Exchange Act, the Company is including Item 15 of Part IV, solely to file the certifications required under Section 302 of the Sarbanes-Oxley Act of 2002 with this Amendment.

The Company’s contract computer programming services involveExcept as described above, no other changes have been made to the provision of technical staff to customers to meet the specialized requirements of their IT operations. The technical personnel provided by the Company generally supplement the in-house capabilitiesOriginal Filing. This Amendment No. 1 does not affect any other section of the Company’s customers. The Company’s approach isOriginal Filing not otherwise discussed herein and continues to make available to its customers a broad rangespeak as of technical personnel to meet their requirements rather than focusing on specific specialized areas.the date of the Original Filing. The Company has staffing capabilitiesnot updated the disclosures contained in the areasOriginal Filing to reflect any events that occurred subsequent to the date of application developmentthe Original Filing. Accordingly, this Amendment No. 1 should be read in .net and java, mobile applications for Android and IOS platforms, project management, IT security specialists, cloud development and architecture, business analysts, UI design and development, network infrastructure and support and database development and administration. Theconjunction with the Company’s services provide customersother filings made with flexibility in staffing their day-to-day operations, as well as special projects, on a short-term or long-term basis.the SEC subsequent to the filing of the Original Filing.

The Company provides technical employees for projects, which usually range from three months to one year. Generally, customers may terminate projects at any time. Staffing services are typically 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 customers, not less frequently than monthly.

The Company’s success is dependent upon, among other things, its ability to attract, recruit and retain qualified professional IT personnel. The Company believes that there is 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 increases. Increasing demand for qualified personnel could also result in increased expenses to hire and retain qualified technical personnel and could adversely affect the Company’s profit margins.

In the past several years, an increasing number of companies are using or are considering using low cost offshore outsourcing centers, particularly in India, to perform technology related work and projects. This trend has contributed to an industry wide decline in domestic IT staffing revenue in some segments. There can be no assurance that this trend will not continue to adversely impact the Company’s IT staffing revenue.SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

BeginningCertain statements included in this Amendment, and other filings of the year ended May 31, 2017,Registrant under the Company began to provide contract administrative (non-IT) workers to support someSecurities Act of its significant IT customers. This service was added at the customers’ request. The skills required for these positions are normally less demanding1933, as amended (the “Securities Act”), and the Company has hired a separate recruiting staff to handle this business, which includes both-in house and off-shore recruiters. There can be no assurance that the customers will continue to request these services.

OPERATIONS

The Company provides contract computer programming services primarily in the New York metropolitan area, New England, and the Mid-Atlantic region, although there are also customer locations around the country where the Company places contractors. The Company provides its services principally through offices located in Edison, New Jersey and Long Island, New York. The Company also leases an office space in New York City, but has sublet its New York City office dueSecurities Exchange Act of 1934, as amended (the “Exchange Act”), including statements as to the COVID-19 pandemic. Competition from larger competitors for recruiters has created more turnover than expected and increased the cost of retaining recruiters, making it more difficult to increase the number of technical recruiters on staff. As of May 31, 2022, the Company employed 36 persons who are responsible for recruiting technical and non-technical personnel and 12 persons who are account executives. As of May 31, 2021, the Company had employed 29 technical and non-technical recruiters and 13 account executives. For some services, the Company also uses offshore recruiters. The number of offshore recruiters contracted by the Company fluctuates depending on demand for services. At May 31, 2022 and May 31, 2021, the Company contracted for approximately 40 offshore recruiters to provide services to clients.

MARKETING AND CUSTOMERS

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 62 customers during the year ended May 31, 2022 (“fiscal 2022”) as compared to 61 in the year ended May 31, 2021 (“fiscal 2021”). The Company has historically derived a significant percentage of its total revenue from a relatively small number of customers. In fiscal 2022, the Company had four customers which each provided more than 10% of consolidated revenues: ADP (21.5%), Consolidated Edison (19.4%), Citigroup (15.8%), and AgileOne (11.1%). AgileOne provides vendor management services under an arrangement where the Company enters into a subcontract with AgileOne and AgileOne directly contracts with three end customers. The AgileOne end customers for which the Company provides services include Bristol Myers Squibb, which alone constituted 10.6% of the Company’s consolidated revenue for fiscal 2022. Additionally, the Company’s top ten customers (including underlying customers of vendor management companies) accounted for 86% of consolidated revenue in fiscal 2022 and 81% in fiscal 2021. While continuing its efforts to further expand its client base, including strategically targeted middle market accounts, the Company’s marketing efforts are focused primarily on increasing business from its existing accounts. Approximately 21% of the Company’s revenue is derived from end customers in the financial services business. Competitive pressures in financial services, primarily with European based banks, have negatively affected the net effective rates that the Company charges to certain of the Company’s end customers in this industry, which has negatively affected the Company’s gross profit margins.

Many of the Company’s major customers, totaling over 40% of revenue, have retained a third party to provide vendor management services and centralize the consultant hiring process. Under this system, the third party retains the Company to provide contract computer programming services, the Company bills the third party, and the third party bills the ultimate customer. At certain customers, this process has weakened the relationships the Company has built with its customers’ project managers, who are the Company’s primary contacts with its customers and with whom the Company would normally work to place consultants. Instead, the Company is required to interface with the vendor management provider, making it more difficult to maintain its relationships with its customers and preserve and expand its business. In some cases, these changes have also reduced the Company’s profit margins because the vendor management company is retained for the purpose of keeping costs low for the end client and receives a processing fee which is deducted from the payment to the Company.

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.

PROFESSIONAL STAFF AND RECRUITMENT

In addition to using internet-based job boards such as LinkedIn, Indeed, Dice, Monster, Career Builder and Discover.org, the Company maintains a database of technical personnel with a wide range of skills. The Company uses a sophisticated proprietary computer system to match potential employees’ skills and experience with client requirements. The Company periodically contacts personnel within 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 employs technical personnel primarily on an hourly basis, as required in order to meet the staffing requirements under particular contracts or for particular projects. The Company primarily recruits technical personnel by posting jobs on the Internet and, on occasion, by publishing advertisements in local newspapers and attending job fairs. The Company devotes significant resources to recruiting technical personnel, maintaining 36 technical and non-technical recruiters based in the U.S. and contracting with companies for 40 to 80 offshore recruiters as needed to assist in locating both IT and administrative (non-IT) workers. Potential applicants are generally interviewed and tested by the Company’s recruiting personnel, by third parties that have the required technical backgrounds to review the qualifications of the applicants, or by on-line testing services. In some cases, instead of employing technical personnel directly, the Company uses subcontractors who employ the technical personnel who are provided to the Company’s customers. For a small fee, the Company may sometimes process payments on behalf of customers to contractors identified by the customers directly instead of through the normal recruiting process; this is known as “payrolling”.

Competition

The technical staffing industry is highly competitive and fragmented and has low barriers to entry. The Company competes for potential customers with providers of outsourcing services, systems integrators, computer systems consultants, other providers of technical staffing services and, to a lesser extent, 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 customers are accurate assessment of customers’ 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 employment opportunities. Therefore, the Company believes that its responsiveness to the needs of technical personnel is an important factor in the Company’s ability to fill projects. Although the Company believes it competes favorably with respect to these factors, it expects competition to increase and there can be no assurance that the Company will remain competitive.

Intellectual Property Rights

The Company relies primarily upon a combination of trade secret, nondisclosure and other contractual arrangements to protect its proprietary rights. The Company generally enters into confidentiality agreements with its employees, consultants, customers and potential customers 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 May 31, 2022, the Company had 632 full-time employees including its 2 executive officers. Of such employees, 12 were engaged in sales, 36 were recruiters for technical and non-technical personnel, 566 were IT and administrative (non-IT) contractors, and 16 were engaged in corporate administrative and clerical functions.

As of May 31, 2021, the Company had 606 full-time employees including its 2 executive officers. Of such employees, 13 were engaged in sales, 29 were recruiters for technical and non-technical personnel, 547 were IT and administrative (non-IT) contractors, and 15 were engaged in corporate administrative and clerical functions.

None of the Company’s employees belong to unions.

Forward-Looking Statements

Certain statements contained under this Item 1A. “Risk Factors”, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 1. “Business”, including but not limited to statements concerning the Company’sRegistrant’s plans, 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. The words “believe,” “may,” “will,” “estimate,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. Actual results may differ materially from those projectionsset forth in the forward-looking statements which statements involvedue to known and unknown risks and uncertainties, including but not limited to, the factors set forth belowfollowing: the statements concerning the success of the Registrant’s plan for growth, both internal and through the previously announced pursuit of suitable acquisition candidates; the successful integration of announced acquisitions and any anticipated benefits therefrom; the impact of adverse economic conditions on client spending which have a negative impact on the Registrant’s business, which includes, but is not limited to, the current adverse economic conditions associated with the COVID-19 global health pandemic and the associated financial crisis, stay-at-home and other orders; risks relating to the competitive nature of the markets for contract computer programming services; the extent to which market conditions for the Registrant’s contract computer programming services will continue to adversely affect the Registrant’s business; the concentration of the Registrant’s business with certain customers; uncertainty as to the Registrant’s ability to maintain its relations with existing customers and expand its business; the impact of changes in the industry such as the use of vendor management companies in connection with the consultant procurement process; the increase in customers moving IT operations offshore; the Registrant’s ability to adapt to changing market conditions; the risks, uncertainties and expense of the legal proceedings to which the Registrant is a party; and other risks and uncertainties described in the Registrant’s filings under the Exchange Act.

Forward-looking statements reflect our current views with respect to future events and are based on currently available operating, financial and competitive information. We have no obligation to publicly update or revise anyIn some cases, forward-looking statements whethercan be identified by terminology such as a result“may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of new information, future eventssuch terms or risks, except toother comparable terminology. Although the extent required by applicable law. If we do update one or moreRegistrant believes that the expectations reflected in the forward-looking statements contained herein are reasonable, the Registrant cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Registrant, nor any other person, assumes responsibility for the accuracy and completeness of such statements. The Registrant is under no inference should be drawn that we will make additional updates with respectduty to those or other forward-looking statements. New information, future events or risks could causeupdate any of the forward-looking events we discuss in this report not to occur. You should not place undue reliance on these forward-looking statements which reflect our expectations only as ofcontained herein after the date of this report.Amendment.

Item 1A. Risk Factors

Our business, financial condition and results of operations have been and may continue to be negatively impacted by global health epidemics, including the recent COVID-19 outbreak.

Outbreaks of epidemic, pandemic, or contagious diseases such as COVID-19 have and may continue to have an adverse effect on our business, financial condition, and results of operations. As the extent and duration of the COVID-19 outbreak remains unpredictable, international stock markets have experienced volatility reflecting the uncertainty associated with the slow-down in the global economy and the resulting governmental responses to the pandemic. If COVID-19 continues to progress in ways that disrupt our customers’ demand for computer programing services or staffing needs or otherwise continues to disrupt our operations, such disruptions may continue to negatively affect, and may in the future materially affect, our operating results. The majority of our workforce and customer base is located in New Jersey and New York and typically works on-site at client locations. However, on March 20, 2020 New York Governor Cuomo signed the New York State on PAUSE executive order, which includes a new directive that all non-essential businesses statewide close in-office personnel functions effective March 22, 2020 to mitigate the impact of the COVID-19 pandemic and we determined that the Company is a non-essential business. In response to these public health directives and orders, we implemented and maintained work-from-home policies for certain employees. The effects of future executive orders, stay at home orders and our work-from-home policies may negatively impact productivity, disrupt our business and impact our ability to service our clients and our clients’ need for our services, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. Similar, and perhaps more severe, disruptions in our operations could negatively impact, and may materially negatively impact, our business, operating results and financial condition. Quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could continue to occur, related to COVID-19 or other infectious diseases, could impact us and the business operations of our vendors and customers. Additionally, if the spread of COVID-19 or other infectious diseases limits our ability to make workers available either because they are ill or due to work-from-home orders, this likely would negatively affect, and may materially negatively affect, our operating results, cash flow and business.

The full financial impact of the pandemic cannot be reasonably estimated at this time. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 pandemic and the actions taken globally to contain the COVID-19 pandemic or treat its impact, among others. Existing insurance coverage may not provide protection for all costs that may arise from all such possible events. We continue to assess our business operations and system supports and the impact COVID-19 may have on our results and financial condition, but there can be no assurance that this analysis will enable us to avoid part or all of any impact from the spread of COVID-19 or its consequences, including downturns in business sentiment generally or in our sector in particular.

PART III

Our success depends on our management teamItem 10. Directors, Executive Officers and other key personnel, the loss of any of whom could disrupt our business operations.Corporate Governance.

Directors and Executive Officers

Set forth below are the names, ages and positions and offices held with the Company of each director and executive officer of the Company. Directors are classified as either Class I, Class II or Class III directors, with each class serving for a term of three (3) years. The term of Class III directors is set to expire at the 2022 annual meeting of stockholders of the Company. The term of Class II directors is set to expire at the 2023 annual meeting of stockholders, and the term of Class I directors is set to expire at the 2024 annual meeting of stockholders. There is currently no Class III director on the Board of Directors of the Company (the “Board”). Executive officers serve until such time as their successor is duly elected Thomas Salerno, formerly branch manager of the New Jersey office of TSR Consulting Services, Inc. as Chief Executive Officer, President and Treasurer in March 2020. The Company is dependent on Thomas Salerno in his corporate positions and as President of TSR Consulting Services, Inc. The Company has an employment agreement with Mr. Salerno which expires November 2, 2023. The Company is also dependent on certain of its account executives who are responsible for servicing its principal customers and attracting new customers. The Company generally does not have employment contracts with the account executives. There can be no assurance that the Company will be able to retain its existing personnel or find and attract additional qualified employees. The loss of the service of any of these personnel could have a material adverse effect on the Company.qualified.

The Company is currently subject to ongoing litigation with a former significant shareholder which, like other future lawsuits or investigations, could divert our resources or result in substantial liabilities.

The Company is currently subject to litigation involving a former significant shareholder, as discussed in the “Legal Proceedings” section. In connection with this litigation, the Company may enter into a settlement of claims for monetary damages. The Company may also be subject to a judgment for monetary damages. Defending against and/or prosecuting the current litigation may be time-consuming, expensive and cause diversion of management’s attention.

In the future, we may additionally be subject to legal or administrative proceedings and litigation which may be costly to defend and could materially harm our business, financial conditions and operations. With respect toThere are no family relationships between any litigation, the Company’s insurance may not reimburse it or may not be sufficient to reimburse it for the self-insured retention that the Company is required to satisfy before any insurance applies to a claim, unreimbursed legal fees or an adverse result in any litigation. Such event may adversely impact the Company’s business, operating results or financial condition.

Our business may be materially and adversely impacted if our relationship with one or more of our major customers is lost or disrupted.

In fiscal 2022, the Company’s four largest customers, ADP, Consolidated Edison, Citigroup and AgileOne, accounted for 21.5%, 19.4%, 15.8%, and 11.1% of the Company’s consolidated revenue, respectively. Any disruptions in our relationships with our significant customers may have a materially adverse impact on our financial conditionexecutive officers and results of operations. AgileOne is a vendor management company through which the Company provides services to three end customers, of which Bristol Myers Squibb is the most significant, representing 10.6%directors. None of the Company’s consolidated revenue for fiscal 2022. In total,directors currently serves, or has served during the past five years, as a director of any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940. There is no arrangement between any director or director nominee and any other person pursuant to which he was or is to be selected as a director or director nominee except that Mr. Eriksen and Mr. Tirpak were nominated by Zeff Capital, L.P. as Class I directors at the Company’s 2018 annual meeting of stockholders held on October 22, 2019 in accordance with the terms and conditions of that certain settlement and release agreement, dated August 30, 2019, between the Company derives over 40% of its revenue from accounts with vendor management companies.and certain investor parties, including Zeff Capital, L.P., Zeff Holding Company, LLC and Daniel Zeff, QAR Industries, Inc. and Robert Fitzgerald, and Fintech Consulting, LLC and Tajuddin Haslani (the “Settlement Agreement”). The Company’s 10 largest customers provided 86% of consolidated revenue in fiscal 2022. Client contract terms vary depending on the nature of the engagement, and there can be no assurance that a client will renew a contract when it terminates. In addition,Settlement Agreement are more fully described in the Company’s contracts are generally cancelable by the client at any timeCurrent Report on short notice, and customers may unilaterally reduce their use of the Company’s services under such contracts without penalty. For example, one of the Company’s 10 largest customers significantly reduced their use of the Company’s services as a result of the COVID-19 pandemic. Approximately 21% of the Company’s revenue is derived from end customers in the financial services business. Competitive pressures in financial services, primarily with European based banks, have negatively affected the net effective rates that the Company charges to certain end customers in this industry, which has negatively affected the Company’s gross profit margins.

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 accounts receivable balances associatedForm 8-K filed with the Company’s largest customersSecurities and Exchange Commission on September 3, 2019. Mr. Eriksen and Mr. Tirpak were $8,668,000 for four customerssubsequently elected as directors at May 31, 2022 and $4,545,000 for three customers at May 31, 2021. Becausethe annual meeting of the significant amount of outstanding receivables that the Company may have with its larger customers at any one time, if a client, including a vendor management company which then contracts with the ultimate client, filed for bankruptcy protection or otherwise sought to modify payment terms, it could prevent the Company from collectingshareholders on the receivables and have an adverse effect on the Company’s results of operations.October 22, 2019.

Damage to our reputation may adversely affect our customer relationships and our business, financial condition and results of operations.

The Company’s reputation among its customers, potential customers and the staffing services industry depends on the performance of the technical personnel that the Company places with its customers. If the Company’s customers are not satisfied with the services provided by the technical personnel placed by the Company, or if the technical personnel placed by the Company lack the qualifications or experience necessary to perform the services required by the Company’s customers, the Company may not be able to successfully maintain its relationships with its customers or expand its client base.Biographical Information

We operate inMr. Bradly M. Tirpak was elected as a competitive market for technical personnel, account executives and technical recruiters and disruptions to our business may result if we fail to attract and retain qualified personnel to operate our business and service our customers.

The Company’s success is dependent upon its ability to attract and retain qualified computer professionals to provide as temporary personnel to its customers. Competition for the limited numberClass I director of qualified professionals with a working knowledge of certain sophisticated computer languages, which the Company requires for its contract computerat the 2018 annual meeting of stockholders on October 22, 2019.  He was appointed as the Chairman of the Board on December 30, 2019.  Mr. Tirpak is a professional investor with more than 25 years of investing experience. Since November of 2021, Mr. Tirpak has served as the CEO of Liberated Syndication Inc., a leading provider of podcast hosting and advertising services. Since September of 2016, he has served as a portfolio manager and Managing Director of Palm Active Partners, LLC, a private investment company. He also previously served as a portfolio manager at Credit Suisse First Boston, Caxton Associates, Sigma Capital Management, Chilton Investment Company and Locke Partners. Mr. Tirpak served as a director of Full House Resorts, Inc., a publicly trading gaming and lodging company, from December of 2014 through January of 2021, as a director at Applied Minerals, Inc., a publicly traded specialty materials company, from April 2015 to March 2017, as a director at Flowgroup plc, an energy supply and services business is intense.in the United Kingdom, from June 2017 to October 2018 and as a director at Birner Dental Management Services, Inc., a publicly traded dental service organization, from December 2017 to January 2019.  Since October of 2019, he has served as a director of Liberated Syndication Inc., and since April of 2020, he has served as a director of Barnwell Industries Inc., a publicly traded company engaged in real estate development and oil and gas exploration. Mr. Tirpak also currently serves as trustee of The Company believes that there isHalo Trust, the world’s largest humanitarian mine clearance organization focused on clearing the debris of war which currently operates in over 25 countries including Afghanistan, Ukraine and Iraq. Mr. Tirpak earned a shortage of,B.S.M.E. from Tufts University and significant competition for, software professionals with the skills and experience necessary to perform the services offered by the Company.

The Company’s ability to maintain and renew existing engagements and obtain new business in its contract computer programming business depends, in large part, on its ability to hire and retain technical personnel with the IT skills that keep pace with continuing changes in software evolution, industry standards and technologies, and client preferences. Although the Company generally has been successful in attracting employees with the skills needed to fulfill customer engagements, demand for qualified professionals conversant with certain technologies may outstrip supply as new and additional skills are required to keep pace with evolving computer technology or as competition for technical personnel increases. Increased demand for qualified personnel has resulted and is expected to continue to result in increased expenses to hire and retain qualified technical personnel and has adversely affected the Company’s profit margins.an M.B.A. from Georgetown University.

The Company facesbelieves that Mr. Tirpak is a highly competitive market for hiringvaluable member of the Board due to his knowledge and retaining account executivesexperience in investing, capital allocation and technical recruiters, which could affectcorporate governance, as well as his experience serving on the Company’s ability to hire and retain such personnel, including by increasing the costsboards of doing so. If the Company is successful in hiring technical recruiters and account executives, there can be no assurance that such hiring will result in increased revenue.publicly traded companies.

We operate inMr. H. Timothy Eriksen was elected as a rapidly changing industry and a reduction in demand for our technical staffing services may adversely affect our business, financial condition and resultsClass I director of operations.

The computer industry is characterized by rapidly changing technology and evolving industry standards. These include the overall increase inCompany at the sophistication and interdependency2018 annual meeting of computer technology and a focus by IT managersstockholders on cost-efficient solutions. There can be no assurance that these changes will not adversely affect demand for technical staffing services. Organizations may elect to perform such services in-house or outsource such functions to companies that do not utilize temporary staffing, such as that providedOctober 22, 2019. He was appointed by the Company.

Additionally,Board as the Chairman of the Audit Committee of the Board on December 30, 2019. Mr. Eriksen founded Eriksen Capital Management, an investment advisory firm (“ECM”), in 2005. Mr. Eriksen is the President of ECM. Mr. Eriksen is the Chief Executive Officer and Chief Financial Officer of, and since July 2015 has been a numberdirector of, companies have,Solitron Devices, Inc. (“Solitron”). Solitron designs, develops, manufactures and markets solid-state semiconductor components and related devices primarily for the military and aerospace markets. From April 2018 through August 2021, Mr. Eriksen was a director of Novation Companies, Inc. (“Novation”). Novation owns Healthcare Staffing, Inc., which, among other activities, provides outsourced healthcare staffing and related services. On August 31, 2021, Mr. Eriksen was elected to the Board of PharmChem, Inc., which offers a sweat patch device to test for drug abuse. Prior to founding ECM, Mr. Eriksen worked for Walker’s Manual, Inc., a publisher of books and newsletters on micro-cap stocks, unlisted stocks and community banks. Earlier in recent years, limited the numberhis career, Mr. Eriksen worked for Kiewit Pacific Co, a subsidiary of vendors on their approved vendor lists, and are continuing to do so. In some cases, this has required the Company to subcontract with a companyPeter Kiewit Sons, as an administrative engineer on the approved vendor list to provide services to customers.Benicia Martinez Bridge project. Mr. Eriksen received a B.A. from The staffing industry has also experienced margin erosion caused by this increased competition,Master’s University and customers leveraging their buying power by consolidating the number of vendors with which they deal. In addition to these factors, there has been intense price competition in the area of IT staffing, pressure on billing rates and pressure by customers for discounts. The Company has endeavored to increase its technical recruiting staff in order to better respond to customers’ increasing demands for both the timeliness, quality and quantities of resume submittals against job requisitions.an M.B.A. from Texas A&M University.

The Company cannot predict at this time what long-term effect these changes will havebelieves that Mr. Eriksen is a valuable member of the Board based on the Company’shis strong business and resultsfinancial background, and his experience serving in leadership- and management-level roles with responsibility for formulating business and operational strategy.

Mr. Robert Fitzgerald was appointed as a Class II director of operations.the Company by the Board on December 30, 2019. Mr. Fitzgerald is a seasoned business executive with over 25 years of experience helping companies grow. From 1999 through 2008, he served as the CEO of YDI/Proxim Wireless, an early pioneer of the wireless networking equipment industry. From 2009 through 2010, he served as a consultant and later the President of Ubiquiti Networks, now Ubiquiti, Inc. (NYSE: UI), a world leading provider of wireless and non-wireless networking equipment. He currently serves as the CEO of QAR Industries, Inc., an investment company that holds interests in a portfolio of public and private companies, including Antenna Products Corporation and SeeView Securities, Inc. Mr. Fitzgerald earned a B.A. in Economics and a J.D. from the University of California, Los Angeles.

The Company believes that Mr. Fitzgerald’s extensive experience in and knowledge of the information technology (“IT”) industry and career serving in management-level positions for public and private companies make him a valuable member of the Board.

The increase in our customers’ useThomas Salerno was appointed President, Chief Executive Officer and Treasurer of third-party vendor management companies may weaken our relationship with our customersthe Company effective as of March 23, 2020. Since 2011, Mr. Salerno had served as the Managing Director of TSR Consulting Services, Inc., the Company’s IT consulting services subsidiary and adversely impact our ability to development and expand customer relationships.

There have been changeslargest business unit. Mr. Salerno has over 20 years of experience in the industry which have affected the Company’s operating results. Many customers have retained third partiestechnology consulting industry. Prior to provide vendor management services, and in excess of 40% of the Company’s revenue is derived through business with vendor management companies. The third party is then responsible for retaining companies to provide temporary IT personnel. This results injoining the Company, contracting with such third partiesMr. Salerno spent eight years at Open Systems Technology as Associate Director, two years as Vice President of Sales and not directly with the ultimate customer. This change weakens the Company’s relationship with its customer, which makes it more difficultRecruiting for the Company to maintainVersatech Consulting, and expand its business with its existing customers. It also reduces the Company’s profit margins.

In addition, the agreements with the vendor management companies are frequently structuredthree years as subcontracting agreements, with the vendor management company entering intoan Account Representative for Robert Half Technologies. Mr. Salerno holds a services agreement directly with the end customers. As a result, in the event of a bankruptcy of a vendor management company, the Company’s ability to collect its outstanding receivablesBachelor’s Degree from Johnson and continue to provide services could be adversely affected.Wales University.

We have experienced limited growthMr. John G. Sharkey was appointed Senior Vice President, Chief Financial Officer and Secretary of the Company effective June 1, 2019. He had served as the Vice President, Finance, Controller and Secretary of the Company since 1990. Mr. Sharkey received a Master’s Degree in our businessFinance from Adelphi University and recent economic uncertainties, includingreceived his Certified Public Accountant certification from the State of New York. From 1987 until joining the Company in October 1990, Mr. Sharkey was Controller of a publicly-held electronics manufacturer. From 1984 to 1987, he served as Deputy Auditor of a commercial bank, having responsibility over the internal audit department. Prior to 1984, Mr. Sharkey was employed by KPMG LLP as a result of the COVID-19 pandemic, have decreased customer demand for our services and our results of operations may continue to be adversely impacted if economic uncertainties exist and demand for our services continues to decrease or plateau as a result.senior accountant.

Demand for the Company’s IT staffing services has been and is significantly affected by the general economic environment. During periods of slowing economic activity, customers may reduce their IT projects and their demand for outside consultants. Therefore, any significant economic downturn could have a material adverse effect on the Company’s results of operations. The COVID-19 outbreak in the United States caused business disruption through mandated and voluntary closing of various businesses. While the disruption is currently expected to be temporary, there is considerable uncertainty around the ongoing economic impact. Therefore, the Company expects this matter to continue to negatively impact its operating results in future periods. However, the full financial impact and duration cannot be reasonably estimated at this time. The Company expects that economic conditions will continue to affect the number of consultants on billing with customers and the Company’s profitability. In addition to the impact of the economic uncertainties, the Company has not been successful in expanding its customer base beyond its core customers. There is no assurance that the Company will achieve growth in its revenue.Delinquent Section 16(a) Reports

IncreasesSection 16(a) of the Exchange Act requires the Company’s officers and directors and persons who beneficially own more than ten percent of a registered class of the Company’s equity securities to file reports of ownership and changes in payroll-related costs coupledownership with an inabilitythe Securities and Exchange Commission (the “SEC”). Officers, directors and greater than ten percent Stockholders are required by regulation of the SEC to increase our fees charged to customers to cover such costs has, and may likely continue to have, an adverse effect on our profitability.furnish the Company with copies of all Section 16(a) forms they file.

The Company is required to pay a number of federal, state and local payroll and related costs, including unemployment insurance, workers’ compensation insurance, employer’s portion of Social Security and Medicare taxes, among others, for our employees, including those placed with customers. Significant increases in the effective rates of any payroll-related costs would likely have a material adverse effectBased solely on the Company. During the past few years, manyits review of the states in which the Company conducts business have significantly increased their state unemployment tax rates in an effort to increase fundingcopies of such forms received by it, or written representations from certain reporting persons that no Forms 5 were required for unemployment benefits. Costs have continued to increase as a result of health care reforms and the mandate to provide health insurance to employees under the Affordable Care Act. New York and New Jersey implemented laws over the last several years that require employers to provide certain minimum benefits for employees with respect to paid sick leave and family leave, which has and will continue to increase our payroll-related costs. Many other cities around the country have enacted or are in the process of enacting similar mandates. The Company has not been able to sufficiently increase the fees charged to its customers to cover these mandated cost increases. There are also proposals on the federal and state levels to phase in paid or partially paid family leave. The enacted mandates have had a negative effect on the Company’s profitability and additional mandates will continue to negatively impact the Company’s margins.

The current trend of companies moving technology jobs and projects offshore has caused and could continue to cause revenue to decline.

In the past few years, more companies are using or are considering using low cost offshore outsourcing centers, particularly in India and other East Asian countries, to perform technology related work and projects. This trend has reduced the growth in domestic IT staffing revenue for the industry. This trend has had a negative impact on our business and there can be no assurance that it will not continue to adversely impact the Company’s IT staffing revenue.

Because much of our technical personnel consists of foreign nationals with work visas, changes in immigration laws that restrict the provision of work visas may adversely affect our ability to retain qualified technical personnel.

The Company obtains many of its technical personnel by subcontracting with companies that utilize foreign nationals entering the U.S. on work visas, primarily under the H-1B visa classification. The Company also sponsors foreign nationals on H-1B visas on a limited basis. The H-1B visa classification enables U.S. employers to hire qualified foreign nationals in positions that require an education at least equal to a bachelor’s degree. U.S. Immigration laws and regulations are subject to legislative and administrative changes, as well as changes in the application of standards and enforcement. In recent years, proclamations have been issued to temporarily suspend certain immigration visas for many categories of foreign workers including H-1B. These and future restrictions on the availability of work visas could restrain the Company’s ability to acquire the skilled professionals needed to meet our customers’ requirements, which could have a material adverse effect on our business. The scope and impact of these changes on the staffing industry and the Company remain unclear, however a narrow interpretation and vigorous enforcement of existing laws and regulations could adversely affect the ability of entities with which the Company subcontracts to utilize foreign nationals and/or renew existing foreign national consultants on assignment. There can be no assurance that the Company or its subcontractors will be able to keep or replace all foreign nationals currently on assignment or continue to acquire foreign national talent at the same rates as in the past.

We experience fluctuations in our quarterly operating results.

The Company’s revenue and operating results are subject to significant variations from quarter-to-quarter. Revenue is subject to fluctuation based upon a number of factors, including the timing and number of client projects commenced and completed during the quarter, delays incurred in connection with projects, the growth rate of the market for contract computer programming services and general economic conditions. Unanticipated termination of a project or the decision by a client not to proceed to the next stage of a project anticipated by the Company could result in decreased revenue and lower utilization rates which could have a material adverse effect on the Company’s business, operating results and financial condition. Compensation levels can be impacted by a variety of factors, including competition for highly skilled employees and inflation.

The Company’s operating results also fluctuate due to seasonality. Typically, our billable hours, which directly affect our revenue and profitability, decrease in our third fiscal quarter. Clients closing during the holiday season and for winter weather normally causes the number of billable workdays for consultants on billing with customers to decrease. Additionally, at the beginning of the calendar year, which also falls within our third fiscal quarter, payroll taxes are at their highest. This typically results in our lowest gross margins of the year. The Company’s operating results are also subject to fluctuation as a result of other factors such as vacations, client mandated furloughs and client budgeting requirements.

We believe competition in our industry and for qualified personnel will increase, and there can be no assurance that we will remain competitive.

The technical staffing industry is highly competitive, fragmented and has low barriers to entry. The Company competes for potential customers 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, customers 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 customers are accurate assessment of customers’ 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 employment opportunities. Therefore,those persons, the Company believes that all of its responsivenessofficers, directors and greater than ten percent beneficial owners complied with all filing requirements applicable to the needs of technical personnel is an important factor in the Company’s ability to fill projects. Although the Company believes it competes favorablythem with respect to these factors, it expects competitionreports required to increase, and there can be no assurance that the Company will remain competitive.

The Company is exposed to contract and other liability, and there can be no assurance that our contracts and insurance coverage would adequately protect the Company from such liability or related claims or litigation.

The personnel providedfiled by the Company to customers provide services involving key aspects of its customers’ software applications. A failure in providing these services could result in a claim for substantial damages against the Company, regardlessSection 16(a) of the Company’s responsibility for such failure. The Company attempts to limit, contractually, its liability for damages arising from negligence or omissions in rendering services, but it is not always successful in negotiating such limits.

Furthermore, due to increased competition and the requirements of vendor management companies, the Company may be required to accept less favorable terms regarding limitations on liability, including assuming obligations to indemnify customers for damages sustained in connection with the provision of our services. There can be no assurance our contracts will include the desired limitations of liability or that the limitations of liability set forth in our contracts would be enforceable or would otherwise protect the Company from liability for damages.

The Company’s business involves assigning personnel to the workplace of the client, typically under the client’s supervision. Although the Company has little control over the client’s workplace, the Company may be exposed to claims of discrimination and harassment and other similar claims as a result of inappropriate actions allegedly taken against the Company’s personnel by customers. As an employer, the Company is also exposed to other possible employment-related claims. The Company is exposed to liability with respect to actions taken by its technical personnel while on a project, such as damages caused by technical personnel errors, misuse of client proprietary information or theft of client property. To reduce these exposures, the Company maintains insurance policies and a fidelity bond covering general liability, workers’ compensation claims, errors and omissions and employee theft. In certain instances, the Company indemnifies its customers for these exposures. Certain of these costs and liabilities are not covered by insurance. There can be no assurance that insurance coverage will continue to be available and at its current price or that it will be adequate to, or will, cover any such liability.

Our business and our reputation could be adversely affected by a data security incident or the failure to protect sensitive client, employee and Company data, or the failure to comply with applicable regulations relating to data security and privacy.

Our ability to protect client, employee, and Company data and information is critical to our reputation and the success of our business. Our clients and employees expect that their confidential, personal and private information will be secure in our possession. Attacks against security systems have become increasingly sophisticated along with developments in technology, and such attacks have become more prevalent. Consequently, the regulatory environment surrounding cybersecurity and privacy has become more and more demanding and has resulted in new requirements and increasingly demanding standards for protection of information. As a result, the Company may incur increased expenses associated with adequately protecting confidential client, employee, and Company data and complying with applicable regulatory requirements. There can be no assurance that we will be able to prevent unauthorized third parties from breaching our systems and gaining unauthorized access to confidential client, employee, and Company data even if our cybersecurity measures are compliant with regulatory requirements and standards. Unauthorized third party access to confidential client, employee, and Company data stored in our system whether as a result of a third party system breach, systems failure or employee negligence, fraud or misappropriation, could damage our reputation and cause us to lose customers, and could subject us to monetary damages, fines and/or criminal prosecution. Furthermore, unauthorized third-party access to or through our information systems or those we develop for our customers, whether by our employees or third parties, could result in system disruptions, negative publicity, legal liability, monetary damages, and damage to our reputation.

While we take steps to protect our intellectual property rights and proprietary information, there can be no assurance that the Company can prevent misappropriation of such rights and information.

The Company relies primarily upon a combination of trade secret, nondisclosure and other contractual agreements to protect its proprietary rights. The Company generally enters into confidentiality agreements with its employees, consultants, customers and potential customers 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.

Our significant stockholders, particularly if they choose to work together, may have the ability to exert significant influence over our business policies and affairs on matters submitted to our stockholders for approval.

Our largest shareholders, Zeff Capital, L.P. and QAR Industries, Inc., are the beneficial owners of an aggregate of 978,273 shares of Common Stock, which represents approximately 45.6% of the Company’s issued and outstanding Common Stock. By virtue of such ownership, Zeff Capital, L.P. and QAR Industries, Inc. have the ability to exercise significant influence over the Company. For example, this concentrated ownership could delay, defer, or prevent a change in control, merger, consolidation, or sale of all or substantially all of the Company’s assets in transactions that other shareholders strongly support or conversely, this concentrated ownership could result in the consummation of such transactions that many of the Company’s other shareholders do not support. Further, investors may be prevented from affecting matters involving the Company, including:

This significant concentration of stock ownership may also adversely affect the trading price for our Common Stock because investors may perceive disadvantages in owning stock in a company that is controlled by a small number of stockholders.

Certain provisions of our governing documents may make it more difficult for a third party to acquire us and make a takeover more difficult to complete, even if such a transaction were in the stockholders’ interest.

In addition to the significant concentration of the ownership of our Common Stock, certain provisions of the Company’s charter and by-laws may have the effect of discouraging a third party from making an acquisition proposal for the Company and may thereby inhibit a change in control of the Company under circumstances that could give the holders of Common Stock the opportunity to realize a premium over the then-prevailing market prices. Such provisions include a classified Board of Directors and advance notice requirements for nomination of directors and certain stockholder proposals set forth in the Company’s charter and by-laws.

The issuance of new classes and series of preferred stock may deter or delay a change in control and/or affect our stock price.

The Company’s charter authorizes the Board of Directors to create new classes and series of preferred stock and to establish the preferences and rights of any such classes and series without further action of the stockholders. The issuance of additional classes and series of capital stock may have the effect of delaying, deferring or preventing a change in control of the Company.

Further, the Company’s stock price could be extremely volatile and, as a result, investors may not be able to resell their shares at or above the price they paid for them.

Among the factors that have previously affected the Company’s stock price and may do so in the future are:

The stock market has, and may in the future, experience extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the market price of the Company’s Common Stock.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

The Company leases 8,000 square feet of space in Hauppauge, New York for a term expiring December 31, 2023, with annual rents of approximately $97,000. This space is used as executive and administrative offices for the Company and the Company’s operating subsidiaries. The Company also leases sales and recruiting offices in New York City (lease expires August 2022) and Edison, New Jersey (lease expires May 2027), with aggregate annual rents of approximately $160,000 and $118,000, respectively. The Company entered into an agreement to sublease the New York City office space, resulting in a right-of-use asset impairment charge of $137,000 recorded in fiscal 2021.

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

Christopher Hughes v. TSR, Inc., Docket No. 651753-2020 (NY Supr. Ct., New York County)

Christopher Hughes, the former Chief Executive Officer of the Company (“Hughes”), filed a complaint against the Company in the Supreme Court of the State of New York in March 2020 alleging two causes of action: (1) breach of his employment contract; and (2) breach of the duty of good faith and fair dealing. Hughes alleged that he was terminated without cause or in the alternative that he resigned for good reason and therefore, pursuant to the Amended and Restated Employment Agreement, dated August 9, 2018, between the Company and Hughes, Hughes sought severance pay in the amount of $1,000,000 and reasonable costs and attorney’s fees. The Company denied Hughes’ allegations and filed various counterclaims against Hughes. In October 2021, the Company and Hughes agreed through mediation to settle this matter. In order to avoid lengthy and costly litigation and discovery expenses, the Company has paid Hughes $705,000 to settle all claims. After adjusting for insurance reimbursement, the Company recorded a charge of $580,000 to selling, general and administrative expenses in the quarter ended August 31, 2021 andExchange Act during the fiscal year ended May 31, 2022.

Code of Ethics

The Company has adopted a code of ethics that applies to all of its employees, including the chief executive officer and chief financial and accounting officer. The code of ethics is available on the Investor Relations page of the Company’s website at www.tsrconsulting.com. The Company intends to post on its website all disclosures that are required by law or NASDAQ Capital Market listing standards concerning any amendments to, or waivers from, the Company’s code of ethics. Stockholders may request a free copy of the code of ethics by writing to Corporate Secretary, TSR, Inc., 400 Oser Avenue, Suite 150, Hauppauge, NY 11788. Disclosure regarding any amendments to, or waivers from, provisions of the code of ethics that apply to the Company’s directors or principal executive and financial officers will be included in a Current Report on Form 8-K filed with the SEC within four business days following the date of the amendment or waiver, unless website posting of such amendments or waivers is then permitted by the rules of the NASDAQ Capital Market and the SEC.

Audit Committee

The Audit Committee’s current members are H. Timothy Eriksen, Bradly M. Tirpak and Robert Fitzgerald. Each of the members of the Audit Committee is an independent director under the rules of the NASDAQ Capital Market. The Audit Committee’s primary functions are to assist the Board in monitoring the integrity of the Company’s financial statements and systems of internal control. The Audit Committee has direct responsibility for the appointment, independence and performance of the Company’s independent auditors. The Audit Committee is responsible for pre-approving any engagements of the Company’s independent auditors. The Audit Committee operates under a written charter approved by the Board on September 16, 2004, and amended as of October 10, 2008. A copy of the Audit Committee Charter is available on the Investor Relations page of the Company’s website at www.tsrconsulting.com.

The Board has determined that H. Timothy Eriksen, the Chairman of the Audit Committee, Bradley M. Tirpak and Robert Fitzgerald all meet the requirements of an “audit committee financial expert” as such term is defined in applicable regulations of the SEC.

Item 11. Executive Compensation.

Executive Compensation

The following table sets forth information concerning the annual and long-term compensation of the Named Executive Officers (as defined below) for services in all capacities to the Company for the fiscal years ended May 31, 2022 and 2021. The Named Executive Officers for the fiscal years ended May 31, 2022 and 2021 are (1) Thomas Salerno, our President and Chief Executive Officer; and (2) John G. Sharkey, our Senior Vice President and Chief Financial Officer (the “Named Executive Officers”).

SUMMARY COMPENSATION TABLE

Outstanding Equity Awards at Fiscal Year End

In October of 2020, the Company adopted the TSR, Inc. 2020 Equity Incentive Plan (“the Plan”) which was subsequently approved by the Shareholders at the combined 2019 and 2020 Annual Meeting held on November 19, 2020. The Plan allows for a maximum of 200,000 shares in the form of non-qualified stock options, incentive stock options, restricted awards, stock appreciation rights, cash awards, performance share awards and other equity based awards to employees, consultants, directors and those individuals whom the Board determines are reasonably expected to become employees, consultants or directors following the date of grant. The table below sets forth the outstanding equity awards issued under the Plan as of May 31, 2022 with respect to the Named Executive Officers.

Employment Agreements and Arrangements

On November 3, 2020, TSR entered into an Employment Agreement with its Chief Executive Officer, Thomas C. Salerno (the “CEO Employment Agreement”) and an Amended and Restated Employment Agreement with its Chief Financial Officer, John Sharkey (the “CFO Employment Agreement”, collectively with the CEO Employment Agreement, the “Employment Agreements”), both effective as of November 2, 2020. The CFO Employment Agreement superseded the Amended and Restated Employment Agreement dated May 24, 2019 between the Company and Mr. Sharkey in its entirety.

Employment Term and Position. The term of employment of each of Messrs. Salerno and Sharkey will be three years from November 2, 2020 to November 2, 2023, and any continued employment will be on an “at-will” basis. During their respective terms of employment, Mr. Salerno will serve as Chief Executive Officer of the Company and Mr. Sharkey will serve as Chief Financial Officer of the Company.

Base Salary, Annual Bonus Equity Compensation and Other Benefits. Pursuant to their Employment Agreements, Messrs. Salerno and Sharkey are entitled to annual base salaries of $350,000 and $310,000, respectively, as may be adjusted by the Board. In addition, Messrs. Salerno and Sharkey will be eligible to receive annual cash bonuses up to 35% and 25% of their respective base salaries, respectively, based on the Company’s financial information and established by the Board, upon the condition that Messrs. Salerno and Sharkey are active employees on the last day of the related fiscal year and there are no publicly reportable audit findings for the fiscal year. Any annual bonus will be paid in two installments, i.e., 50% of the estimated annual bonus will be advanced within 30 days of the end of the fiscal year and the balance equal to the final annual bonus determined by the Board minus the estimate advanced after the filing of the Company’s 10-K for the fiscal year. Messrs. Salerno and Sharkey will also be eligible to receive equity awards under the Company’s equity incentive plan, certain benefits including vacation, group medical health, group insurance and similar benefits, a monthly car allowance of $1,800 and $800, respectively, and reimbursement of approved business expenses.

Termination Entitlement and Severance. In the event that the Company terminates Mr. Salerno or Mr. Sharkey’s employment (a) for “Cause” (as defined in their Employment Agreements) or (b) upon Mr. Salerno or Mr. Sharkey’s death or disability or, (c) if Mr. Salerno or Mr. Sharkey terminates his employment for any reason other than due to material breach by the Company as described in scenario (y) below, then the Company’s sole obligations to Mr. Salerno or Mr. Sharkey shall be: (i) the payment of any accrued but unpaid base salary, (ii) the payment of any approved but not reimbursed business expenses and (iii) compliance with the Company’s benefits plans (collectively, the “Termination Entitlement”). If Mr. Salerno or Mr. Sharkey is terminated for “Cause” or resigns for any reason prior to the date the annual bonus is paid out in its entirety, he shall forfeit any and all annual bonus including returning any advanced bonus portion paid.

In the event that (x) the Company terminates Mr. Salerno or Mr. Sharkey’s employment for reasons other than the above-enumerated reasons and in Mr. Sharkey’s case, if he is forced to relocate more than 25 miles from his current residence and he resigns due to this reason, both subject to the Company or its affiliate’s offer of comparable employment meeting certain conditions or, (y) Mr. Salerno or Mr. Sharkey provides notice to the Company of its material breach of its obligations under his Employment Agreement and the Company fails to cure such breach within the required period of time, in addition to the Termination Entitlement, Mr. Salerno or Mr. Sharkey will be entitled to a severance payment consisting of (i) one year of base salary, (ii) one year of car allowance and (iii) 50% of the annual bonus awarded in the fiscal year prior to the employee’s termination if his employment is terminated without Cause (collectively, the “Severance Payment”) as well as a health benefit comprising continued participation in the Company’s group health plan for one year for Mr. Salerno and until March 31, 2025 for Mr. Sharkey, respectively, subject to certain conditions provided in their respective Employment Agreements (the “Health Benefit”).

If, prior to the expiration of their respective term of employment and within 12 months following a Change in Control (as defined in their Employment Agreements), Mr. Salerno or Mr. Sharkey is subject to termination other than for Cause, then the Company will pay “Change in Control Severance Benefits” consisting of (i) a payment equivalent to one year of base salary (as in effect immediately prior to the Change in Control, or the date of the termination of the employee’s employment, whichever is greater), (ii) 100% of the employee’s annual bonus as paid in the previous year, (iii) taxable cash payments for COBRA coverage for 18 months and (iv) acceleration of vesting of 100% of the employee’s unvested equity award compensation.

Pursuant to the Employment Agreements, the Company’s obligation to pay any Severance Payment, Health Benefit, Change in Control Severance Benefits (collectively, “Severance Payments”) or any related benefits to which Mr. Salerno or Mr. Sharkey is not automatically entitled under the law will be subject to the employee’s execution of an effective release of claims in favor of the Company, its affiliates and their related persons, in a form to be provided by the Company. In addition, in the event that Mr. Salerno or Mr. Sharkey breaches the restrictive covenants under his Employment Agreement, any remaining Severance Payments due to him will be forfeited.

Restrictive Covenants. Pursuant to their respective Employment Agreements, Messrs. Salerno and Sharkey are subject to certain restrictive covenants including (i) protection of confidential information, (ii) non-disparagement, (iii) non-solicitation of employees for a period of 24 months after the termination of employment, (iv) noncompetition for a period of 12 months after the termination of employment and (v) non-solicitation of the Company’s clients for a period of 24 months after the termination of employment.

Director Compensation

The following table sets forth information concerning the compensation of the non-officer directors of the Company who served as directors during the fiscal year ended May 31, 2022. Directors of the Company who also serve as executive officers of the Company are not paid any compensation for their service as directors. There are currently no executive officers also serving as directors.

For their service, members of the Board who are not officers of the Company received a pro-rated amount of an annual retainer of $10,000, payable quarterly, based on period of time they respectively served during fiscal 2022.

Bradley M. Tirpak received an additional annual retainer of $10,000 for his service as Chairman of the Board during fiscal 2022.

H. Timothy Eriksen received an additional annual retainer of $10,000 for his service as Chairman of the Audit Committee during fiscal 2022. Mr. Eriksen did not receive any additional retainer for his service as Chairman of the Nominating Committee of the Board or lead independent director during fiscal 2022.

Robert Fitzgerald received an additional annual retainer of $10,000 for his service as Chairman of the Compensation Committee during fiscal 2022. Mr. Fitzgerald did not receive any additional retainer for his service as Chairman of the Special Committee of the Board during fiscal 2022.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table presents information with respect to the Plan as of May 31, 2022:

Principal Stockholders and Security Ownership of Management

The outstanding voting stock of the Company as of September 14, 2022 consisted of 2,146,448 shares of Common Stock. The table below sets forth the beneficial ownership of the Common Stock of the Company’s directors, executive officers and persons known to the Company to be the beneficial owner of more than five percent (5%) of the outstanding shares of Common Stock as of September 14, 2022:

Item 13. Certain Relationships and Related Transactions and Director Independence.

Related Party Transactions

The Audit Committee is responsible for reviewing and approving all transactions between the Company and any related party pursuant to the Audit Committee’s charter. Except as described below, the Company was not a participant in any transaction since the beginning of the 2022 fiscal year in which any related person had a direct or indirect material interest and in which the amount involved exceeded the lesser of $120,000 or 1% of the average of the Company’s total assets at the end of each of the Company’s two prior fiscal years, and no such transactions are currently proposed.

On January 5, 2021, the members of the Board of Directors of TSR other than Robert Fitzgerald approved providing a waiver to QAR Industries, Inc. for its contemplated acquisition of shares owned by Fintech Consulting LLC v.under the Company’s prior Amended and Restated Rights Agreement so that a distribution date would not occur as a result of the acquisition. QAR Industries, Inc. and Fintech Consulting LLC were both principal stockholders of the Company, each owning more than 5% of the Company’s outstanding common stock prior to the consummation of the acquisition. Robert Fitzgerald is the President and majority shareholder of QAR Industries, Inc. The other directors of the Company are not affiliated with QAR Industries, Inc.

On February 3, 2021, the acquisition was completed and QAR Industries, Inc. purchased 348,414 shares of TSR Inc., et al., case number 2:21-cv-20181(KSH)(AME) (U.S. Dist. Ct., Dist.common stock from Fintech Consulting LLC at a price of New Jersey)$7.25 per share. At the same time, Bradley M. Tirpak, Chairman of TSR, purchased 27,586 shares of TSR common stock from Fintech Consulting LLC at a price of $7.25 per share.

On December 1, 2021, Fintech Consulting LLC filed a complaint against the Company in the United States District Court for the District of New Jersey.Jersey, related to the foregoing transaction. The named Defendants in the complaint are the Company, QAR Industries, Inc., a shareholder of TSR (“QAR”), Robert E. Fitzgerald, a director and shareholder of TSR and the President, director and a shareholder of QAR (“Fitzgerald”)Industries, Inc., and Bradley Tirpak, a shareholder and the chairman of the board of directors of TSR (“Tirpak”).Tirpak. The complaint purports to assert claims against the Defendants under state law and Section 10(b) of the Exchange Act in connection with a Share Purchase Agreement, dated January 31, 2021, by and between the Plaintiff, as the seller of shares of TSR'sTSR’s common stock, and QAR Industries, Inc. and Mr. Tirpak, as the purchasers of such shares (the “SPA”). The plaintiff seeks (i) judgment declaring the transactions represented by the SPA null and avoid and returning the shares; (ii) judgment cancelling the SPA and returning the shares in exchange for return of the purchase price; (iii) judgement unwinding the transaction; (iv) compensatory damages; (v) punitive damages; (vi) pre-judgment interest; (vii) costs of suit including attorneys’ fees; and (viii) such other relief as the Court may find appropriate. See Note 15 to the Consolidated Financial Statements elsewhere in this report and the Company’s Current Report on Form 8-K filed with the SEC on December 21, 2021 for more information.

The Company believes the action described above to be without merit and intends to vigorously defend its interests. However, the Company may incur significant additional legal expenses as it pursues a vigorous defense against this action.action

While the Company believes the action to be without merit, no assurances can be given as to: (i) the outcome of this or other legal proceedings and (ii) the related impact of an unanticipated adverse outcome of these proceedings on the Company's financial condition, results of operations or near-term liquidity.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s shares of Common Stock trade on the NASDAQ Capital Market under the symbol TSRI. The following are the high and low sales prices for each quarter during the fiscal years ended May 31, 2022 and 2021:

There were 46 holders of record of the Company’s Common Stock as of July 31, 2022. Additionally, the Company estimates that there were 1,300 beneficial holders as of that date. The Company has no current plans to implement a quarterly dividend program or pay any other special cash dividend.

The only securities authorized for issuance under any equity compensation plan relate to the 2020 Equity Incentive Plan. See Note 14 to the Consolidated Financial Statements elsewhere in this report.

Item 6. Reserved

Reserved.

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 Company’s consolidated financial statements and notes thereto presented elsewhere in this report.

Results of Operations

The following table sets forth for the periods indicated certain financial information derived from the Company’s consolidated statements of operations. There can be no assurance that historical trends in operating results will continue in the future:

Revenue

Revenue consists primarily of revenue from computer programming consulting services. Revenue for the fiscal year ended May 31, 2022 increased approximately $28,491,000 or 41.4% from the fiscal year ended May 31, 2021, primarily due to new business development, organic growth and expanded activity with Geneva clients. The average number of consultants on billing with customers increased from 479 for the fiscal year ended May 31, 2021 to 701 for the fiscal year ended May 31, 2022. There were 335 and 431 IT contractors at May 31, 2021 and 2022, respectively; while there were 144 and 270 clerical and administrative contractors at May 31, 2021 and 2022, respectively.

We experienced terminated assignments and a decrease in demand for new assignments during fiscal 2021 due to the COVID-19 pandemic, which led to the lower number of consultant placements during the year and negatively impacted the Company’s revenues. Additionally, the COVID-19 pandemic created operational challenges. The start of certain new assignments was delayed in fiscal 2021 due to delays in obtaining necessary clearances, as many of the agencies required to be contacted in obtaining the information needed for background checks were fully or partially closed. By the end of the first quarter of fiscal 2021, the Company had used 100% of the $6,659,000 proceeds from the PPP Loan (as defined in Note 10 to the Consolidated Financial Statements elsewhere in this report) it received in April 2020 to fund its payroll and other allowable expenses, which was fully forgiven in July 2021. The use of these proceeds allowed the Company to avoid certain salary reductions, furloughs and layoffs of employees during the covered period.

Cost of Sales

Cost of sales for the fiscal year ended May 31, 2022 increased approximately $23,814,000 or 41.4% to $81,314,000 from $57,500,000 in the prior year period. The increase in cost of sales resulted primarily from an increase in consultants placed with customers, primarily from the new business development activity, organic growth and expanded activity with Geneva clients. Cost of sales as a percentage of revenue remained at 83.6% in the fiscal year ended May 31, 2021 and in the fiscal year ended May 31, 2022. The percentage increase in cost of sales for fiscal 2022 as compared to fiscal 2021 (41.4% increase) was substantially the same as the percentage increase in revenue for fiscal 2022 as compared to fiscal 2021 (41.1% increase), causing no change in gross margin percentage.

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 approximately $3,810,000 or 32.3% from $11,809,000 in the fiscal year ended May 31, 2021 to $15,619,000 in the fiscal year ended May 31, 2022. The increase in these expenses primarily resulted from an additional $2,170,000 in selling, general and administrative expenses for the Geneva accounts, a charge of $580,000 for the legal settlement with the Company’s former Chief Executive officer, additional non-cash compensation expenses of $329,000 related to the TSR, Inc. 2020 Equity Incentive Plan, and an increase in headcount for our recruiting team to support the growth in revenue. Selling, general and administrative expenses, as a percentage of revenue, decreased from 17.1% in the fiscal year ended May 31, 2021 to 16.0% in the fiscal year ended May 31, 2022.

Other Income (Expense)

Other income (expense) for the fiscal year ended May 31, 2022 resulted primarily from the forgiveness of principal and accrued interest on the PPP Loan of $6,735,000, offset by net interest expense of approximately $102,000 and a mark-to-market loss of $10,000 on the Company’s marketable equity securities. Other expense for the fiscal year ended May 31, 2021 resulted primarily from net interest expense of approximately $193,000 and a mark-to-market loss of approximately $5,000 on the Company’s marketable equity securities.

Income Taxes

The effective income tax rates were less than 0.1% for the fiscal year ended May 31, 2022 and a benefit of 15.9% for the fiscal year ended May 31, 2021. The effective income tax rate was lower than expected in fiscal 2022 due to the non-taxable gain on the forgiveness of the PPP Loan principal and accrued interest.

Net Income (Loss) Attributable to TSR

Net income (loss) attributable to TSR was approximately $6,929,000 in the fiscal year ended May 31, 2022 compared to a loss of $601,000 in the fiscal year ended May 31, 2021. The net income in the current fiscal year was primarily attributable to the forgiveness of principal and accrued interest on the PPP Loan and increased revenue from additional contractors on billing with clients.

Impact of Inflation and Changing Prices

For the fiscal years ended May 31, 2022 and 2021, inflation and changing prices did not have a material effect on the Company’s revenue or income from continuing operations. The impact for fiscal 2023 cannot yet be determined.

Liquidity, Capital Resources and Changes in Financial Condition

The Company’s cash was sufficient to enable it to meet its liquidity requirements during the fiscal year ended May 31, 2022. The Company expects that its cash and cash equivalents and the Company’s revolving Credit Facility (the “Credit Facility”) pursuant to a Loan and Security Agreement with Access Capital, Inc. (the “Lender”) will be sufficient to provide the Company with adequate resources to meet its liquidity requirements for the 12-month period following the issuance of these financial statements. Utilizing its accounts receivable as collateral, the Company has secured the Credit Facility to increase its liquidity as necessary. As of May 31, 2022, the net borrowings outstanding against this Credit Facility were approximately $62,000. The amount the Company has borrowed fluctuates and, at times, it has utilized the maximum amount of $2,000,000 available under this facility in the prior fiscal year to fund its payroll and other obligations. The Company was in compliance with all covenants under the Credit Facility as of May 31, 2022 and through the date of this filing. Additionally, in April 2020, the Company secured a PPP Loan in the amount of $6,659,000 to meet its obligations in the face of potential disruptions in its business operations and the potential inability of its customers to pay their accounts when due. As of August 31, 2020, the Company had used 100% of the PPP Loan funds to fund its payroll and for other allowable expenses under the PPP Loan. The use of these funds allowed the Company to avoid certain salary reductions, furloughs and layoffs of employees during the period. The Company applied for PPP Loan forgiveness and its application for forgiveness was accepted and approved; the PPP Loan and accrued interest were fully forgiven in July 2021.

At May 31, 2022, the Company had working capital (total current assets in excess of total current liabilities) of approximately $10,912,000, including cash and cash equivalents and marketable securities of $6,526,000, as compared to working capital of $8,898,000, including cash and cash equivalents and marketable securities of $7,416,000, at May 31, 2021.

Net cash flow of approximately $2,307,000 was used in operations during the fiscal year ended May 31, 2022 as compared to $1,304,000 of net cash flow provided by operations in the prior year. The cash used in operations for the fiscal year ended May 31, 2022 primarily resulted from consolidated net income of $7,002,000, non-cash stock-based compensation of $565,000 and an increase in accounts payable and accrued expenses of $717,000, offset by the forgiveness of the PPP Loan principal and accrued interest of $6,735,000 and an increase in accounts receivable of $3,767,000. The cash provided by operations for the fiscal year ended May 31, 2021 primarily resulted from an increase in accounts payable and other payables and accrued expenses of $2,798,000 and a decrease in prepaid and recoverable income taxes of $590,000 offset by the consolidated net loss of $577,000 and an increase in accounts receivable of $1,824,000. The increase in accounts payable and accrued expenses primarily resulted from the deferral of $1,269,000 in payroll taxes as allowed by the CARES Act. One half of these deferred payroll taxes were due on December 31, 2021 and the second half on December 31, 2022.

Net cash used in investing activities of approximately $87,000 for the fiscal year ended May 31, 2022 resulted from purchases of fixed assets. Net cash used in investing activities of approximately $3,226,000 for the fiscal year ended May 31, 2021 primarily resulted from the acquisition of Geneva in the amount of $3,100,000 and purchases of fixed assets of $126,000.

Net cash provided by financing activities of $1,514,000 during the fiscal year ended May 31, 2022 resulted primarily from the net proceeds of the sales of the Company’s common stock in our at-the-market (“ATM”) program of $1,784,000 offset by payments made for taxes related to vested stock awards of $212,000, net repayments on the Company’s Credit Facility of $31,000 and distributions to the minority interest of $27,000. Net cash used in financing activities of approximately $437,000 during the fiscal year ended May 31, 2021 resulted from net payments on the Company’s Credit Facility of $409,000 and distributions to the minority interest of $28,000.

The Company’s capital resource commitments at May 31, 2022 consisted of lease obligations on its branch and corporate facilities and an accrued legal settlement payable. The net present value of its future lease and settlement payments were approximately $707,000 and $598,000, respectively, as of May 31, 2022. The Company intends to finance these commitments primarily from the Company’s available cash and Credit Facility.

Critical Accounting Estimates

The Securities Act regulations define “critical accounting estimates” as those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial statements or results of operations of the registrant. These estimates require the application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

The Company’s significant accounting estimates and policies are described in Note 1 to its consolidated financial statements, contained elsewhere in this report. The Company believes that the following accounting estimates and policies require the application of management’s most difficult, subjective or complex judgments:

Revenue Recognition

Revenues are recognized as control of the promised service is transferred to customers, in an amount that reflects the consideration expected in exchange for the services. Revenues from contract assignments are recognized over time, based on hours worked by the Company’s contract professionals. The performance of the requested service over time is the single performance obligation for assignment revenues. Certain customers may receive discounts (e.g., volume discounts, rebates, prompt-pay discounts) and adjustments to the amounts billed. These discounts, rebates and adjustments are considered variable consideration. Volume discounts are the largest component of variable consideration and are estimated using the most likely amount method prescribed by Accounting Standards Codification (“ASC”) 606, contracts terms and estimates of revenue. Revenues are recognized net of variable consideration to the extent that it is probable that a significant reversal of revenues will not occur in subsequent periods. Payment terms vary and the time between invoicing and when payment is due is not significant. There are no financing components to the Company’s arrangements. There are no incremental costs to obtain contracts and costs to fulfill contracts are expensed as incurred. The Company’s operations are primarily located in the United States. The Company recognizes most of its revenue on a gross basis when it acts as a principal in its transactions. The Company has direct contractual relationships with its customers, bears the risks and rewards of its arrangements, and has the discretion to select the contract professionals and establish the price for the services to be provided. Additionally, the Company retains control over its contract professionals based on its contractual arrangements. The Company primarily provides services through its employees and to a lesser extent, through subcontractors; the related costs are included in cost of sales. The Company includes billable expenses (out-of-pocket reimbursable expenses) in revenue and the associated expenses are included in cost of sales.

Valuation of Deferred Tax Assets

We regularly evaluate our ability to recover the reported amount of our deferred income tax assets considering several factors, including our estimate of the likelihood of the Company generating sufficient taxable income in future years during the period over which temporary differences reverse. Presently, the Company believes that it is more likely than not that it will realize the benefits of its deferred tax assets based primarily on the Company’s history of and projections for taxable income in the future. In the event that actual results differ from our estimates, or we adjust these estimates in future periods, we may need to establish a valuation allowance against a portion or all of our deferred tax assets, which could materially impact our financial position or results of operations.

Goodwill

Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill is not amortized but is subject to impairment analysis at least once annually or more frequently upon the occurrence of an event or when circumstances indicate that the carrying amount of a unit is greater than its fair value.

Intangible Assets

The Company amortizes its intangible assets over their estimated useful lives and will review these assets for impairment when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company is a smaller reporting company and is therefore not required to provide this information.

Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

TSR, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of TSR, Inc. and Subsidiaries (the “Company”) as of May 31, 2022 and 2021, and the related consolidated statements of operations, equity and cash flows for each of the years in the two-year period ended May 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended May 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial report, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ CohnReznick LLP

We have served as the Company’s auditor since 2008.

Melville, New York

August 15, 2022

TSR, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

May 31, 2022 and 2021

ASSETS

See accompanying notes to consolidated financial statements.

TSR, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

May 31, 2022 and 2021

LIABILITIES AND EQUITY

See accompanying notes to consolidated financial statements.

TSR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended May 31, 2022 and 2021

See accompanying notes to consolidated financial statements.

TSR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

Years Ended May 31, 2022 and 2021

See accompanying notes to consolidated financial statements.

TSR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended May 31, 2022 and 2021

See accompanying notes to consolidated financial statements.

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2022 and 2021

TSR, Inc. and Subsidiaries (the “Company,” “TSR,” “we,” “us” and “our”) are primarily engaged in providing contract computer programming services to commercial customers located primarily in the Metropolitan New York area. The Company provides its customers with technical computer personnel to supplement their in-house information technology (“IT”) capabilities. In addition, beginning in fiscal 2017, the Company has provided and continues to provide administrative (non-IT) workers on a contract basis to some of its existing customers, including new customers acquired following the Geneva acquisition. In fiscal 2022, four customers each accounted for more than 10% of the Company’s consolidated revenue, constituting a combined 67.7%. The largest of these constituted 21.5% of consolidated revenue. In fiscal 2021, three customers each accounted for more than 10% of the Company’s consolidated revenue, constituting a combined 54.3%. The largest of these constituted 22.4% of consolidated revenue. The accounts receivable balances associated with the Company’s largest customers were $8,668,000 for 4 customers at May 31, 2022 and $4,585,000 for 3 customers at May 31, 2021. The Company operates in one business segment, contract staffing services.

The consolidated financial statements include the accounts of TSR and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Revenues are recognized as control of the promised service is transferred to customers, in an amount that reflects the consideration expected in exchange for the services. Revenues from contract assignments are recognized over time, based on hours worked by the Company’s contract professionals. The performance of the requested service over time is the single performance obligation for assignment revenues. Certain customers may receive discounts (e.g., volume discounts, rebates, prompt-pay discounts) and adjustments to the amounts billed. These discounts, rebates and adjustments are considered variable consideration. Volume discounts are the largest component of variable consideration and are estimated using the most likely amount method prescribed by Accounting Standards Codification (“ASC”) 606, contracts terms and estimates of revenue. Revenues are recognized net of variable consideration to the extent that it is probable that a significant reversal of revenues will not occur in subsequent periods. Payment terms vary and the time between invoicing and when payment is due is not significant. There are no financing components to the Company’s arrangements. There are no incremental costs to obtain contracts and costs to fulfill contracts are expensed as incurred. The Company’s operations are primarily located in the United States.

The Company recognizes most of its revenue on a gross basis when it acts as a principal in its transactions. The Company has direct contractual relationships with its customers, bears the risks and rewards of its arrangements, and has the discretion to select the contract professionals and establish the price for the services to be provided. Additionally, the Company retains control over its contract professionals based on its contractual arrangements. The Company primarily provides services through its employees and to a lesser extent, through subcontractors; the related costs are included in cost of sales. The Company includes billable expenses (out-of-pocket reimbursable expenses) in revenue and the associated expenses are included in cost of sales.

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, 2022 and 2021:

(Continued)

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2022 and 2021

The Company has characterized its investments in marketable securities, based on the priority of the inputs used to value the investments, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1), and lowest priority to unobservable inputs (Level 3). If the inputs used to measure the investments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Investments recorded in the accompanying consolidated balance sheets are categorized based on the inputs to valuation techniques as follows:

The following are the major categories of assets measured at fair value on a recurring basis as of May 31, 2022 and 2021 using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):

The Company’s equity securities are classified as trading securities, which are carried at fair value, as determined by quoted market prices, which is a Level 1 input, as established by the fair value hierarchy. The related unrealized gains and losses are included in earnings. The Company’s marketable securities at May 31, 2022 and 2021 are summarized as follows:

(Continued)

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2022 and 2021

The Company’s investments in marketable securities consist primarily of investments in equity securities. Market values were determined for each individual security in the investment portfolio. When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, and the Company’s ability and intent to hold the investment for a period of time, which may be sufficient for anticipated recovery in market values.

The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. In addition to reviewing delinquent accounts receivable, management considers many factors in estimating its general allowance, including historical data, experience, customer types, creditworthiness and economic trends. From time to time, management may adjust its assumptions for anticipated changes in any of those or other factors expected to affect collectability.

Depreciation and amortization of equipment and leasehold improvements has been computed using the straight-line method over the following useful lives:

Basic net income (loss) per common share is computed by dividing net income (loss) available to common stockholders of TSR by the weighted average number of common shares outstanding during the reporting period, excluding the effects of any potentially dilutive securities. During the fiscal year ended May 31, 2021, the Company granted time and performance vesting stock awards under its 2020 Equity Incentive Plan (see Note 14 for further information). Diluted earnings per share gives effect to all potentially dilutive common shares outstanding during the reporting period. The common stock equivalents associated with these stock awards of 73,573 in the fiscal year ended May 31, 2022 have been included for diluted shares outstanding for the fiscal year ended May 31, 2022. The common stock equivalents associated with these stock awards of 78,901 in the fiscal year ended May 31, 2021 have not been included for diluted shares outstanding for the fiscal year May 31, 2021 since the effect would be anti-dilutive due to the net loss incurred for the period.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial reporting and 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.

ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), defines fair value, establishes a framework for measuring fair value under accounting principles generally accepted in the United States of America (“GAAP”) and provides for expanded disclosure about fair value measurements. ASC 820-10 applies to all other accounting pronouncements that require or permit fair value measurements.

The Company determines or calculates the fair value of financial instruments using quoted market prices in active markets when such information is available or using appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information for similar types of instruments while estimating for non-performance and liquidity risk. These techniques are significantly affected by the assumptions used, including the discount rate, credit spreads and estimates of future cash flows.

Assets and liabilities typically recorded at fair value on a non-recurring basis to which ASC 820-10 applies include:

(Continued)

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2022 and 2021

This topic defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-level hierarchy, which encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820-10 requires that assets and liabilities recorded at fair value be classified and disclosed in one of the following three categories:

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company classifies such financial assets or liabilities based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

ASC Topic 825, Financial Instruments, requires disclosure of the fair value of certain financial instruments. For cash and cash equivalents, accounts receivable, accounts and other payables, accrued liabilities and advances from customers, the amounts presented in the consolidated financial statements approximate fair value because of the short-term maturities of these instruments.

The preparation of financial statements in conformity with GAAP 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 revenue and expenses during the reporting period. Such estimates include, but are not limited to, provisions for doubtful accounts receivable and assessments of the recoverability of the Company’s deferred tax assets. Actual results could differ from those estimates.

The Company reviews its long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows undiscounted and without interest is less than the carrying amount of the asset, an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its fair value.

Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill is not amortized but is subject to impairment analysis at least once annually or more frequently upon the occurrence of an event or when circumstances indicate that the carrying amount of a unit is greater than its fair value. The annual test of goodwill was performed as of September 1, 2021 and no impairment was found. There was no change in goodwill in fiscal 2022.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, certificates of deposit, marketable securities and accounts receivable. The Company places its cash equivalents with high-credit quality financial institutions and brokerage houses. The Company has substantially all of its cash in four bank accounts. At times, such amounts may exceed federally insured limits. The Company holds its marketable securities in brokerage accounts. The Company has not experienced losses in any such accounts. As a percentage of revenue, the four largest customers consisted of 64.3% of the net accounts receivable balance at May 31, 2022.

(Continued)

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2022 and 2021

A reconciliation of the benefit for income taxes computed at the federal statutory rates of 21.0% for fiscal 2022 and fiscal 2021 to the reported amounts is as follows:

The components of the benefit for income taxes are as follows:

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets at May 31, 2022 and 2021 are as follows: