UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A10-K
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, 20202023
or
☐ Transition Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934
For the transition period from _______ to _______
Commission File Number: 0-8656001-38838
TSR, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 13-2635899 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
400 Oser Avenue, Hauppauge, NY 11788
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number:number, including area code: 631-231-0333
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.01 per share | TSRI | NASDAQ Capital Market | ||
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
(Title of Class)
Indicate by check mark if the Registrantregistrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the Registrantregistrant 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 Registrantregistrant (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 Registrantregistrant 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 Registrantregistrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationRegulations S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the Registrantregistrant 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”,filer,” “smaller reporting company”,company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☐Large accelerated filer | ☐Accelerated filer | ☒Non-accelerated filer |
☒Smaller Reporting Company | ☐Emerging growth company |
If an emerging growth company, indicate by check mark if the Registrantregistrant has elected not to use extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)13(a) of the Securities 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) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to 240.10D-1(b). ☐
Indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐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 $3.20$7.5943 at November 30, 20192022 was $3,169,000.$8,404,000.
The number of shares of the Registrant’s common stock (“Common Stock”) outstanding as of September 25, 2020August 11, 2023 was 1,962,062.2,143,712.
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 2023 Annual Meeting of Stockholders, which will be filed by the Registrant within 120 days after the close of its fiscal year.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements includedTSR, Inc.
Form 10-K
For the Fiscal Year Ended May 31, 2023
Table of Contents
Page i
PART I
Item 1. Business
General
TSR, Inc. (the “Company,” “TSR,” “we,” “us” and “our”) is a leading staffing company focused on recruiting Information Technology (“IT”) 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 customers for its contract computer programming services consist primarily of Fortune 1000 companies with significant technology budgets. In the year ended May 31, 2023, the Company provided IT staffing services to 60 customers. Also, 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”) on September 1, 2020.
The Company was 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 part of this report.
STAFFING SERVICES
The Company’s contract computer programming services involve 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 capabilities of the Company’s customers. The Company’s approach is to make available to its customers a broad range of technical personnel to meet their requirements rather than focusing on specific specialized areas. The Company has staffing capabilities in the areas of application development 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. The Company’s services provide customers with flexibility in staffing their day-to-day operations, as amended,well as special projects, on a short-term or long-term basis.
The Company provides technical employees for projects, which usually range from three months to one year. Generally, 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 bi-weekly 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.
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.
In addition to IT professionals the Company also provides contract administrative (non-IT) workers to support some of its significant IT customers. This service was added at the customers’ request. The skills required for these positions are normally less demanding 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.
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OPERATIONS
The Company provides contract computer programming services in the New York metropolitan area, and throughout the United States wherever there are customer locations with requirements for IT or administrative contractors. The Company provides its services principally through offices located in Edison, New Jersey and Hauppauge, New York. As of May 31, 2023, the Company employed 30 persons who are responsible for recruiting technical and non-technical personnel and 12 persons who are account executives. As of May 31, 2022, the Company had employed 36 technical and non-technical recruiters and 12 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, 2023 and May 31, 2022, the Company contracted for approximately 25 and 40 offshore recruiters to provide services to clients, respectively.
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 60 customers during the year ended May 31, 2023 (“fiscal 2023”) as compared to 62 in the year ended May 31, 2022 (“fiscal 2022”). The Company has historically derived a significant percentage of its total revenue from a relatively small number of customers. In fiscal 2023, the Company had four customers which each provided more than 10% of consolidated revenues: Consolidated Edison (21.0%), ADP (18.4%), Morgan Stanley (13.7%) and Citigroup (12.5%). Additionally, the Company’s top ten customers (including underlying customers of vendor management companies) accounted for 90% of consolidated revenue in fiscal 2023 and 86% in fiscal 2022. 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 26% 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 44% 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, and Monster, 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 filingsmatters and continually updates its database. This database is made available to the account executives and recruiters at each of the RegistrantCompany’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 Securities ActInternet and, on rare occasion, by publishing advertisements in local newspapers and attending job fairs. The Company devotes significant resources to recruiting technical personnel, maintaining 30 technical and non-technical recruiters based in the U.S. and contracting with companies for 25 to 40 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 1933,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 amended (the “Securities Act”),“payrolling”.
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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 Securities Exchange Actprice of 1934, as amended (the “Exchange Act”)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, 2023, the Company had 431 full-time employees including its 2 executive officers. Of such employees, 12 were engaged in sales, 30 were recruiters for technical and non-technical personnel, 371 were IT and administrative (non-IT) contractors, and 16 were engaged in corporate administrative and clerical functions.
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.
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 as toconcerning the Registrant’s plans,Company’s 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 set forthprojections in the forward-looking statements, due to known and unknownwhich statements involve risks and uncertainties, including but not limited to the following: 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.factors set forth below
In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology. Although the Registrant 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 duty to update any of the forward-looking statements contained herein after the date of this Annual Report on Form 10-K, as amended.
● | the statements concerning the success of the Company’s plan for growth, both internally and through the previously announced pursuit of suitable acquisition candidates; |
● | the successful integration of announced and completed acquisitions and any anticipated benefits therefrom; |
● | the impact of adverse economic conditions on client spending, which include, but are not limited to, adverse economic conditions associated with the COVID-19 global health pandemics, which may significantly reduce client spending, and which may have a negative impact on the Company’s business; |
● | risks relating to the competitive nature of the markets for contract computer programming services; |
● | the extent to which market conditions for the Company’s contract computer programming services will continue to adversely affect the Company’s business; |
● | the concentration of the Company’s business with certain customers; |
● | uncertainty as to the Company’s ability to maintain its relations with existing customers and expand its business; |
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EXPLANATORY NOTE
● | 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 Company’s ability to adapt to changing market conditions; | |
● | the risks, uncertainties and expense of the legal proceedings to which the Company is, or may become, a party; and | |
● | other risks and uncertainties set forth in the Company’s filings with the Securities and Exchange Commission. |
TSR, Inc. (the “Company”) is filing this Amendment No. 1Forward-looking statements reflect our current views with respect to future events and are based on Form 10-K/A (this “Amendment”)currently available operating, financial and competitive information. We have no obligation to its Form 10-K forpublicly update or revise any forward-looking statements, whether as a result of new information, future events or risks, except to the fiscal year ended May 31, 2020, which was filed with the SEC on August 17, 2020 (the “Original Filing”).
This Amendment is being filed for the purpose of providing the informationextent required by Items 10 through 14 of Part III of Form 10-K. Thisapplicable law. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. New information, was previously omitted fromfuture events or risks could cause the Original Filingforward-looking events we discuss in this report not to occur. You should not place undue reliance on General Instruction G(3) to Form 10-K,these forward-looking statements, which permits the above-referenced Items to be incorporated in the Annual Report on Form 10-K by reference from a definitive proxy statement, if such definitive proxy statement is filed no later than 120 days after the last day of the Company’s fiscal year on May 31, 2020.
In 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.
Except as described above, no other changes have been made to the Original Filing. This Amendment No. 1 does not affect any other section of the Original Filing not otherwise discussed herein and continues to speakreflect our expectations only as of the date of this report.
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 Original Filing. COVID-19 pandemic.
Outbreaks of epidemic, pandemic, or contagious diseases such as COVID-19, and any related economic impacts, have and may continue to have an adverse effect on our business, financial condition, and results of operations, and our future operating results may fall below expectations. The extent to which our business will continue to be affected by the COVID-19 pandemic will depend on a variety of factors, many of which are outside of our control, including the persistence of the pandemic, impacts on economic activity, and the possibility of recession or continued financial market instability.
Our success depends on our management team and other key personnel, the loss of any of whom could disrupt our business operations.
The Company is dependent on Thomas Salerno, our Chief Executive Officer, President and Treasurer, in his corporate positions and as President of our subsidiary TSR Consulting Services, Inc. The Company has an employment agreement with Mr. Salerno which expires November 2, 2026. 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.
The Company may be subject to future lawsuits or investigations, which could divert our resources or result in substantial liabilities.
In the future, the Company may 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 to 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 2023, the Company’s four largest customers, Consolidated Edison, ADP, Morgan Stanley and Citigroup, accounted for 21.0%, 18.4%, 13.7%, and 12.5% 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 condition and results of operations. In total, the Company derives over 44% of its revenue from accounts with vendor management companies. The Company’s 10 largest customers provided 90% of consolidated revenue in fiscal 2023. Client contract terms vary depending on the nature of the engagement, and there can be no assurance that a client will renew a contract when it terminates. In addition, the Company’s contracts are generally cancelable by the client at any time on short notice, and customers may unilaterally reduce their use of the Company’s services under such contracts without penalty. Approximately 26% 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.
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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 associated with the Company’s largest customers were $6,848,000 for four customers at May 31, 2023 and $8,668,000 for four customers at May 31, 2022. Because 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 collecting on the receivables and have an adverse effect on the Company’s results of operations.
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.
We operate in 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 number of qualified professionals with a working knowledge of certain sophisticated computer languages, which the Company requires for its contract computer services business, is intense. The Company believes that there is a shortage of, and significant competition for, software professionals with the skills and experience necessary to perform the services offered by the Company.
The Company’s ability to maintain and renew existing engagements and obtain new business in its contract computer programming business depends, in large part, on its ability to hire and retain technical personnel with the IT skills that keep pace with continuing changes in software evolution, industry standards and technologies, and client preferences. Although the Company generally has been successful in attracting employees with the skills needed to fulfill customer engagements, demand for qualified professionals conversant with certain technologies may outstrip supply as new and additional skills are required to keep pace with evolving computer technology or as competition for technical personnel increases. 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.
The Company faces a highly competitive market for hiring and retaining account executives and technical recruiters, which could affect the Company’s ability to hire and retain such personnel, including by increasing the costs 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.
We operate in a rapidly changing industry and a reduction in demand for our technical staffing services may adversely affect our business, financial condition and results of operations.
The computer industry is characterized by rapidly changing technology and evolving industry standards. These include the overall increase in the sophistication and interdependency of computer technology and a focus by IT managers 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 provided by the Company.
Additionally, a number of companies have, in recent years, limited the number 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 company on the approved vendor list to provide services to customers. The staffing industry has also experienced margin erosion caused by this increased competition, 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.
The Company cannot predict at this time what long-term effect these changes will have on the Company’s business and results of operations.
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The increase in our customers’ use of third-party vendor management companies may weaken our relationship with our customers and adversely impact our ability to develop and expand customer relationships.
There have been changes in the industry which have affected the Company’s operating results. Many customers have retained third parties to provide vendor management services, and in excess of 44% 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 in the Company contracting with such third parties and not directly with the ultimate customer. This change weakens the Company’s relationship with its customer, which makes it more difficult for the Company to maintain 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 structured as subcontracting agreements, with the vendor management company entering into 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 receivables and continue to provide services could be adversely affected.
The COVID-19 pandemic has impacted, and may continue to impact, our business and operational practices, including the shift to remote work.
The COVID-19 outbreak in the United States caused business disruption and economic uncertainties through mandated and voluntary closing of various businesses. The expansion of remote work also emerged to prevent the spread of disease while seeking to maintain business operations and continuity. Following the global COVID-19 outbreak, a substantial portion of our workforce transitioned to remote work and will likely continue as remote workers. We expect our business to continue to grow over time and, while our business model allows our customers remote access to our highly-skilled and attentive workforce, we are continuously evaluating the nature of, and extent to which, the ongoing pandemic and related shift to remote work will impact our business, operating results, and financial condition.
Increases in payroll-related costs coupled with an inability to increase our fees charged to customers to cover such costs has, and may likely continue to have, an adverse effect on our profitability.
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 effect on the Company. During the past few years, many of the states in which the Company conducts business have significantly increased their state unemployment tax rates in an effort to increase funding 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 updatedbeen able to sufficiently increase the disclosuresfees 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.
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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, the Company believes that its responsiveness to the needs of technical personnel is an important factor in the Company’s ability to fill projects. Although the Company believes it competes favorably with respect to these factors, it expects competition to increase, and there can be no assurance that the Company will remain competitive.
The 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 provided 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, regardless of the Company’s responsibility for such failure. The Company attempts to limit, contractually, its liability for damages arising from negligence or omissions in rendering services, but it is not always successful in negotiating such limits.
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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.
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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 983,273 shares of Common Stock, which represents approximately 45.9% 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:
- | the composition of our Board of Directors and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers; | |
- | our acquisition of assets or other businesses; and | |
- | our corporate financing activities. |
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:
- | limited float and a low average daily trading volume; | |
- | industry trends and the performance of the Company’s customers; | |
- | fluctuations in the Company’s results of operations; | |
- | litigation; and | |
- | general market conditions. |
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 $110,000. This space is used as executive and administrative offices for the Company and the Company’s operating subsidiaries. The Company also leases a sales and recruiting office in Edison, New Jersey (lease expires May 2027), with aggregate annual rents of approximately $118,000.
The Company believes the present locations are adequate for its current needs as well as for the future expansion of its existing business.
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Item 3. Legal Proceedings
Fintech Consulting LLC v. TSR, Inc., et al., case number 2:21-cv-20181(KSH)(AME) (U.S. Dist. Ct., Dist. of New Jersey); Fintech Consulting LLC DBA APTASK v. TSR, Inc., et al., civil action no. 2023-0030-MTZ (Del. Ch.); and Fintech Consulting, LLC v. TSR, Inc., et al, Case Number: 1:23-cv-00074-MN (U.S. Dist. Ct. Dist. of Delaware).
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 (“the New Jersey Action”). 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”), and Bradley Tirpak, a shareholder and the chairman of the board of directors of TSR (“Tirpak”). The complaint purported 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's common stock, and QAR and Tirpak, as the purchasers of such shares (the “SPA”). The Plaintiff sought (i) judgment declaring the transactions represented by the SPA null and void and for the return of the shares; (ii) judgment cancelling the SPA and returning the shares in exchange for return of the purchase price; (iii) judgment unwinding the transaction; (iv) compensatory damages; (v) punitive damages; (vi) pre-judgment interest; (vii) costs of lawsuit including attorneys’ fees; and (viii) such other relief as the Court may find appropriate. Fintech filed its first amended complaint on March 2, 2022 which Defendants moved to dismiss on April 19, 2022. On December 7, 2022, the court granted Defendants’ motion and dismissed the New Jersey Action on jurisdictional grounds.
Following the dismissal of the original lawsuit, the Plaintiff filed another complaint relating to the SPA against the Defendants on January 12, 2023 in the Court of Chancery of the State of Delaware (the “Delaware Chancery Action”), asserting claims and seeking relief substantially similar to that which was asserted and sought in the preceding lawsuit. Plaintiff filed in the Delaware Chancery Court pursuant to the forum selection clause in the SPA, whereby the parties thereto irrevocably and unconditionally consented to the exclusive general jurisdiction of the Delaware Chancery Court over any action, suit or proceeding arising out of or relating to the SPA. Also on January 12, 2023, the Plaintiff filed a motion to dismiss its own complaint for lack of subject matter jurisdiction, requesting that the court dismiss the suit so that Plaintiff could re-file in federal court, along with a motion to expedite. On January 18, 2023, the court issued a letter decision denying Plaintiff’s motion to expedite and stating that the court would address Plaintiff’s motion to dismiss in the ordinary course. On January 23, 2023, the Delaware Chancery Action was dismissed without prejudice.
On January 22, 2023, Fintech Consulting LLC filed a complaint against the Company in the United States District Court for the District of Delaware (the “Delaware Federal Action’). The Delaware Federal Action, in sum and substance, asserted claims and sought relief substantially similar to that contained in both the Original FilingNew Jersey Action and the Delaware Chancery Action.
Although the Company believed the Delaware Chancery Action described above to reflectbe without merit, to avoid the time and expense of litigation, the Company negotiated with Fintech to settle this matter pursuant to a settlement agreement and release dated April 24, 2023. An amount of $75,000 was accrued to selling, general and administrative expenses in the quarter ending February 28, 2023 and paid in the fourth quarter of fiscal 2023 to settle this matter. Upon the payment of the settlement amount (i) the plaintiffs forever released and discharged the defendants from any eventsand all claims or liability of any nature whatsoever; (ii) the defendants forever released and discharged the plaintiffs from any and all claims or liability of any nature whatsoever that occurred subsequentrelate to the dateDelaware Federal Action or the SPA; and (iii) the plaintiffs filed a Stipulation of Dismissal with Prejudice on April 27, 2023.
Item 4. Mine Safety Disclosures
Not applicable.
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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, 2023 and 2022:
JUNE 1, 2022 – MAY 31, 2023 | ||||||||||||||||
1ST QUARTER | 2ND QUARTER | 3RD QUARTER | 4TH QUARTER | |||||||||||||
High Sales Price | $ | 10.32 | $ | 9.49 | $ | 10.34 | $ | 9.40 | ||||||||
Low Sales Price | 7.06 | 6.99 | 6.52 | 5.97 |
JUNE 1, 2021 – MAY 31, 2022 | ||||||||||||||||
1ST QUARTER | 2ND QUARTER | 3RD QUARTER | 4TH QUARTER | |||||||||||||
High Sales Price | $ | 13.94 | $ | 16.80 | $ | 15.28 | $ | 15.62 | ||||||||
Low Sales Price | 8.00 | 8.38 | 7.71 | 6.88 |
There were 38 holders of record of the Original Filing. Accordingly,Company’s Common Stock as of July 31, 2023. 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 12 to the Consolidated Financial Statements elsewhere in this Amendment No. 1report.
Issuer Purchases of Equity Securities
The table below sets forth the information required by Item 703 of Regulation S-K with respect to any repurchase made in a month within the fourth quarter of fiscal 2023 by or on behalf of the Company or any “affiliated purchaser”, as defined in § 240.10b-18(a)(3) of the Exchange Act, of shares of our common stock.
Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||
March 1-31, 2023 | 3,880 | $ | 8.10 | 3,880 | $ | 287,108 | ||||||||||
April 1-30, 2023 | - | - | - | $ | 287,108 | |||||||||||
May 1-31, 2023 | - | - | - | $ | 287,108 | |||||||||||
Total | 3,880 | $ | 8.10 | 3,880 | $ | 287,108 |
(1) | On September 12, 2022, the Board of Directors authorized a stock repurchase program of up to $500,000 of the Company’s outstanding common stock, par value $0.01 per share. The stock repurchase program was announced on Form 8-K by the Company on September 13, 2022. The program commenced on September 15, 2022 and is authorized for the following twelve months until September 13, 2023. The shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in accordance with federal securities laws. The actual timing, number and value of shares repurchased under the program will be determined by the Board of Directors at its discretion and will depend on a number of factors, including the market price of the Company’s stock, general market and economic conditions and applicable legal and contractual requirements. The Company has no obligation or commitment to repurchase all or any portion of the shares authorized by the program. |
Item 6. Reserved
Reserved.
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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 other filings madeconsolidated 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:
Years Ended May 31, (Dollar Amounts in Thousands) | ||||||||||||||||
2023 | 2022 | |||||||||||||||
Amount | % of Revenue | Amount | % of Revenue | |||||||||||||
Revenue, Net | $ | 101,433 | 100.0 | % | $ | 97,312 | 100.0 | % | ||||||||
Cost of Sales | 83,947 | 82.8 | 81,314 | 83.6 | ||||||||||||
Gross Profit | 17,486 | 17.2 | 15,998 | 16.4 | ||||||||||||
Selling, General and Administrative Expenses | 14,789 | 14.6 | 15,619 | 16.0 | ||||||||||||
Income from Operations | 2,697 | 2.6 | 379 | 0.4 | ||||||||||||
Other Income (Expense), Net | (63 | ) | 0.0 | 6,622 | 6.8 | |||||||||||
Income Before Income Taxes | 2,634 | 2.6 | 7,001 | 7.2 | ||||||||||||
Provision for (Benefit from) Income Taxes | 831 | 0.8 | (1 | ) | 0.0 | |||||||||||
Consolidated Net Income | 1,803 | 1.8 | 7,002 | 7.2 | ||||||||||||
Net Income Attributable to Noncontrolling Interest | 61 | 0.1 | 73 | 0.1 | ||||||||||||
Net Income Attributable to TSR, Inc. | $ | 1,742 | 1.7 | % | $ | 6,929 | 7.1 | % |
Revenue
Revenue consists primarily of revenue from computer programming consulting services. Revenue for the fiscal year ended May 31, 2023 increased approximately $4,121,000 or 4.2% from the fiscal year ended May 31, 2022, primarily due to growth in higher priced IT contractors offsetting decreases in clerical and administrative contractors. The average number of consultants on billing with customers decreased from 701 for the SEC subsequentyear ended May 31, 2022 to 648 for the year ended May 31, 2023. However, the average number of IT consultants increased from 431 to 463 for the year ended May 31, 2023, while the average number of clerical and administrative contractors decreased from 270 to 185 for the year ended May 31, 2023. Customers using our clerical and administrative contractors decreased their spending by terminating assignments early and hiring our contractors directly at a greater rate than usual. The change in the business mix toward the higher revenue IT contractors yielded the net increase in revenue.
Cost of Sales
Cost of sales for the fiscal year ended May 31, 2023 increased approximately $2,633,000 or 3.2% to $83,947,000 from $81,314,000 in the prior year period. The increase in cost of sales resulted primarily from an increase in higher cost IT consultants placed with customers, primarily from organic growth. Cost of sales as a percentage of revenue decreased from 83.6% in the fiscal year ended May 31, 2022 to 82.8% in the fiscal year ended May 31, 2023. Revenue grew at a higher rate than cost of sales when comparing the fiscal year ended May 31, 2023 to the filing ofprior year period, causing an increase in gross margins. The IT contractors added have a higher gross margin than the Original Filing.clerical and administrative staff that decreased.
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PART IIISelling, General and Administrative Expenses
DirectorsSelling, general and Executive Officers
Set forth below areadministrative expenses consist primarily of expenses relating to account executives, technical recruiters, facilities costs, management and corporate overhead. These expenses decreased approximately $830,000 or 5.3% from $15,619,000 in the names, ages and positions and offices heldfiscal year ended May 31, 2022 to $14,789,000 in the fiscal year ended May 31, 2023. The decrease in these expenses primarily resulted from a charge of $580,000 for the legal settlement 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 I directors is set to expire at the 2021 annual meeting of stockholders of the Company. The term of Class II directors is set to expire at the 2020 annual meeting of stockholders, and the term of Class III directors is set to expire at the 2019 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 and qualifies.
Name | Age | Position | Year First Officer or Director | |||
Bradley M. Tirpak(1)(2)(3)(4) | 50 | Chairman of the Board and Class I Director | 2019 | |||
Thomas Salerno | 52 | Chief Executive Officer, President and Treasurer | 2020 | |||
John G. Sharkey | 61 | Senior Vice President, Chief Financial Officer and Secretary | 1990 | |||
H. Timothy Eriksen(1)(2)(3)(4)(5)(7) | 51 | Class I Director | 2019 | |||
Robert Fitzgerald(1)(2)(3)(4)(6) | 56 | Class II Director | 2019 |
There are no family relationships between any of the Company’s executive officers and directors. None of the Company’s 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 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 terms of the Settlement Agreement are more fully described in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 3, 2019. Mr. Eriksen and Mr. Tirpak were subsequently elected as directors at the annual meeting of shareholders on October 22, 2019.
1
Biographical Information
Mr. Bradly M. Tirpak was elected as a Class I director of the Company at 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 September 2016, he has served as a portfolio manager and Managing Director at Palm Active Partners, LLC, a private investment company. From October 2008 to August 2016, Mr. Tirpak served as Managing Member of Locke Partners, LLC, a private investment company. He also previously served as a portfolio manager at Credit Suisse First Boston, Caxton Associates and Sigma Capital Management and Chilton Investment Company. Mr. Tirpak served 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 in the United Kingdom, from June 2017 to October 2018 and as a director at Birner Dental Management Services, Inc., a dental service organization, from December 2017 to January 2019. Since December of 2014, Mr. Tirpak has served as a director of Full House Resorts, Inc., a publicly traded gaming company, and since October of 2019 as a director of Liberated Syndication Inc., a publicly traded provider of podcast and webhosting services, and since April of 2020 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 Halo Trust, the world’s largest humanitarian mine clearance organization focused on clearing the debris of war currently operating in over 25 countries. Mr. Tirpak earned a B.S.M.E. from Tufts University and an M.B.A. from Georgetown University.
The Company believes that Mr. Tirpak is a valuable member of the Board due to his knowledge and experience in investing, capital allocation and corporate governance, as well as his experience serving on the boards of publicly traded companies.
Mr. H. Timothy Eriksen was elected as a Class I director of the Company at the 2018 annual meeting of stockholders on October 22, 2019. He was appointed by the Board as the Chairman of the Audit Committee of the Board on December 30, 2019. Mr. Eriksen founded Eriksen Capital Management, a Lynden, Washington-based investment advisory firm (“ECM”), in 2005. Mr. Eriksen is the President of ECM. Mr. Eriksen is theformer Chief Executive Officer in the prior year period. Recruiting cost were also reduced approximately $425,000 primarily from a reduction in the utilization of offshore recruiters. Additionally, the Company incurred non-cash compensation expenses of $219,000 in the fiscal year ended May 31, 2023 and Chief Financial Officer$565,000 in the fiscal year ended May 31, 2022 related to the TSR, Inc. 2020 Equity Incentive Plan. These reductions were offset by an increase in legal and professional fees of approximately $164,000. Selling, general and since July 2015 has beenadministrative expenses, as a directorpercentage of Solitron Devices, Inc. (“Solitron”). Solitron designs, develops, manufactures and markets solid-state semiconductor components and related devices primarilyrevenue, decreased from 16.0% in the fiscal year ended May 31, 2022 to 14.6% in the fiscal year ended May 31, 2023.
Other Income (Expense)
Other expense for the militaryfiscal year ended May 31, 2023 resulted primarily from net interest expense of approximately $53,000 and aerospace markets. Since April 2018, Mr. Eriksen has been a directormark-to-market loss of Novation Companies, Inc. (“Novation”). Novation owns Healthcare Staffing, Inc., which, among other activities, provides outsourced healthcare staffing and related services. 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 his career, Mr. Eriksen worked for Kiewit Pacific Co, a subsidiary of Peter Kiewit Sons, as an administrative engineerapproximately $10,000 on the Benicia Martinez Bridge project. Mr. Eriksen receivedCompany’s marketable equity securities. Other income 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 B.A. from The Master’s University and an M.B.A. from Texas A&M University.mark-to-market loss of $10,000 on the Company’s marketable equity securities.
Income Taxes
The Company believes that Mr. Eriksen iseffective income tax rates were 31.5% for the fiscal year ended May 31, 2023 and a valuable memberbenefit of less than 1% for the fiscal year ended May 31, 2022. The effective income tax rate was lower than expected in fiscal 2022 due to the non-taxable gain on the forgiveness of the Board basedPPP Loan principal and accrued interest.
Net Income Attributable to TSR
Net income attributable to TSR was approximately $1,742,000 in the fiscal year ended May 31, 2023 compared to $6,929,000 in the fiscal year ended May 31, 2022. The net income in the prior fiscal year was primarily attributable to the forgiveness of principal and accrued interest on his strong businessthe PPP Loan.
Impact of Inflation and financial background,Changing Prices
For the fiscal years ended May 31, 2023 and his experience serving in leadership-2022, inflation and management-level roles with responsibility for formulating business and operational strategy.
Mr. Robert Fitzgerald was appointed aschanging prices did not have a Class II director of the Company by the Boardmaterial effect 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 Bachelor of Arts in Economics and Juris Doctorate 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.
Thomas Salerno was appointed President, Chief Executive Officer and Treasurer of the 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 subsidiaryrevenue or income from continuing operations. The impact for fiscal 2024 cannot yet be determined.
Liquidity and largest business unit. Mr. Salerno has over 20 years of experience in the technology consulting industry. PriorCapital Resources
The Company’s cash was sufficient to joining the Company, Mr. Salerno spent eight years at Open Systems Technology as Associate Director, two years as Vice President of Sales and Recruiting for Versatech Consulting, and three years as an Account Representative for Robert Half Technologies. Mr. Salerno holds a Bachelor’s Degree from Johnson and Wales University.
Mr. 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 Finance from Adelphi University and received 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 1984enable it 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 senior accountant.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 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 ownership with the Securities and Exchange Commission (the “SEC”). Officers, directors and greater than ten percent Stockholders are required by regulation of the SEC to furnish the Company with copies of all Section 16(a) forms they file.
Based solely onmeet its review of the copies of such forms received by it, or written representations from certain reporting persons that no Forms 5 were required for those persons, the Company believes that all of its officers, directors and greater than ten percent beneficial owners complied with all filingliquidity requirements applicable to them with respect to reports required to be filed by Section 16(a) of the Exchange Act during the fiscal year ended May 31, 2020.
Code of Ethics
2023. The Company has adopted a code of ethicsexpects that applies to all of its employees, including the chief executive officercash and chief financialcash equivalents and accounting officer. The code of ethics is available on the Investor Relations page of the Company’s websiteCredit 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 consolidated financial statements. Utilizing its accounts receivable as collateral, the Company has secured this Credit Facility to increase its liquidity as necessary. As of May 31, 2023, the Company had no net borrowings outstanding against this Credit Facility. The amount the Company has borrowed fluctuates and, at www.tsrconsulting.com.times, it has utilized the maximum amount of $2,000,000 available under this facility to fund its payroll and other obligations. The Company intends to post on its websitewas in compliance with all disclosures that are required by law or NASDAQ Capital Market listing standards concerning any amendments to, or waivers from,covenants under the Company’s codeCredit Facility as 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 executiveMay 31, 2023 and financial officers will be included in a Current Report on Form 8-K filed with the SEC within four business days followingthrough the date of this filing. Additionally, in April 2020, the amendment or waiver, unless website postingCompany secured a PPP Loan in the amount of such amendments or waivers is then permitted by$6,659,000 to meet its obligations in the rulesface 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 NASDAQ Capital MarketPPP Loan funds to fund its payroll 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 directorfor other allowable expenses under the rulesPPP Loan. The use 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.
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 tothese 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 fiscal years ended May 31, 2020PPP Loan and 2019. The Named Executive Officers for the fiscal years ended May 31, 2020 and 2019 are (1) Thomas Salerno, our President and Chief Executive Officer; (2) John G. Sharkey, our Senior Vice President and Chief Financial Officer; and (3) Christopher Hughes, who served as President and Chief Executive Officer prior to his removal effective February 29, 2020 (the “Named Executive Officers”).accrued interest were fully forgiven in July 2021.
SUMMARY COMPENSATION TABLE
Name and Principal Position | Fiscal Year | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | |||||||||||||||||||||||||
Thomas Salerno, President and Chief Executive Officer (1) | 2020 | $ | 317,000 | (4) | $ | 25,000 | $ | - | $ | - | $ | - | $ | - | $ | 3,000 | (5) | $ | 345,000 | |||||||||||||||
John G. Sharkey, | 2020 | $ | 295,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 6,000 | (6) | $ | 301,000 | ||||||||||||||||
Senior Vice President and Chief Financial Officer (2) | 2019 | $ | 250,000 | $ | 75,000 | $ | - | $ | - | $ | - | $ | - | $ | 6,000 | (6) | $ | 331,000 | ||||||||||||||||
Christopher Hughes, | 2020 | $ | 300,000 | (7) | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 22,000 | (9) | $ | 322,000 | |||||||||||||||
Former President and Chief Executive Officer (3) | 2019 | $ | 390,000 | $ | 100,000 | $ | - | $ | - | $ | - | $ | - | $ | 25,000 | (8) | $ | 515,000 |
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Outstanding Equity AwardsAt May 31, 2023, the Company had working capital (total current assets in excess of total current liabilities) of approximately $13,551,000, including cash and cash equivalents and marketable securities of $7,897,000 as compared to working capital of $10,912,000, including cash and cash equivalents and marketable securities of $6,526,000 at Fiscal Year EndMay 31, 2022.
There were no outstanding equity awards at the endNet cash flow of approximately $1,754,000 was provided by operations during the fiscal year ended May 31, 2020.
Employment Agreements and Arrangements
Employment Agreement with Thomas Salerno
On July 11, 2018, TSR Consulting Services, Inc. entered into a written employment agreement with Thomas Salerno (the “Salerno Employment Agreement). The Salerno Employment Agreement expires July 10, 2021 (“Expiration Date”) and any continued employment will be on an “at-will” basis. The Salerno Employment Agreement provided for an annualized base salary2023 as compared to $2,307,000 of net cash used in the amount of $250,000, which has been increased to $350,000 in connection with Mr. Salerno’s appointment to the chief executive officer position. In addition to base salary, the Salerno Employment Agreement provides that Mr. Salerno will receive a car allowance and will be eligible to receive an annual cash bonus for each fiscal year in an amount determined by the company. In connection with Mr. Salerno’s appointment to the chief executive officer position, the Company also paid him a sign-on bonus of $25,000.
In the event that the company terminates Mr. Salerno’s employment other than (a) for “Cause” (as defined in the Salerno Employment Agreement), (b) as a result of Mr. Salerno’s death or disability or, (c) due to the expiration of the term, both (A) prior to the Expiration Date and (B) upon, within one year following the consummation of a Change in Control (as defined in the Salerno Employment Agreement), then in addition to Mr. Salerno’s Accrued Obligations (as defined in the Salerno Employment Agreement), (i) the company shall be obligated to pay to Mr. Salerno a severance payment equal to the sum of (A) one year of his base salary (at the rate in effect on the termination date) plus (B) one times the amount of the annual bonus paid to himoperations in the prior fiscal year (collectively, the “Severance Payment”); (ii) if Mr. Salerno timely elects to continue and maintain group health plan coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the company will reimburse him for a portion of the healthcare continuation payments under COBRA actually paidperiod. The cash provided by him for the coverage period ending on the earlier of (A) the one year anniversary of his termination date, and (B) the date he becomes eligible to obtain healthcare coverage from a new employer (the “COBRA Assistance Period”), which portion will be equal to (x) the amount of the monthly health care premium payment under COBRA actually paid by him for COBRA coverage during the COBRA Assistance Period, less (y) the amount he would have been required to contribute toward health insurance coverage during the COBRA Assistance Period if he had remained an active employee of the company (the “COBRA Assistance”). The company’s obligation to provide the Severance Payment and COBRA Assistance to Mr. Salerno shall be contingent upon his executing a general release of all claims against the Company, its subsidiaries and their respective officers, directors, shareholders, partners, members, employees, agents and related parties in a form satisfactory to the company.
The Salerno Employment Agreement incorporates the terms and provisions of a Maintenance of Confidence and Non-Compete Agreement between the company and Mr. Salerno dated as of June 16, 2011. The Maintenance of Confidence and Non-Compete Agreement sets forth Mr. Salerno’s covenants against the disclosure of confidential information and covenants against the solicitation of customers, employees and independent contractors (all in accordance with the terms set forth therein).
Amended and Restated Employment Agreement with John G. Sharkey
On May 24, 2019, the Company entered into a written amended and restated employment agreement with John G. Sharkey (the “Sharkey Employment Agreement”) that superseded the employment agreement that the Company and Mr. Sharkey had entered into in June 2015. The Sharkey Employment Agreement terminates May 31, 2020 and automatically renews for successive renewal terms of one (1) year each unless either party gives notice of non-renewal to the other party at least thirty (30) days prior to the expiration of the initial term or the then-current renewal term. The Sharkey Employment Agreement provides for an annualized base salary in the amount of $285,000 for the period from June 1, 2019 through December 31, 2019. Beginning January 1, 2020, the annualized base salary increases to the amount of $310,000. Thereafter, the Compensation Committee will review Mr. Sharkey’s base salary on an annual basis and the Board may increase his base salary, in its sole discretion. In addition to base salary, the Sharkey Employment Agreement provides that Mr. Sharkey will be eligible to receive an annual cash bonus for each fiscal year in an amount determined by the Compensation Committee in its sole discretion and subject to the approval of the Board, which may be based upon standards that the Compensation Committee establishes with Mr. Sharkey, subject to the Board’s approval. The target amount of the annual bonus will not be less than $85,000, provided that the actual amount of the annual bonus may be higher or lower than the target amount. The Sharkey Employment Agreement further provides that the Company pay Mr. Sharkey an annual bonus in the amount of $75,000operations for the fiscal year ended May 31, 2019, which is the annual bonus that is to be paid to Mr. Sharkey under the terms2023 primarily resulted from consolidated net income of the Mr. Sharkey’s former employment agreement for the fiscal year ending May 31, 2019$1,802,000, a decrease in accounts receivable of $1,346,000 and which the Company paida decrease in deferred income taxes of $628,000 offset by a lump sum. As set forthdecrease in the Summary Compensation Table above, the Company did not pay an annual bonus to Mr. Sharkeyaccounts payable and accrued expenses of $1,917,000 and a decrease in legal settlement payable of $598,000. The cash used in operations for the fiscal year ended May 31, 2020.
In2022 primarily resulted from consolidated net income of $7,002,000, offset by the event that (a) the Company terminates Mr. Sharkey’s employment without “Cause” (as defined in the Sharkey Employment Agreement), (b) Mr. Sharkey terminates his employment for “Good Reason” (as defined in the Sharkey Employment Agreement) or (c) Mr. Sharkey’s employment terminates upon the expirationforgiveness of the term as a resultPPP Loan principal and accrued interest of the Company providing a notice$6,735,000, an increase in accounts receivable of non-renewal of the then-current term of the Sharkey Employment Agreement, then Mr. Sharkey will be entitled to receive the following: (i) a severance payment equal to the sum of (x) 1.5 times Mr. Sharkey’s annual base salary at the rate in effect on the date of termination, (y) 1.5 times Mr. Sharkey’s annual bonus based on the bonus awarded to him for the fiscal year prior to the fiscal year in which the date of termination occurred, and (z) in the case of a termination by the Company without “Cause” or a termination by Mr. Sharkey for “Good Reason,” the base salary that Mr. Sharkey would have received if he had remained employed from the date of termination through the last day of the initial term or then-current renewal term, which severance payment will be payable in a single lump sum on the Company’s first regular pay date following the date on which the General Release (as defined in the Sharkey Employment Agreement) becomes effective; (ii) payment of the full bonus for the fiscal year in which the date of termination occurs (the “Termination Year Bonus”), which Termination Year Bonus will be based on the bonus awarded to Mr. Sharkey for the fiscal year prior to the fiscal year in which the date of termination occurred and will be payable within thirty (30) days following the date of termination; (iii) continued medical and dental insurance benefits for Mr. Sharkey and his family that are at least comparable to the benefits generally offered to all eligible Company employees until the earlier of (x) the two-year anniversary of Mr. Sharkey’s employment termination date, and (y) the date that Mr. Sharkey is eligible for comparable coverage under the group health insurance plans of another employer; and (iv) for two (2) years following the date of termination, the Company will reimburse Mr. Sharkey for the monthly cost of his car lease, subject to certain parameters described in the Sharkey Employment Agreement. In addition to the foregoing benefits, the Company will also pay Mr. Sharkey the Accrued Obligations (as defined in the Sharkey Employment Agreement). With the exception of the Accrued Obligations and the Termination Year Bonus, the Company’s obligation to pay the foregoing benefits is subject to Mr. Sharkey’s execution and non-revocation of a general release of claims against the Company, and his continued compliance with all post-termination covenants.
In the event that either (a) the Company terminates Mr. Sharkey’s employment for “Cause,” (b) Mr. Sharkey terminates his employment without “Good Reason” or (c) Mr. Sharkey’s employment terminates due to his death, disability or the expiration of the then-current term of the Sharkey Employment Agreement as a result of Mr. Sharkey providing a notice of non-renewal, then the Company’s sole obligations to Mr. Sharkey shall be: (i) the payment of Mr. Sharkey’s accrued but unpaid base salary and business expenses incurred by Mr. Sharkey that had not yet been reimbursed; (ii) in the case of a termination by Mr. Sharkey without “Good Reason” or a termination due to Mr. Sharkey’s death or disability, a pro-rated bonus for the fiscal year in which the date of termination occurs (calculated based on the bonus awarded for the prior fiscal year and pro-rated based upon the number of days that Mr. Sharkey was employed in the fiscal year in which the date of termination occurs) (the “Pro-Rata Bonus”); and (iii) in the case of the expiration of the then-current term of the Sharkey Employment Agreement as a result of Mr. Sharkey providing a notice of non-renewal, his Termination Year Bonus (calculated based on the bonus awarded for the prior fiscal year). The Company will pay the Accrued Obligations, the Pro-Rata Bonus and the Termination Year Bonus in a single lump sum within thirty (30) days following the date of termination.
The Sharkey Employment Agreement incorporates the terms and provisions of a Maintenance of Confidence and Non-Compete Agreement between the Company and Mr. Sharkey dated as of May 24, 2019. The Maintenance of Confidence and Non-Compete Agreement sets forth Mr. Sharkey’s covenants against the disclosure of confidential information, covenants against the solicitation of customers, employees and independent contractors$3,767,000 and a covenant against competition (alldecrease in accordance with the terms set forth therein) and supersedes any prior agreements entered into by Mr. Sharkey pertaining to such covenants.legal settlement payable of $270,000.
The Sharkey Employment Agreement does not provide for any paymentsNet cash used in connection with a change in controlinvesting activities of the Company.
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Amended and Restated Employment Agreement with Christopher Hughes
In April 2017, in anticipation of the expiration of Christopher Hughes’ prior employment agreement, the Company entered into a written employment agreement with Mr. Hughes, which was effective as of May 1, 2017 and which was scheduled to terminate on May 31, 2022 (the “Hughes Employment Agreement”). The Hughes Employment Agreement providedapproximately $496,000 for an annual base salary of $350,000 and an annual bonus for fiscal years beginning with the fiscal year ended May 31, 2018 to be approved by the Compensation Committee2023 primarily resulted from purchases of certificates of deposit of $990,000 and purchases of fixed assets of $6,000, less maturities of certificates of deposit of $500,000. Net cash used in its discretion, which may be based upon standards that the Compensation Committee approves at the beginninginvesting activities of each fiscal year commencing with$87,000 for the fiscal year beginning June 1, 2017, and which standards may be modified thereafter with the Compensation Committee’s approval. The Hughes Employment Agreement provided that the Company shall pay any annual bonus that may become payable within 120 days of the end of the applicable fiscal year, for the period to which the bonus relates. In addition, the Hughes Employment Agreement provided that the Company shall pay Mr. Hughes an advance on his annual bonus for the current fiscal year within 30 days after the end of each fiscal quarter (other than the fourth fiscal quarter) in an amount equal to the bonus which would have been earned through the end of such fiscal quarter, based on any standards approved by the Compensation Committee. Each such advance of the bonus was to be approved by the Compensation Committee unless it is paid in accordance with a formula approved in advance for such fiscal year. In the event that following any fiscal quarter or following completion of the Company’s audited financial statements, any advance payment of the bonus previously paid with respect to any fiscal year (or portion thereof) exceeded the amount that Mr. Hughes is entitled to receive through the end of such fiscal quarter or fiscal year, Mr. Hughes was required to promptly return such excess amount to the Company.
On August 9, 2018, the Company and Christopher Hughes entered into an Amended and Restated Employment Agreement, dated and effective as of August 9, 2018 (the “Amended and Restated Hughes Employment Agreement”), that superseded the Hughes Employment Agreement. The Amended and Restated Hughes Employment Agreement has a term of three years, nine months and twenty-two days, and is scheduled to expire onended May 31, 2022. The Amended and Restated Hughes Employment Agreement provides for an annual base salary2022 primarily resulted from purchases of $400,000, which the Company’s Compensation Committee will review on an annual basis, and which the Company’s Board may increasefixed assets.
Net cash used in the Board’s discretion. Mr. Hughes is eligible to receive an annual cash bonus in the discretion of the Compensation Committee, which may be based upon standards established by the Compensation Committee and approved by the Board. Mr. Hughes is entitled to receive advance payments of the bonus on a quarterly basis based on the amount of the bonus that would have been earned through the end of each quarter according to such standards. Such advance payments of the bonus are subject to recapture by the Company in the event that the amount paid as the advance exceeds the amount that Mr. Hughes was actually entitled to receive. Mr. Hughes is entitled to participate in any pension, profit-sharing, retirement, hospitalization, insurance, medical services or other employee benefit plan generally available to the Company’s executives, to the extent that he is eligible to participate under the terms and conditions of such plans. Mr. Hughes is also entitled to executive medical benefits and a car (leased or owned at the sole discretion of the Company) in such amounts for the car as determined by the Board, provided that the executive medical benefits and car may be discontinued at the end of any fiscal year at the discretion of the Board.
The Company has the right to immediately terminate Mr. Hughes’ employment for “Cause” (as defined in the Amended and Restated Hughes Employment Agreement), in which event Mr. Hughes shall be entitled to receive his base salary for the month in which the termination is effective.
The Company has the right to terminate Mr. Hughes’ employment upon fifteen days written notice in the event Mr. Hughes is unable to perform his duties on account of illness, accident or other physical or mental incapacity for a period of six consecutive months or an aggregate of 180 days in any period of twelve consecutive months, in which event Mr. Hughes shall be entitled to receive his base salary and reimbursement of approved expenses for the month in which termination is effective.
The Company may terminate Mr. Hughes’ employment for any other reason upon thirty days written notice, in which event Mr. Hughes shall be entitled to receive (a) reimbursement of any unpaid approved expenses, (b) severance from the Company in an amount equal to (i) two times his base salary plus (ii) two times his bonus for the then-current fiscal year, or if that bonus amount cannot be determined, two times the amount of the bonus paid to him in the prior fiscal year, (c) continued group health insurance benefits (including both group health insurance benefits generally offered to all eligible employees of the Company and supplemental executive health insurance benefits) until the earlier of the second anniversary of termination or such time as Mr. Hughes is eligible for comparable coverage under the group health insurance plans of another employer and (d) reimbursement for the monthly cost of his car lease until the second anniversary of the termination of his employment; provided that, as a condition to his right to receive the payments and benefits in clauses (b), (c) and (d), Mr. Hughes executes, delivers and does not revoke a release of all claims against the Company and its affiliates.
The Amended and Restated Hughes Employment Agreement incorporates the terms and provisions of a Maintenance of Confidence and Non-Compete Agreement between the Company and Mr. Hughes dated as of August 9, 2018. The Maintenance of Confidence and Non-Compete Agreement sets forth Mr. Hughes’ covenants against the disclosure of confidential information, covenants against the solicitation of customers, employees and independent contractors and a covenant against competition (all in accordance with the terms set forth therein) and supersedes any prior agreements entered into by Mr. Hughes pertaining to such covenants.
The Amended and Restated Hughes Employment Agreement provides that in the event that Mr. Hughes’ employment is terminated without “cause” during the six-month period prior to, or within one year after, a “change in control” (as defined in the Amended and Restated Hughes Employment Agreement) of the Company, or if Mr. Hughes resigns from his employment for “good reason” within one year after a change in control of the Company, then Mr. Hughes shall be entitled to receive (a) his base salary through the date of termination or resignation plus his bonus pro-rated through such date, (b) an amount equal to two times his base salary plus two times his bonus for the then-current fiscal year, or if such bonus amount cannot be determined, two times the bonus paid to him in the prior fiscal year, provided that Mr. Hughes executes and delivers a release of all claims against the Company, (c) continued group health insurance benefits (including both group health insurance benefits generally offered to all eligible employees of the Company and supplemental executive health insurance benefits) until the earlier of the second anniversary of termination or such time as Mr. Hughes is eligible for comparable coverage under the group health insurance plans of another employer and (d) reimbursement for the monthly cost of his car lease until the second anniversary of the termination of his employment; provided that, as a condition to his right to receive the payments and benefits in clauses (b), (c) and (d), Mr. Hughes executes, delivers and does not revoke a release of all claims against the Company and its affiliates. “Good reason” means either (i) a material breach by the Company of the Amended and Restated Hughes Employment Agreement, (ii) a material diminution in Mr. Hughes’ authority, duties or responsibilities, or (iii) a relocation by the Company of Mr. Hughes’ principal place of business for the performance of his duties to a location that is anywhere outside of a 100 mile radius of the Borough of Manhattan.
The Company terminated Christopher Hughes effective February 29, 2020 for “Cause” as defined in the Amended and Restated Hughes Employment Agreement. On March 2, 2020, the Company received a letter from Mr. Hughes, providing notice of his intent to resign for “Good Reason” as defined in the Amended and Restated Hughes Employment Agreement pursuant to which he claimed to be entitled to the “Enhanced Severance Amount” under the Amended and Restated Hughes Employment Agreement. 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 duty of good faith and fair dealing. Plaintiff Hughes alleges that he was terminated without cause or in the alternative, that he resigned for good reason and seeks contractual severance pay in the amount of $1,000,000 and reasonable costs and attorney’s fees. The Company denies his allegations in their entirety and filed counterclaims against him.
Director Compensation
The following table sets forth information concerning the compensation of the non-officer directors of the Company who served as directorsfinancing activities during the fiscal year ended May 31, 2020. Directors2023 of $366,000 primarily resulted from purchases of treasury stock of $213,000, distributions of the Company who also serve as executive officersminority interest of $75,000 and from net repayments under the Company are not paid any compensation for their service as directors. ForCompany’s Credit Facility of $62,000. Net cash provided by financing activities of approximately $1,514,000 during the fiscal year ended May 31, 2020, Christopher Hughes2022 resulted from net proceeds from 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 payments on the Company’s Credit Facility of $31,000 and distributions of the minority interest of $27,000.
The Company’s capital resource commitments at May 31, 2023 consisted of lease obligations on its branch and corporate facilities. The net present value of its future lease payments was approximately $492,000 as of May 31, 2023. The Company intends to finance these commitments primarily from the only directorCompany’s available cash and Credit Facility.
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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 who also served asgenerating 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 executive officer. He resigned as Chairman and memberacquisition exceeds the estimated fair value of the Board on December 30, 2019.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.
Name | Fees Earned Or Paid In Cash | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | |||||||||||||||||||||
Bradley M. Tirpak (1) | $ | 12,500 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 12,500 | ||||||||||||||
H. Timothy Eriksen (1) | $ | 12,500 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 12,500 | ||||||||||||||
Robert Fitzgerald (2) | $ | 10,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 10,000 | ||||||||||||||
Ira D. Cohen (3) | $ | 5,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 5,000 | ||||||||||||||
William J. Kelly (4) | $ | 6,875 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 6,875 | ||||||||||||||
Brian J. Mangan (4) | $ | 11,875 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 11,875 | ||||||||||||||
Joseph Pennacchio (4) | $ | 5,000 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 5,000 | ||||||||||||||
Raymond A. Roel(3) | $ | 7,500 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 7,500 | ||||||||||||||
Eric M. Stein (4) | $ | 6,875 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 6,875 |
Intangible Assets
ForThe Company amortizes its intangible assets over their service, members ofestimated useful lives and will review these assets for impairment when there is evidence that events or changes in circumstances indicate that the Board who are not officers of the Company received a pro-ratedcarrying amount of an annual retainerasset may not be recoverable. Recoverability of $10,000, payable quarterly, based on period of time they respectively served during fiscal 2020.
Bradley M. Tirpak received a pro-ratedthese 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 of an additional annual retainer of $10,000 for his service as Chairmanby which the carrying value of the Board during fiscal 2020 starting from December 30, 2019.asset exceeds its fair market value.
H. Timothy Eriksen received a pro-rated amount of an additional annual retainer of $10,000 for his service as Chairman of the Audit Committee during fiscal 2020 starting from December 30, 2019. 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 2020 starting from December 30, 2019.
Robert Fitzgerald received a pro-rated amount of an additional annual retainer of $10,000 for his service as Chairman of the Compensation Committee during fiscal 2020 starting from December 30, 2019. Mr. Fitzgerald did not receive any additional retainer for his service as Chairman of the Special Committee of the Board during fiscal 2020 starting from December 30, 2019.
Raymond A. Roel received $5,000 for his director service and $2,500 for his service as Chairman of the Compensation Committee during fiscal 2020 ended on October 22, 2019.
Ira D. Cohen received $5,000 for his director service and did not receive any additional fee for his service as Chairman of the Special Committee during fiscal 2020 ended on October 22, 2019.
Brian J. Mangan received $5,000 for his director service, $5,000 for his service as Chairman of the Audit Committee during fiscal 2020 ended on December 30, 2019 and $1,875 for his service as Chairman of the Special Committee during fiscal 2020 from October 22, 2019 to December 30, 2019.
Each of Eric M. Stein and William J. Kelly received $5,000 for their respective director service and $1,875 for their respective service as member of the Special Committee during fiscal 2020 ended on December 30, 2019.
Joseph Pennacchio received $5,000 for his director service during fiscal 2020 ended on December 30, 2019.
9Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is a smaller reporting company and is therefore not required to provide this information.
Page 15
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Principal Stockholders
Page 16
Report of Independent Registered Public Accounting Firm
Board of Directors and Security OwnershipShareholders
TSR, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Management
The outstanding voting stockTSR, Inc. and Subsidiaries (the “Company”) as of May 31, 2023 and 2022, and the related consolidated statements of operations, equity and cash flows for each of the years in the two-year period ended May 31, 2023, 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 September 25, 2020 consistedMay 31, 2023 and 2022, and the results of 1,962,062 shares of Common Stock. The table below sets forth the beneficial ownershipits operations and its cash flows for each of the Common Stockyears in the two-year period ended May 31, 2023 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 directors, executive officersmanagement. 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 persons knownare 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 reporting, 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 beneficial owneraudit 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 11, 2023
Page 17
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, 2023 and 2022
ASSETS
2023 | 2022 | |||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 7,382,320 | $ | 6,490,158 | ||||
Certificates of deposit and marketable securities | 515,152 | 35,536 | ||||||
Accounts receivable: | ||||||||
Trade, net of allowance for doubtful accounts of $181,000 in 2023 and 2022 | 12,081,335 | 13,427,562 | ||||||
Other | 79,618 | 39,753 | ||||||
12,160,953 | 13,467,315 | |||||||
Prepaid expenses | 248,534 | 216,776 | ||||||
Prepaid and recoverable income taxes | - | 31,795 | ||||||
Total Current Assets | 20,306,959 | 20,241,580 | ||||||
Equipment and leasehold improvements, at cost: | ||||||||
Equipment | 199,090 | 192,773 | ||||||
Furniture and fixtures | 64,766 | 64,766 | ||||||
Leasehold improvements | 76,349 | 76,349 | ||||||
340,205 | 333,888 | |||||||
Less accumulated depreciation and amortization | 270,606 | 195,094 | ||||||
69,599 | 138,794 | |||||||
Other assets | 48,772 | 63,270 | ||||||
Right-of-use asset | 459,171 | 652,020 | ||||||
Intangible assets, net | 1,333,500 | 1,500,750 | ||||||
Goodwill | 785,883 | 785,883 | ||||||
Deferred income taxes | 344,000 | 972,000 | ||||||
Total Assets | $ | 23,347,884 | $ | 24,354,297 |
See accompanying notes to consolidated financial statements.
Page 18
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, 2023 and 2022
LIABILITIES AND EQUITY
2023 | 2022 | |||||||
Current Liabilities: | ||||||||
Accounts and other payables | $ | 1,663,990 | $ | 1,425,021 | ||||
Accrued expenses and other current liabilities: | ||||||||
Salaries, wages and commissions | 2,443,766 | 4,755,437 | ||||||
Other | 1,219,560 | 1,063,466 | ||||||
3,663,326 | 5,818,903 | |||||||
Advances from customers | 1,266,993 | 1,210,992 | ||||||
Income taxes payable | 11,260 | - | ||||||
Credit facility | - | 61,882 | ||||||
Legal settlement payable - current | - | 597,566 | ||||||
Operating lease liabilities - current | 150,167 | 214,941 | ||||||
Total Current Liabilities | 6,755,736 | 9,329,305 | ||||||
Operating lease liabilities, net of current portion | 342,260 | 492,427 | ||||||
Total Liabilities | 7,097,996 | 9,821,732 | ||||||
Commitments and Contingencies | ||||||||
Equity: | ||||||||
TSR, Inc. | ||||||||
Preferred stock, $1.00 par value, authorized 500,000 shares; none issued | - | - | ||||||
Common stock, $0.01 par value, authorized 12,500,000 shares; issued 3,322,527 and 3,298,549 shares; 2,143,712 and 2,146,448 outstanding | 33,226 | 32,986 | ||||||
Additional paid-in capital | 7,676,742 | 7,473,866 | ||||||
Retained earnings | 22,212,107 | 20,470,042 | ||||||
29,922,075 | 27,976,894 | |||||||
Less: treasury stock, 1,178,815 and 1,152,101 shares, at cost | 13,726,895 | 13,514,003 | ||||||
Total TSR, Inc. Equity | 16,195,180 | 14,462,891 | ||||||
Noncontrolling interest | 54,708 | 69,674 | ||||||
Total Equity | 16,249,888 | 14,532,565 | ||||||
Total Liabilities and Equity | $ | 23,347,884 | $ | 24,354,297 |
See accompanying notes to consolidated financial statements.
Page 19
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended May 31, 2023 and 2022
2023 | 2022 | |||||||
Revenue, net | $ | 101,433,065 | $ | 97,312,449 | ||||
Cost of sales | 83,947,307 | 81,314,406 | ||||||
Selling, general and administrative expenses | 14,789,271 | 15,619,409 | ||||||
98,736,578 | 96,933,815 | |||||||
Income from operations | 2,696,487 | 378,634 | ||||||
Other income (expense): | ||||||||
Gain on PPP Loan and interest forgiveness | - | 6,735,246 | ||||||
Interest expense, net | (52,656 | ) | (102,327 | ) | ||||
Unrealized loss from marketable securities, net | (10,384 | ) | (10,160 | ) | ||||
(63,040 | ) | 6,622,759 | ||||||
Income before income taxes | 2,633,447 | 7,001,393 | ||||||
Provision for (benefit from) income taxes | 831,000 | (1,000 | ) | |||||
Consolidated net income | 1,802,447 | 7,002,393 | ||||||
Less: Net income attributable to noncontrolling interest | 60,382 | 73,173 | ||||||
Net income attributable to TSR, Inc. | $ | 1,742,065 | $ | 6,929,220 | ||||
Basic net income per TSR, Inc. common share | $ | 0.81 | $ | 3.42 | ||||
Basic weighted average number of common shares outstanding | 2,141,363 | 2,024,325 | ||||||
Diluted net income per TSR, Inc. common share | $ | 0.78 | $ | 3.30 | ||||
Diluted weighted average number of common shares outstanding | 2,237,935 | 2,097,898 |
See accompanying notes to consolidated financial statements.
Page 20
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
Years Ended May 31, 2023 and 2022
Shares of common stock | Common stock | Additional paid-in capital | Retained earnings | Treasury stock | TSR, Inc. equity | Non- controlling interest | Total equity | |||||||||||||||||||||||||
Balance at June 1, 2021 | 3,114,163 | $ | 31,142 | $ | 5,339,200 | $ | 13,540,822 | $ | (13,514,003 | ) | $ | 5,397,161 | $ | 23,891 | $ | 5,421,052 | ||||||||||||||||
Net income attributable to noncontrolling interest | - | - | - | - | - | - | 73,173 | 73,173 | ||||||||||||||||||||||||
Distribution to noncontrolling interest | - | - | - | - | - | - | (27,390 | ) | (27,390 | ) | ||||||||||||||||||||||
Net proceeds of sales of stock through ATM | 142,500 | 1,425 | 1,782,373 | - | - | 1,783,798 | - | 1,783,798 | ||||||||||||||||||||||||
Non-cash stock compensation | - | - | 564,952 | - | - | 564,952 | - | 564,952 | ||||||||||||||||||||||||
Vested stock awards and taxes paid | 41,886 | 419 | (212,659 | ) | - | - | (212,240 | ) | - | (212,240 | ) | |||||||||||||||||||||
Net income attributable to TSR, Inc. | - | - | - | 6,929,220 | - | 6,929,220 | - | 6,929,220 | ||||||||||||||||||||||||
Balance at May 31, 2022 | 3,298,549 | $ | 32,986 | $ | 7,473,866 | $ | 20,470,042 | $ | (13,514,003 | ) | $ | 14,462,891 | $ | 69,674 | $ | 14,532,565 |
See accompanying notes to consolidated financial statements.
Page 21
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
Years Ended May 31, 2023 and 2022
Shares of common stock | Common stock | Additional paid-in capital | Retained earnings | Treasury stock | TSR, Inc. equity | Non- controlling interest | Total equity | |||||||||||||||||||||||||
Balance at June 1, 2022 | 3,298,549 | $ | 32,986 | $ | 7,473,866 | $ | 20,470,042 | $ | (13,514,003 | ) | $ | 14,462,891 | $ | 69,674 | $ | 14,532,565 | ||||||||||||||||
Net income attributable to noncontrolling interest | - | - | - | - | - | - | 60,382 | 60,382 | ||||||||||||||||||||||||
Distribution to noncontrolling interest | - | - | - | - | - | - | (75,348 | ) | (75,348 | ) | ||||||||||||||||||||||
Non-cash stock compensation | - | - | 218,612 | - | - | 218,612 | - | 218,612 | ||||||||||||||||||||||||
Vested stock awards and taxes paid | 23,978 | 240 | (15,736 | ) | - | - | (15,496 | ) | - | (15,496 | ) | |||||||||||||||||||||
Purchases of treasury stock | - | - | - | - | (212,892 | ) | (212,892 | ) | - | (212,892 | ) | |||||||||||||||||||||
Net income attributable to TSR, Inc. | - | - | - | 1,742,065 | - | 1,742,065 | - | 1,742,065 | ||||||||||||||||||||||||
Balance at May 31, 2023 | 3,322,527 | $ | 33,226 | $ | 7,676,742 | $ | 22,212,107 | $ | (13,726,895 | ) | $ | 16,195,180 | $ | 54,708 | $ | 16,249,888 |
See accompanying notes to consolidated financial statements.
Page 22
TSR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended May 31, 2023 and 2022
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Consolidated net income | $ | 1,802,447 | $ | 7,002,393 | ||||
Adjustments to reconcile consolidated net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 242,762 | 235,131 | ||||||
Unrealized loss from marketable securities, net | 10,384 | 10,160 | ||||||
Non-cash lease recovery | (22,092 | ) | (66,179 | ) | ||||
Non-cash stock-based compensation expense | 218,612 | 564,952 | ||||||
Forgiveness of principal and accrued interest on SBA PPP Loan | - | (6,735,246 | ) | |||||
Deferred income taxes | 628,000 | (31,000 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable-trade | 1,346,227 | (3,766,820 | ) | |||||
Other receivables | (39,865 | ) | (7,245 | ) | ||||
Prepaid expenses | (31,758 | ) | 36,918 | |||||
Prepaid and recoverable income taxes | 31,795 | (23,124 | ) | |||||
Other assets | 14,498 | (15,607 | ) | |||||
Accounts and other payables and accrued expenses and other current liabilities | (1,916,608 | ) | 717,394 | |||||
Legal settlement payable | (597,566 | ) | (269,543 | ) | ||||
Incomes taxes payable | 11,260 | - | ||||||
Advances from customers | 56,001 | 40,492 | ||||||
Net cash provided by (used in) operating activities | 1,754,097 | (2,307,324 | ) | |||||
Cash flows from investing activities: | ||||||||
Purchases of certificates of and marketable securities | (990,000 | ) | - | |||||
Proceeds from maturities of certificates of and marketable securities | 500,000 | - | ||||||
Purchases of equipment and leasehold improvements | (6,317 | ) | (86,687 | ) | ||||
Net cash used in investing activities | (496,317 | ) | (86,687 | ) | ||||
Cash flows from financing activities: | ||||||||
Net repayments on Credit Facility | (61,882 | ) | (30,645 | ) | ||||
Purchases of treasury stock | (212,892 | ) | - | |||||
Net proceeds from ATM stock sales | - | 1,783,798 | ||||||
Tax withholding from vested stock awards | (15,496 | ) | (212,240 | ) | ||||
Distributions to noncontrolling interest | (75,348 | ) | (27,390 | ) | ||||
Net cash (used in) provided by financing activities | (365,618 | ) | 1,513,523 | |||||
Net increase (decrease) in cash and cash equivalents | 892,162 | (880,488 | ) | |||||
Cash and cash equivalents at beginning of year | 6,490,158 | 7,370,646 | ||||||
Cash and cash equivalents at end of year | $ | 7,382,320 | $ | 6,490,158 | ||||
Supplemental disclosures of cash flow data: | ||||||||
Income taxes paid | $ | 160,000 | $ | 54,000 |
See accompanying notes to consolidated financial statements.
Page 23
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2023 and 2022
(1) | Summary of Business and Significant Accounting Policies |
(a) | Business, Nature of Operations and Customer Concentrations |
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. Also, 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 2023, four customers each accounted for more than five percent (5%)10% of the outstanding sharesCompany’s consolidated revenue, constituting a combined 65.6%. The largest of Common Stockthese constituted 21.0% of consolidated revenue. 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. The accounts receivable balances associated with the Company’s largest customers were $6,848,000 for four customers at May 31, 2023 and $8,668,000 for four customers at May 31, 2022. The Company operates in one business segment, contract staffing services.
(b) | Principles of Consolidation |
The consolidated financial statements include the accounts of TSR and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
(c) | 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.
(d) | Cash and Cash Equivalents |
The Company considers short-term highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents were comprised of the following as of September 25, 2020:May 31, 2023 and 2022:
Beneficial Ownership of Common Stock | ||||||||
Name of Beneficial Owner – Directors, Officers and 5% Stockholders | No. of Shares (1) | Percent of Class | ||||||
Bradley M. Tirpak (2)(3) | - | - | ||||||
H. Timothy Eriksen (2)(3) | - | - | ||||||
Thomas Salerno (2)(7) | - | - | ||||||
John G. Sharkey (2)(8) | 6,750 | 0.3 | % | |||||
Fintech Consulting LLC (4) | 376,000 | 19.2 | % | |||||
Robert Fitzgerald (2)(3)(5) | 139,200 | (6) | 7.1 | % | ||||
Tajuddin Haslani (4) | 376,100 | (12) | 19.2 | % | ||||
Philip J. LaBlonde (9) | 135,000 | 6.9 | % | |||||
QAR Industries, Inc. (5) | 139,200 | 7.1 | % | |||||
Zeff Capital, L.P. (10) | 437,774 | 22.3 | % | |||||
Zeff Holding Company, LLC (10) | 437,774 | (11) | 22.3 | % | ||||
Daniel Zeff (10) | 437,774 | (11) | 22.3 | % | ||||
Christopher Hughes (13) | 11,842 | (14) | 0.6 | % | ||||
All Directors and Executive Officers as a Group (5 persons) | 145,950 | 7.4 | % |
2023 | 2022 | |||||||
Cash in banks | $ | 7,010,568 | $ | 6,436,012 | ||||
Money market funds | 371,752 | 54,146 | ||||||
$ | 7,382,320 | $ | 6,490,158 |
(Continued)
Page 24
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 31, 2023 and 2022
(e) | Certificates of Deposit and Marketable Securities |
The Company has characterized its investments in marketable securities and certificates of deposit, 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:
Level 1 | - | These are investments where values are based on unadjusted quoted prices for identical assets in an active market the Company has the ability to access. | |
Level 2 | - | These are investments where values are based on quoted market prices that are not active or model derived valuations in which all significant inputs are observable in active markets. | |
Level 3 | - | These are investments where values are derived from techniques in which one or more significant inputs are unobservable. |
The following are the major categories of assets measured at fair value on a recurring basis as of May 31, 2023 and 2022 using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):
May 31, 2023 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Securities | $ | 25,152 | $ | - | $ | - | $ | 25,152 | ||||||||
Certificates of Deposit | 490,000 | - | - | 490,000 | ||||||||||||
$ | 515,152 | $ | - | $ | - | $ | 515,152 | |||||||||
May 31, 2022 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Securities | $ | 35,536 | $ | - | $ | - | $ | 35,536 |
Based upon the Company’s intent and ability to hold its certificates of deposit to maturity (which range up to 12 months at purchase), such securities have been classified as held-to-maturity and are carried at amortized cost, which approximates market value. 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, 2023 and 2022 are summarized as follows:
May 31, 2023 | Amortized Cost | Gross Unrealized Holding Gains | Gross Unrealized Holding Losses | Recorded Value | ||||||||||||
Equity Securities | $ | 16,866 | $ | 8,286 | $ | - | $ | 25,152 | ||||||||
Certificates of Deposit | 490,000 | - | - | 490,000 | ||||||||||||
$ | 506,866 | $ | 8,286 | $ | - | $ | 515,152 | |||||||||
May 31, 2022 | ||||||||||||||||
Equity Securities | $ | 16,866 | $ | 18,670 | $ | - | $ | 35,536 |
(Continued)
Page 25
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 31, 2023 and 2022
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.
(f) | Accounts Receivable and Credit Policies |
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.
(g) | Depreciation and Amortization |
Depreciation and amortization of equipment and leasehold improvements has been computed using the straight-line method over the following useful lives:
Equipment | 3 years | |
Furniture and fixtures | 3 years | |
Automobiles | 3 years | |
Leasehold improvements | Lesser of lease term or useful life |
(h) | Net Income Per Common Share |
Basic net income per common share is computed by dividing net income 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 12 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 96,752 in the fiscal year ended May 31, 2023 have been included for diluted shares outstanding for the fiscal year ended May 31, 2023. The common stock equivalents associated with these stock awards of 73,573 in the fiscal year ended May 31, 2022 were included for diluted shares outstanding for the fiscal year May 31, 2022.
(i) | Income Taxes |
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.
(j) | Fair Value of Financial Instruments |
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:
10
(Continued)
Page 26
TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 31, 2023 and 2022
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:
Level 1 | - | inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. | |
Level 2 | - | inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and | |
Level 3 | - | inputs are unobservable and are typically based on the Company’s own assumptions, including situations where there is little, if any, market activity. Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 classification. |
Related Party TransactionsIn 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.
(k) | Use of Estimates |
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.
(l) | Long-Lived Assets |
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.
(m) | 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. The annual test of goodwill was performed as of September 1, 2022 and no impairment was found. There was no change in goodwill in fiscal 2023.
(n) | Credit Risk |
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 56.7% of the net accounts receivable balance at May 31, 2023.
(Continued)
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TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 31, 2023 and 2022
(2) | Income Taxes |
A reconciliation of the provision for (benefit from) income taxes computed at the federal statutory rates of 21.0% for fiscal 2023 and fiscal 2022 to the reported amounts is as follows:
2023 | 2022 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
Amounts at statutory federal tax rate | $ | 553,000 | 21.0 | % | $ | 1,470,000 | 21.0 | % | ||||||||
PPP Loan Forgiveness | - | - | (1,414,000 | ) | (20.2 | ) | ||||||||||
Noncontrolling interest | (13,000 | ) | (0.5 | ) | (15,000 | ) | (0.2 | ) | ||||||||
State and local taxes, net of federal income tax effect | 304,000 | 11.5 | 12,000 | 0.2 | ||||||||||||
Non-deductible expenses and other | (13,000 | ) | (0.5 | ) | (54,000 | ) | (0.8 | ) | ||||||||
$ | 831,000 | 31.5 | % | $ | (1,000 | ) | (0.0 | )% |
The components of the provision for (benefit from) income taxes are as follows:
Federal | State | Total | ||||||||||
2023: Current | $ | 106,000 | $ | 97,000 | $ | 203,000 | ||||||
Deferred | 401,000 | 227,000 | 628,000 | |||||||||
$ | 507,000 | $ | 324,000 | $ | 831,000 | |||||||
2022: Current | $ | - | $ | 30,000 | $ | 30,000 | ||||||
Deferred | (19,000 | ) | (12,000 | ) | (31,000 | ) | ||||||
$ | (19,000 | ) | $ | 18,000 | $ | (1,000 | ) |
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets at May 31, 2023 and 2022 are as follows:
2023 | 2022 | |||||||
Allowance for doubtful accounts receivable | $ | 53,000 | $ | 55,000 | ||||
Accrued compensation and other accrued expenses | 44,000 | 43,000 | ||||||
Net operating loss carryforwards | 57,000 | 508,000 | ||||||
Equipment and leasehold improvement, depreciation and amortization | (19,000 | ) | (40,000 | ) | ||||
Unrealized gain | (2,000 | ) | (5,000 | ) | ||||
Legal settlement with investor | - | 180,000 | ||||||
Non-cash stock compensation | 115,000 | 111,000 | ||||||
Non-cash lease expense | 10,000 | 17,000 | ||||||
Accumulated amortization | 80,000 | 90,000 | ||||||
Other items, net | 6,000 | 13,000 | ||||||
Total deferred income tax assets | $ | 344,000 | $ | 972,000 |
(Continued)
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TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 31, 2023 and 2022
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. The federal net operating loss carryforwards may be used indefinitely, and the state carryforwards are generally usable for 20 years.
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 2019 fiscal year in which any related person had a direct or indirect materialrecognizes 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,penalties associated with tax matters as selling, general and no such transactions are currently proposed.
Regina Dowd, who served as a director of the Company during fiscal 2019 until her resignation as a director on August 27, 2018, was also employed as a sales executive of the Company for which she was paid compensationadministrative expenses and includes accrued interest and penalties with accrued and other liabilities in the amount of $149,000 for the 2019 fiscal year. The Company and Ms. Dowd entered into an employment agreement dated as of July 1, 2019, pursuant to which the Company employs Ms. Dowd as an Account Manager for a three-year term expiring on June 30, 2022, and on an at-will basis thereafter, for an annual base salary of $60,000 and eligibility to earn commissions pursuant to an incentive compensation/commission plan.
In connection with the settlement of a civil action brought against the Company in June 2019 by Ms. Dowd and Joseph F. Hughes, the former Chief Executive Officer and Chairman of the Company, concerning their right to indemnification by the Company for legal fees incurred by them in connection with certain lawsuits previously disclosed by the Company in its reports filed with the SEC that affect the Company, Ms. Dowd (in her capacity as a former director of the Company) and Mr. Joseph Hughes (in his capacity as the former Chairman, President and Chief Executive Officer of the Company), the Company agreed to pay approximately $385,000 in legal fees incurred by them.consolidated balance sheets.
On August, 30, 2019,March 27, 2020, the CARES Act was signed into law in response to the COVID-19 pandemic. The CARES Act provides numerous tax provisions and stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property. The Company entered intohas evaluated the Settlement Agreement with certain investors 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 (collectively, “Investor Parties”), each of whom has been a beneficial owner of more than five percent (5%)provisions of the outstanding sharesCARES Act relating to income taxes which resulted in the ability to carryback net operating losses and file for a federal tax refund of Common Stock, with respect to the proxy contest pertaining to the election of directors at the 2018 annual meeting of stockholders,approximately $586,000, which was held on October 22, 2019. Pursuant torecorded in the Settlement Agreement, the parties agreed to forever settle and resolve any and all disputes between the parties, including without limitation disputes arising out of or relating to the following litigations:May 31, 2020 consolidated balance sheet. The amount was subsequently collected in April 2021.
(i) The complaint relatingCompany’s federal and state income tax returns prior to alleged breaches of fiduciary duties filed on November 1, 2018 by Fintech Consulting LLC againstfiscal year 2019 are closed.
(3) | Leases |
The Company leases the Companyspace for its two offices in Hauppauge, New York and Edison, New Jersey. Under ASC 842, at contract inception we determine whether the Delaware Court of Chancery, which was previously dismissed voluntarily;contract is or contains a lease and whether the lease should be classified as an operating or finance lease. Operating leases are in right-of-use assets and operating lease liabilities in our consolidated balance sheets.
(ii) The complaintCompany’s leases for declaratoryits two offices are classified as operating leases.
The lease agreements for Hauppauge and injunctive relief for violations of the federal securities laws filedNew Jersey expire on December 21, 2018 by the Company against the Investor Parties in the United States District Court in the Southern District of New York;
(iii) Cross-claims relating to alleged breaches of fiduciary duties31, 2023 and for indemnificationMay 31, 2027, respectively, and contribution filed on July 26, 2019 by the Company against the Investor Parties in New York Supreme Court, Queens County; and
(iv) The complaint to compel annual meeting of stockholders filed on August 7, 2019 by Zeff Capital, L.P. against the Company in the Delaware Court of Chancery.
No party admitteddo not include any liability by entering into the Settlement Agreement.
Concurrently with the Settlement Agreement, the parties entered into a share repurchase agreement (the “Repurchase Agreement”) which provided for the purchase by the Company and Christopher Hughes, the Company’s former President and Chief Executive Officer, of the shares of the Company’s Common Stock held by the Investor Parties (the “Repurchase”). The Settlement Agreement also contemplated that, if the Repurchase was completed, the Company would make a settlement payment to the Investor Parties at the closing of the Repurchase in an amount of approximately $1,500,000 (the “Settlement Payment”). However, the Repurchase and Settlement Payment were not completed by the deadline of December 30, 2019.
Pursuant to the Settlement Agreement, (1) the Company agreed to adopt an amendment to the Company’s Amended and Restated By-Laws, dated April 9, 2015 (the “By-Laws Amendment”), providing that stockholders of the Company owning at least forty percent (40%) of the issued and outstanding Common Stock may request a special meeting of stockholders; (2) the Investor Parties agreed not to take any action to call or otherwise cause a special meeting of stockholders to occur prior to December 30, 2019 (unless the Company had failed to hold the 2018 annual meeting of stockholders); (3) the Company agreed to amend and restate the Company’s Rights Agreement, dated August 29, 2018 (the “Amended Rights Agreement”), to confirm that a Distribution Date (as defined in the Amended Rights Agreement) shall not occur as a result of any request by any of the Investor Parties for a special meeting; (4) the Company agreed that prior to the earlier of (A) the completion of the Repurchase and the payment of the Settlement Payment and (B) January 1, 2020, the Board of Directors shall not consist of more than seven (7) directors.
Pursuant to the terms of the Settlement Agreement, the two nominees for director made by Zeff Capital, L.P., Bradley M. Tirpak and H. Timothy Eriksen, were nominated and subsequently elected as directors at the Company’s 2018 annual meeting of stockholders held on October 22, 2019.
Pursuant to the terms of the Settlement Agreement, inasmuch as the Repurchase was not completed and the Settlement Payment was not made by December 30, 2019, the members of the Board of Directors (other than the two directors who were nominated by Zeff Capital, L.P. and elected as directors at the 2018 annual meeting of stockholders) resigned from the Board effective 5:00 p.m. Eastern Time on December 30, 2019. Immediately thereafter, the two remaining directors appointed Robert Fitzgerald to the Board of Directors.renewal options.
In addition to the Settlement Agreement provides for mutual releases betweenmonthly base amounts in the lease agreements, the Company is required to pay real estate taxes and operating expenses during the lease terms.
For the fiscal years ended May 31, 2023 and 2022, the Company’s operating lease expense for these leases was $282,000 and $326,000, respectively.
Future minimum lease payments under non-cancelable operating leases as of May 31, 2023 were as follows:
Twelve Months Ended May 31, | ||||
2024 | $ | 179,035 | ||
2025 | 123,840 | |||
2026 | 126,936 | |||
2027 | 130,109 | |||
Total undiscounted operating lease payments | 559,920 | |||
Less imputed interest | 67,493 | |||
Present value of operating lease payments | $ | 492,427 |
(Continued)
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TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 31, 2023 and 2022
The following table sets forth the right-of-use assets and operating lease liabilities as of May 31, 2023:
Assets | ||||
Right-of-use assets | $ | 459,171 | ||
Liabilities | ||||
Current operating lease liabilities | $ | 150,167 | ||
Long-term operating lease liabilities | 342,260 | |||
Total operating lease liabilities | $ | 492,427 |
The weighted average remaining lease term for the Company’s operating leases is 3.6 years. The weighted average incremental borrowing rate was 7%.
(4) | Credit Facility |
On November 27, 2019, TSR closed on a five-year revolving credit facility (the “Credit Facility”) pursuant to a Loan and Security Agreement with Access Capital, Inc. (the “Lender”) which provides funding to TSR and its direct and indirect subsidiaries, TSR Consulting Services, Inc., Logixtech Solutions, LLC and Eurologix, S.A.R.L., each of which, together with TSR, is a borrower under the Investor Parties and certain of their affiliates.Credit Facility. Each of the Investor Parties and certainborrowers has provided a security interest to the Lender in all of their affiliates also agreedrespective assets to secure amounts borrowed under the Credit Facility.
TSR expects to utilize the Credit Facility for working capital and general corporate purposes. The maximum amount that may now be advanced under the Credit Facility at any time shall not exceed $2,000,000.
Advances under the Credit Facility accrue interest at a rate per annum equal to (x) the “base rate” or “prime rate” announced by Citibank, N.A. from time to time, which shall be increased or decreased, as the case may be, in an amount equal to each increase or decrease in such “base rate” or “prime rate,” plus (y) 1.75%. The prime rate as of May 31, 2023 was 8.25%, indicating an interest rate of 10.00% on the Credit Facility. The initial term of the Credit Facility is five years, which shall automatically renew for successive five-year periods unless either TSR or the Lender gives written notice to the other of termination at least 60 days prior to the expiration date of the then-current term.
TSR is obliged to satisfy certain customary standstill provisions,financial covenants and minimum borrowing requirements under the Credit Facility, and to pay certain fees, including without limitation,prepayment fees, and provide certain financial information to the Lender. The Company was in compliance with regard to certain actionsall applicable covenants at May 31, 2023.
As of May 31, 2023, the net payments exceeded borrowings outstanding against the Credit Facility resulting in connection witha receivable from the 2018 annual meetingLender of stockholders, Extraordinary Transactions (as defined$71,904, which is include in “Other receivables” in the Settlement Agreement) withconsolidated balance sheet. The amount the Company has borrowed fluctuates and, at times, it has utilized the acquisitionmaximum amount of any securities (or beneficial ownership thereof) of$2,000,000 available under the Company, each of which expired on December 30, 2019.facility to fund its payroll and other obligations.
(5) | Legal Settlement with Investor |
The foregoing is not a complete description of the terms of the Settlement Agreement and the Share Repurchase Agreement. For a further description of the terms of the Settlement Agreement and the Share Repurchase Agreement, including copies of the Settlement Agreement and Share Repurchase Agreement, please see the Company’s Current Report on Form 8-K filed by the Company with the SEC on September 3, 2019.
In addition, onOn April 1, 2020, the Company entered into a binding term sheet (“Term Sheet”) with Zeff Capital, L.P. (“Zeff”) pursuant to which it agreed to pay Zeff an amount of $900,000 over a period of three years in cash or cash and stock in settlement of expenses incurred by Zeff during its solicitations in 2018 and 2019 in connection with the annual meetings of the Company, the costs incurred in connection with the litigation initiated by and against the Company as well as negotiation, execution and enforcement of the Settlement Agreement.and Release Agreement, dated as of August 30, 2019, by and between the Company, Zeff and certain other parties. In exchange for certain mutual releases, the Term Sheet callscalled for a cash payment of $300,000 on June 30, 2021, a second cash payment of $300,000 on June 30, 2022 and a third payment of $300,00$300,000 also on June 30, 2022, which cancould be paid in cash or common stock at the Company’s option. There iswas no interest due on these payments. The agreement also has protections to defer such payment dates so that the debt covenants with the Company’s lender are not breached. On August 13, 2020, the Company, Zeff, Zeff Holding Company, LLC and Daniel Zeff entered into a settlement agreement to reflect these terms. Any installment payment which is deferred as permitted above will accrue interest at the prime rate plus 3.75%, and Zeff shall thereby have the option to convert such deferred amounts (plus accrued interest if any) into shares of the Company’s stock. The Company accrued $818,000, the estimated present value of these payments using an effective interest rate of 5%, in the quarter ended February 29, 2020, as the events relating to the expense occurred prior to such date. The $300,000 payment due on June 30, 2021 was paid when due. The two cash payments of $300,000 each were made by June 30, 2022 in full satisfaction of the settlement.
(Continued)
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TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 31, 2023 and 2022
(6) | Other Matters |
From time to time, the Company is party to various lawsuits, some involving material amounts. Management is not aware of any lawsuits that would have a material adverse impact on the consolidated financial position of the Company except for the litigation disclosed elsewhere in the report, including Notes 5, 7, and 10 to the Consolidated Financial Statements.
(7) | Termination of Former CEO |
The Company terminated Christopher Hughes, the former Chief Executive Officer of the Company (“Hughes”), effective February 29, 2020. 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. After adjusting for insurance reimbursement, the Company accrued a charge of $580,000 to selling, general and administrative expenses in the fiscal year ended May 31, 2022. The total settlement of $705,000 was paid in full in October 2021.
(8) | Payroll Protection Program Loan |
On April 15, 2020, the Company received loan proceeds of $6,659,220 under the Paycheck Protection Program (the “PPP Loan”). The Paycheck Protection Program (“PPP”) was established under the congressionally-approved Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). The PPP Loan to the Company was made through JPMorgan Chase Bank, N.A., a national banking association.
In March 2021, the Company submitted a PPP Loan Forgiveness application to the SBA through the PPP Lender. On July 7, 2021, the Company received notification from the PPP Lender that the SBA approved the Company’s application for forgiveness of the entire principal amount of the PPP Loan plus accrued interest. The PPP Lender will apply the forgiveness amount to satisfy the PPP Loan. The Company has no further obligations with respect to the PPP Loan. The Company recognized “Other Income” of $6,735,246 in the quarter ended August 31, 2021 and fiscal year ended May 31, 2022 related to the forgiveness of the loan principal and accrued interest.
(9) | 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.
Intangible assets are as follows:
May 31, | May 31, | |||||||||||
2022 | Amortization | 2023 | ||||||||||
Database (estimated life 5 years) | $ | 149,500 | $ | 46,000 | $ | 103,500 | ||||||
Non-compete agreement (estimated life 2 years) | 1,250 | 1,250 | - | |||||||||
Trademark (estimated life 3 years) | 25,000 | 20,000 | 5,000 | |||||||||
Customer relationships (estimated life 15 years) | 1,325,000 | 100,000 | 1,225,000 | |||||||||
Total | $ | 1,500,750 | $ | 167,250 | $ | 1,333,500 |
No instances of triggering events or impairment indicators were identified at May 31, 2023 or 2022.
(Continued)
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TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 31, 2023 and 2022
(10) Related Party Transactions
On January 5, 2021, the members of the Board of Directors of the Company other than Robert Fitzgerald approved providing a waiver to QAR Industries, Inc. for its contemplated acquisition of shares owned by Fintech Consulting LLC under the Company’s then existing rights agreement (which covered a now non-existent class of Class A preferred stock) so that a distribution date would not occur under such agreement as a result of the acquisition. QAR Industries, Inc. and Director IndependenceFintech 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 transaction was completed and QAR Industries, Inc. purchased 348,414 shares of TSR’s common stock from Fintech Consulting LLC at a price of $7.25 per share. At the same time, Bradley M. Tirpak, Chairman of TSR, purchased 27,586 shares of TSR’s common stock from Fintech Consulting LLC at a price of $7.25 per share (the “Transaction”). The foregoing Transaction was the subject of litigation due to a complaint filed by Fintech Consulting LLC on December 1, 2021 in the United States District Court for the District of New Jersey under docket Fintech Consulting LLC v. TSR, Inc. et al, Docket No. 2:21-cv-20181-KSH-AME (the “New Jersey Action”). The New Jersey Action was dismissed on December 7, 2022 on jurisdictional grounds on the motion of TSR. Following that dismissal, Fintech Consulting LLC re-filed the lawsuit regarding the foregoing transaction in the Delaware Court of Chancery on January 12, 2023 under docket number Fintech Consulting LLC DBA APTASK v. TSR, Inc., et al., civil action no. 2023-0030-MTZ (the “Delaware Chancery Action”). On January 23, 2023, the Delaware Chancery Action was dismissed without prejudice. On January 22, 2023, Fintech Consulting LLC filed an action in the United States District Court for the District of Delaware under docket Fintech Consulting, LLC v. TSR, Inc., et al, Case Number: 1:23-cv-00074-MN (U.S. Dist. Ct. Dist. of Delaware) (“the Delaware Federal Action”), alleging claims against the Defendants under: (i) Section 10(b) of the Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5, and (ii) the common law, in each case in connection with the Transaction. In order to avoid the time and expense of litigation, the parties negotiated a settlement of this matter pursuant to a settlement agreement and release dated April 24, 2023. As a result, the Company accrued $75,000 in the quarter ended February 28, 2023. This amount was subsequently paid in the fourth quarter of fiscal 2023. Upon the payment of the settlement amount (i) the plaintiffs forever released and discharged the defendants from any and all claims or liability of any nature whatsoever; (ii) the defendants forever released and discharged the plaintiffs from any and all claims or liability of any nature whatsoever that relate to the Delaware Federal Action or the Transaction; and (iii) the plaintiffs filed a Stipulation of Dismissal with Prejudice on April 27, 2023.
The Company has provided placement services for an entity in which a Board of DirectorsDirector of the Company is the CEO. Revenues for such services in fiscal 2023 and 2022 in the 2020 fiscal year consistedamounts of Bradley M. Tirpak (Chairman), H. Timothy Eriksen$71,000 and Robert Fitzgerald. In addition, Ira D. Cohen and Raymond A. Roel served$59,000, respectively. There were no amounts outstanding as directors during the 2020 fiscal year until October 22, 2019 when they were not re-elected at the 2018 annual meetingaccounts receivable from this entity as of stockholders on such date. Christopher Hughes, William J. Kelly, Brian J. Mangan, Joseph Pennacchio and Eric M. Stein also served as directors during the 2020 fiscal year until December 30, 2019 when they resigned on such date.May 31, 2023.
(11) Common Stock
Bradley M. Tirpak, H. Timothy Eriksen, Robert Fitzgerald, Ira D. Cohen, William J. Kelly, Brian J. Mangan, Eric M. SteinOur certificate of incorporation, as amended, authorizes the issuance of up to 12,500,000 shares of common stock, $0.01 par value per share.
On October 8, 2021, the Company filed an automatic shelf registration statement on Form S-3 (File No. 333-260152) (the “2021 TSRI Shelf”) which contains (i) a base prospectus, which covers the offering, issuance and Raymond A. Roel qualifysale by the Company of up to $5,000,000 in the aggregate of shares of common stock from time to time in one or more offerings; and (ii) a sales agreement prospectus, which covers the offering, issuance and sale by the Company of up to $4,167,000 in the aggregate of shares of common stock that may be issued and sold from time to time under an at-the-market sales agreement (the “ATM”) by and between the Company and A.G.P./Alliance Global Partners, as “independent directors”sales agent (the “Agent”). The $4,167,000 of common stock that may be offered, issued and sold under the NASDAQ rules.sales agreement prospectus is included in the $5,000,000 of shares of common stock that may be offered, issued and sold by the Company under the base prospectus. Upon termination of the sales agreement, any portion of the $4,167,000 included in the sales agreement prospectus that is not sold pursuant to the sales agreement will be available for sale in other offerings pursuant to the base prospectus and if no shares are sold under the agreement, the full $4,167,000 of securities may be sold in other offerings pursuant to the base prospectus. Under the ATM, we pay the Agent a commission rate equal to 3.0% of the gross sales price per share of all shares sold through the Agent under the sales agreement.
Audit Fees(Continued)
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TSR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
May 31, 2023 and 2022
During the fiscal year ended May 31, 2022, we sold an aggregate of 142,500 shares of common stock pursuant to the ATM for total gross proceeds of $1,965,623 at an average selling price of $13.79 per share, resulting in net proceeds of $1,783,798 after deducting $181,825 in commissions and other transactions costs. There were no shares sold during the fiscal year ended May 31, 2023.
The aggregate fees billed by CohnReznick LLP for professional services related2021 TSRI Shelf is currently our only active shelf-registration statement. We may offer TSR common stock registered under the 2021 TSRI Shelf from time to time in response to market conditions or other circumstances if we believe such a plan of financing is in the best interests of our stockholders. We believe that the 2021 TSRI Shelf provides us with the flexibility to raise additional capital to finance our operations as needed. However, there is no assurance we will be successful in doing so.
(12) Stock-based Compensation Expense
On January 28, 2021, the Company granted 108,333 shares in time vesting restricted stock awards and 69,167 shares in time and performance vesting restricted stock awards to officers, directors and key employees under the TSR, Inc. 2020 Equity Incentive Plan (the “Plan”). The time vesting shares vest in tranches at the one-, two- and three-year anniversaries of the grants (“service condition”). These shares had a grant date fair value of $826,000 based on the closing price of TSR’s common stock on the day prior to the auditgrants. The associated compensation expense is recognized on a straight-line basis over the time between grant date and the date the shares vest (the “service period”). The time and performance vesting shares also vest in tranches at or after the two- and three-year anniversaries of the grants. The performance condition is defined in the grant agreements and relates to the market price of the Company’s consolidated financial statementscommon stock over a stated period of time (“market condition”). These shares had a grant date value of $262,000 based on the closing price of TSR common shares on the day prior to the grants discounted by an estimated forfeiture rate of 40-60%. The Company took into account the historical volatility of its common stock to assess the probability of satisfying the market condition. The associated compensation expense is recognized on a straight-line basis between the time the achievement of the performance criteria is deemed probable and the review oftime the consolidated condensed financial statements included in the Company’s quarterly reports on Form 10-Q forshares may vest. During the fiscal years ended May 31, 20202023 and 20192022, $219,000 and $565,000, respectively, has been record as stock-based compensation expense and included in selling, general and administrative expenses. As of May 31, 2023, there is approximately $68,000 of unearned compensation expense that will be expensed through February 2024; 142,666 stock awards expected to vest; 82,499 awards vested to date, of which 16,635 were $78,000, respectively.forfeited to pay taxes applicable to the stock awards.
(13) Stock Repurchase Program
Audit-Related FeesOn September 12, 2022, the Board of Directors authorized a stock repurchase program of up to $500,000 of the Company’s outstanding common stock, par value $0.01 per share. The stock repurchase program commenced two business days after the filing of the related Form 8-K and is authorized for twelve (12) months following the commencement date.
There wereThe shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in accordance with federal securities laws. The actual timing, number and value of shares repurchased under the program will be determined by the Board of Directors at its discretion and will depend on a number of factors, including the market price of Company’s stock, general market and economic conditions, and applicable legal and contractual requirements. The Company has no fees billedobligation or commitment to repurchase all or any portion of the shares covered by CohnReznick LLP for audit related services forthis authorization.
During the fiscal yearsyear ended May 31, 2020 or 2019.
Tax Fees
There2023, 26,714 shares of the Company’s common stock were no fees billed by CohnReznick LLP for tax services duringrepurchased at an aggregate cost of $212,892. No shares were repurchased in the fiscal yearsyear ended May 31, 20202022.
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TSR, INC. AND SUBSIDIARIES
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures. The Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective.
Internal Control Over Financial Reporting. There was no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s most recently reported completed fiscal quarter that has materially affected, or 2019.is reasonably likely to materially affect, the Company’s internal control over financial reporting.
All Other Fees
There were no fees billed by CohnReznick LLP related to any other non-audit services for the fiscal years ended May 31, 2020 or 2019.
PolicyManagement’s Report on Pre-Approval of Audit and Permissible Non-Audit Services
Internal Control Over Financial Reporting. The Audit CommitteeCompany’s management is responsible for appointing, setting compensationestablishing and overseeingmaintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the workExchange Act. Under the supervision and with the participation of the independent registered public accounting firm. In accordance withCompany’s management, including its charter,principal executive officer and principal financial officer, the AuditCompany conducted an evaluation of the effectiveness of its internal control over financial reporting based on criteria established in the framework in Internal Control – Integrated Framework (2013) issued by the Committee approves, in advance, all audit and permissible non-audit servicesof Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company’s management concluded that its internal control over financial reporting was effective as of May 31, 2023.
Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, internal control over financial reporting determined to be performed byeffective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the independent registered public accounting firm. Such approval process ensuresrisk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm doesregarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide any non-audit servicesonly management’s report in this annual report.
Item 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Page 34
TSR, INC. AND SUBSIDIARIES
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item 10 is incorporated by reference to the Company that are prohibitedCompany’s definitive proxy statement in connection with the 2023 Annual Meeting of Stockholders.
Item 11. Executive Compensation
The information required by law or regulation.this Item 11 is incorporated by reference to the Company’s definitive proxy statement in connection with the 2023 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 is incorporated by reference to the Company’s definitive proxy statement in connection with the 2023 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 is incorporated by reference to the Company’s definitive proxy statement in connection with the 2023 Annual Meeting of Stockholders.
Item 14. Principal Accountant Fees and Services
The information required by this Item 14 is incorporated by reference to the Company’s definitive proxy statement in connection with the 2023 Annual Meeting of Stockholders.
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a) | The following documents are filed as part of this report: |
1. | The consolidated financial statements |
Financial Statement Schedules have been omitted, since they are either not applicable, not required or the information is included elsewhere herein. |
2. | Exhibits as listed in Exhibit Index on page 37. |
Item 16. Form 10-K Summary- not used
Page 35
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the Undersigned, thereunto duly authorized.
TSR, INC.
By: | /s/ Thomas Salerno | |
Dated: |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
/s/ Thomas Salerno | |
Thomas Salerno, Chief Executive Officer, President, Treasurer and Principal Executive Officer |
/s/ John G. Sharkey | |
John G. Sharkey, Sr. Vice President, Chief Financial Officer, Secretary, Principal Financial Officer and Principal Accounting Officer |
/s/ Bradley M. Tirpak | |
Bradley M. Tirpak, Chairman of the Board of Directors | |
/s/ H. Timothy Eriksen | |
H. Timothy Eriksen, Director | |
/s/ Robert Fitzgerald | |
Robert Fitzgerald, Director |
Dated: August 11, 2023
Page 36
TSR, INC. AND SUBSIDIARIES
EXHIBIT INDEX
FORM 10-K/A, SEPTEMBER 28, 202010-K, MAY 31, 2023
Page 37
TSR, INC. AND SUBSIDIARIES
EXHIBIT INDEX (continued)
FORM 10-K, MAY 31, 2023
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.Page 38
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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