| Summary of Significant Accounting Policies | (1) Summary
of Significant Accounting Policies
(a) Business,
Nature of Operations and Customer Concentrations TSR,
Inc. and Subsidiaries (the “Company”) are primarily engaged in providing contract computer programming services to
commercial customers located primarily in the Metropolitan New York area. The Company provides its customers with technical computer
personnel to supplement their in-house information technology (“IT”) capabilities. In addition, beginning in fiscal
2017, the Company has provided and continues to provide administrative (non-IT) workers on a contract basis to two of its existing
customers. In fiscal 2018, three customers each accounted for more than 10% of the Company’s consolidated revenue, constituting
a combined 48.7%. The largest of these constituted 20.7% of consolidated revenue. In fiscal 2017, three customers each accounted
for more than 10% of the Company’s consolidated revenue, constituting a combined 44.9%. The largest of these constituted
19.4% of consolidated revenue. The accounts receivable balances associated with the Company’s largest customers were $3,692,000
for three customers at May 31, 2018 and $3,340,000 for three customers at May 31, 2017. The Company operates in one business segment,
contract staffing services.
(b) Principles
of Consolidation The
consolidated financial statements include the accounts of TSR, Inc. and its subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
(c) Revenue
Recognition The
Company’s contract computer programming and administrative staffing services are generally provided under time and materials
arrangements with its customers. Revenue is recognized in accordance with Accounting Standards Codification (“ASC”)
Topic 605, “Revenue Recognition”, when persuasive evidence of an arrangement exists, the services have been rendered,
the price is fixed or determinable, and collectability is reasonably assured. These conditions occur when a customer agreement
is effected and the consultant performs the authorized services. Revenue is recorded net of all discounts and processing fees.
Advances from customers represent amounts received from customers prior to the Company’s completion of the related services
and credit balances from overpayments. Reimbursements
received by the Company for out-of-pocket expenses are characterized as revenue.
(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 May 31, 2018 and 2017:
2018 2017
Cash in banks $ 4,723,700 $ 4,634,245
Money market funds 599,737 840,731
Certificates of deposit - 249,000
$ 5,323,437 $ 5,723,976
(e) Certificates
of Deposit and Marketable Securities The
Company has characterized its investments in marketable securities, based on the priority of the inputs used to value the investments,
into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets
for identical assets or liabilities (Level 1), and lowest priority to unobservable inputs (Level 3). If the inputs used to measure
the investments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant
to the fair value measurement of the instrument. Investments
recorded in the accompanying consolidated balance sheets are categorized based on the inputs to valuation techniques as follows:
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, 2018 and 2017 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, 2018 Level
1 Level
2 Level
3 Total
Certificates of Deposit $ - $ 493,000 $ - $ 493,000
Equity Securities 44,160 - - 44,160
$ 44,160 $ 493,000 $ - $ 537,160
May
31, 2017 Level
1 Level
2 Level
3 Total
Certificates of Deposit $ - $ 992,000 $ - $ 992,000
Equity Securities 28,888 - - 28,888
$ 28,888 $ 992,000 $ - $ 1,020,888 Based upon the Company’s intent and ability to
hold its certificates of deposit to maturity (which maturities 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
certificates of deposit and marketable securities at May 31, 2018 and 2017 are summarized as follows:
May 31, 2018 Amortized Gross Gross Recorded
Current
Certificates of Deposit $ 493,000 $ - $ - $ 493,000
Equity Securities 16,866 27,294 - 44,160
$ 509,866 $ 27,294 $ - $ 537,160
May 31, 2017
Current
Certificates of Deposit $ 992,000 $ - $ - $ 992,000
Equity Securities 16,866 12,022 - 28,888
$ 1,008,866 $ 12,022 $ - $ 1,020,888 The
Company’s investments in marketable securities consist primarily of investments in certificates of deposit and 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 income available to common stockholders of TSR, Inc. by the weighted average
number of common shares outstanding. The Company had no stock options or other common stock equivalents outstanding during the
fiscal years ended May 31, 2018 or 2017.
(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 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 accounting principles generally accepted in the United States of America
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) Impact
of New Accounting Standards In
May 2014, the FASB issued an update to ASC 606, “Revenue from Contracts with Customers.” This update to ASC 606 provides
a five-step process to determine when and how revenue is recognized. The core principle of the guidance is that a Company should
recognize revenue upon transfer of promised goods or services to customers in an amount that reflects the expected consideration
to be received in exchange for those goods or services. This update to ASC 606 will also result in enhanced disclosures about
revenue, providing guidance for transactions that were not previously addressed comprehensively, and improving guidance for multiple-element
arrangements. This update to ASC 606 is effective for the Company in the fiscal year ending May 31, 2019. The Company expects
the impact of the update, if any, to be immaterial on its consolidated financial statements. In
November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,”
which applies to the classification of deferred tax assets and liabilities. The update eliminates the requirement to classify
deferred tax assets and liabilities as noncurrent or current within a classified statement of financial position. This ASU is
effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods and should be
applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. The Company adopted
this guidance in the first quarter of fiscal 2018. The Company’s deferred tax assets and liabilities have been classified
as noncurrent. In
January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial
Assets and Financial Liabilities.” The amendments in this update require all equity investments to be measured at fair value
with changes in the fair value recognized through net income. The amendments in this update also require an entity to present
separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change
in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the
fair value option for financial instruments. In addition, the amendments in this update eliminate the requirement to disclose
the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the
requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed
for financial instruments measured at amortized cost on the balance sheet for public business entities. This update is effective
for the Company in the fiscal year ending May 31, 2019. The Company expects the impact of the update, if any, to be immaterial
on its consolidated financial statements. In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This update includes a lease accounting model that
recognizes two types of leases – finance leases and operating leases. The standard requires that a lessee recognize on the
balance sheet assets and liabilities relating to leases with terms of more than 12 months. The recognition, measurement, and presentation
of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease.
This update is effective for the Company in the fiscal year ending May 31, 2020. The Company is currently evaluating the impact,
if any, of this update on its consolidated financial statements. In
March 2016, the FASB issued ASU 2016-08, “Principal versus Agent Consideration (Topic 606).” This update contains
guidance on principal versus agent assessments when a third party is involved in providing goods or services to a customer. It
specifies that an entity is a principal, and thus records revenue on a gross basis, if it controls a good or service before transferring
the good or service to the customer. An entity is an agent, and thus records revenue on a net basis, if it arranges for a good
or service to be provided by another entity. This update is effective for the Company in the fiscal year ending May 31, 2019.
The Company expects the impact of the update, if any, to be immaterial on its consolidated financial statements. In
May 2016, the FASB issued ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients (Topic 606).” This update
provides certain clarifications to reduce potential diversity and to simplify the standard. The amendments in ASU 2016-12 clarify
the following key areas: assessing collectibilty; presenting sales taxes and other similar taxes collected from customers; noncash
consideration; contract modifications at transition; completed contracts at transition; and disclosing the accounting change in
the period of adoption. This update is effective for the Company in the fiscal year ending May 31, 2019. The Company expects the
impact of the update, if any, to be immaterial on its consolidated financial statements.
(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. The Company’s accounts receivable represent 43 accounts with open balances as of May 31, 2018. As a percentage
of revenue, the three largest customers among these 43 accounts consisted of 51.1% of the net accounts receivable balance at May
31, 2018. |
