UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the quarterly period ended
For the transition period from __ to __
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of Incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number)
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 | ||
Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. ☒
Indicate
by check mark whether the registrant has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large Accelerated Filer ☐ | Accelerated Filer ☐ | |
| Smaller Reporting Company | ||
| Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes
As of January
7, 2022, there were
Additionally, there were 177,500 unvested shares of restricted common stock awarded under the TSR, Inc. 2020 Equity Incentive Plan, subject to certain vesting criteria described herein.
TSR, INC. AND SUBSIDIARIES
INDEX
i
Part I. Financial Information
Item 1. Financial Statements
TSR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
November 30, | May
31, | |||||||
| ASSETS | (Unaudited) | (see Note 1) | ||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Other receivables | ||||||||
| Prepaid expenses | ||||||||
| Prepaid and recoverable income taxes | ||||||||
| Total Current Assets | ||||||||
| Equipment and leasehold improvements, net of accumulated depreciation and amortization of $ | ||||||||
| Other assets | ||||||||
| Right-of-use assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Deferred income taxes | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and other payables | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Advances from customers | ||||||||
| Credit facility | ||||||||
| Operating lease liabilities - current | ||||||||
| Legal settlement payable - current | ||||||||
| Total Current Liabilities | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Legal settlement payable, net of current portion | - | |||||||
| SBA Paycheck Protection Program loan payable | - | |||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Equity: | ||||||||
| TSR, Inc.: | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Less: Treasury stock, | ||||||||
| Total TSR, Inc. Equity | ||||||||
| Noncontrolling interest | ||||||||
| Total Equity | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 1
TSR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended November 30, 2021 and November 30, 2020
(UNAUDITED)
| Three
Months Ended November 30, | Six
Months Ended November 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue, net | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on PPP Loan and interest forgiveness | ||||||||||||||||
| Unrealized loss on marketable securities, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ||||||||||||
| Provision (benefit) from income taxes | ( | ) | ( | ) | ||||||||||||
| Consolidated
net income (loss) | ( | ) | ( | ) | ||||||||||||
| Less:
Net income (loss) attributable to noncontrolling interest | ( | ) | ||||||||||||||
| Net income (loss) attributable to TSR, Inc. | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Basic net income (loss) per TSR, Inc. common share | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Diluted net income (loss) per TSR, Inc. common share | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Basic weighted average number of common shares outstanding | ||||||||||||||||
| Diluted weighted average number of common shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 2
TSR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Three Months and Six Months Ended November 30, 2021 and November 30, 2020
(UNAUDITED)
| Shares of common stock | Common stock | Additional paid-in capital | Retained earnings | Treasury stock | TSR, Inc. equity | Non- controlling interest | Total equity | |||||||||||||||||||||||||
| Balance at May 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Net income attributable to noncontrolling interest | - | |||||||||||||||||||||||||||||||
| Net loss attributable to TSR, Inc. | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at Aug. 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Net loss attributable to noncontrolling interest | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net loss attributable to TSR, Inc. | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at Nov. 30, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Balance at May 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Net income attributable to noncontrolling interest | - | |||||||||||||||||||||||||||||||
| Distribution to noncontrolling interest | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Non-cash stock compensation | - | |||||||||||||||||||||||||||||||
| Net income attributable to TSR, Inc. | - | |||||||||||||||||||||||||||||||
| Balance at Aug. 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Net income attributable to noncontrolling interest | - | |||||||||||||||||||||||||||||||
| Distribution to noncontrolling interest | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Non-cash stock compensation | - | |||||||||||||||||||||||||||||||
| Net income attributable to TSR, Inc. | - | |||||||||||||||||||||||||||||||
| Balance at Nov. 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 3
TSR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Six Months Ended November 30, 2021 and November 31, 2020
(UNAUDITED)
| Six Months Ended November 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Consolidated net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile consolidated net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Unrealized loss on marketable securities, net | ||||||||
| Deferred income taxes | ( | ) | ||||||
| Non-cash lease recovery | ( | ) | ( | ) | ||||
| Non-cash Right-of-use asset impairment charge | ||||||||
| Forgiveness of principal and accrued interest on SBA PPP loan | ( | ) | ||||||
| Non-cash stock-based compensation expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Other receivables | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Prepaid and recoverable income taxes | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable, other payables, accrued expenses and other current liabilities | ||||||||
| Advances from customers | ( | ) | ( | ) | ||||
| Legal settlement payable | ( | ) | ||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of Geneva Consulting Group, Inc., net of cash acquired of $ | ( | ) | ||||||
| Purchases of equipment and leasehold improvements | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net repayments on Credit Facility | ( | ) | ( | ) | ||||
| Distribution to noncontrolling interest | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow data: | ||||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Right-of-use asset and operating lease liability | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 4
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
| 1. | Basis of Presentation |
The accompanying condensed consolidated interim financial statements include the accounts of TSR, Inc. and its subsidiaries. Unless otherwise stated or the context otherwise requires, the terms “we,” “us,” “our,” and the “Company” refer to TSR, Inc. and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. The condensed balance sheet as of May 31, 2021, which has been derived from audited financial statements, and the unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America applying to interim financial information and with the instructions to Form 10-Q of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures required by accounting principles generally accepted in the United States of America and normally included in the Company’s annual financial statements have been condensed or omitted. These condensed consolidated interim financial statements as of and for the three months and six months ended November 30, 2021 are unaudited; however, in the opinion of management, such statements include all adjustments (consisting of normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company for the periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending May 31, 2022. These condensed consolidated interim financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended May 31, 2021.
| 2. | Net Income (Loss) Per Common Share |
Basic net income (loss) per common
share is computed by dividing net income (loss) available to common stockholders of TSR, Inc. by the weighted average number of common
shares outstanding during the reporting period, excluding the effects of any potentially dilutive securities. During the quarter ended
February 28, 2021, the Company granted time and performance vesting restricted stock awards under its 2020 Equity Incentive Plan (see
Note 17 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 restricted stock awards of
| 3. | 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 November 30, 2021 and May 31, 2021:
| November 30, 2021 | May 31, 2021 | |||||||
| Cash in banks | $ | $ | ||||||
| Money market funds | ||||||||
| $ | $ | |||||||
| 4. | Fair Value of Financial Instruments |
Accounting Standards Codification (“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.
Page 5
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
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:
| ● | non-financial assets and liabilities initially measured at fair value in an acquisition or business combination, and | |
| ● | long-lived assets measured at fair value due to an impairment assessment under ASC 360-10-15, Impairment or Disposal of Long-Lived Assets. |
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 liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals. | |
| ● | 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. |
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company classifies such financial assets or liabilities based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
ASC Topic 825, Financial Instruments, requires disclosure of the fair value of certain financial instruments. For cash and cash equivalents, accounts receivable, accounts and other payables, accrued liabilities and advances from customers, the amounts presented in the condensed consolidated financial statements approximate fair value because of the short-term maturities of these instruments.
| 5. | 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 condensed 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. |
Page 6
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
The following are the major categories of assets measured at fair value on a recurring basis as of November 30, 2021 and May 31, 2021 using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2) and significant unobservable inputs (Level 3):
| November 30, 2021 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Equity Securities | $ | $ | $ | $ | ||||||||||||
| May 31, 2021 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Equity Securities | $ | $ | $ | $ | ||||||||||||
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 November 30, 2021 and May 31, 2021 are summarized as follows:
| November 30, 2021 | Amortized Cost | Gross Unrealized Holding Gains | Gross Unrealized Holding Losses | Recorded Value | ||||||||||||
| Equity Securities | $ | $ | $ | $ | ||||||||||||
| May 31, 2021 | Amortized Cost | Gross Unrealized Holding Gains | Gross Unrealized Holding Losses | Recorded Value | ||||||||||||
| Equity Securities | $ | $ | $ | $ | ||||||||||||
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.
Page 7
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
| 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 9, 10 and 16 to the Condensed Consolidated Financial Statements and in the section titled “Item 1, Legal Proceedings” in Part II of this report.
| 7. | Leases |
The Company leases the space for its three offices in New York City, Hauppauge and New Jersey. Under ASC 842, at contract inception we determine whether the 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 are in our condensed consolidated balance sheets.
The Company’s leases for its three offices are classified as operating leases.
In addition to the monthly base amounts in the lease agreements, the Company is required to pay real estate taxes and operating expenses during the lease terms.
For the six months ended November 30,
2021 and 2020, the Company’s operating lease expense for these leases was $
Future minimum lease payments under non-cancellable operating leases as of November 30, 2021 were as follows:
| Twelve Months Ending November 30, | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total undiscounted operating lease payments | ||||
| Less imputed interest | ||||
| Present value of operating lease payments | $ | |||
Page 8
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
The following table sets forth the right-of-use assets and operating lease liabilities as of November 30, 2021:
| Assets | ||||
| Right-of-use assets, net | $ | |||
| Liabilities | ||||
| Current operating lease liabilities | $ | |||
| Long-term operating lease liabilities | ||||
| Total operating lease liabilities | $ | |||
The weighted average remaining lease
term for the Company’s operating leases is
| 8. | Credit Facility |
On November 27,
2019, TSR closed on a revolving credit facility (the “Credit Facility”) pursuant to a Loan and Security Agreement with Access
Capital, Inc. (the “Lender”) that initially provided up to $
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 $
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 November 30, 2021 was 3.25%, indicating an interest rate of 5.0% on the line of credit. 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 financial covenants and minimum borrowing requirements under the Credit Facility, and to pay certain fees, including prepayment fees, and provide certain financial information to the Lender. The Company was in compliance with all applicable covenants at November 30, 2021.
As of November 30, 2021, the net borrowings
outstanding against this line of credit facility were $
Page 9
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
| 9. | Termination of Former CEO |
The Company terminated Christopher
Hughes, the former Chief Executive Officer of the Company (“Hughes”), effective February 29, 2020 for “Cause”
as defined in Section 6(a) of his Amended and Restated Employment Agreement dated August 9, 2018 (the “Employment Agreement”).
Despite having already been terminated from employment, 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 Section 7(c) of the Employment Agreement pursuant to which he claimed
to be entitled to the “Enhanced Severance Amount” under the 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:
In October 2021, the Company and Hughes
agreed through mediation to settle this matter. In order to avoid lengthy and costly litigation and discovery expenses, the Company has
paid Hughes $
| 10. | Legal Settlement with Investor |
On 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 $
| 11. | COVID-19 |
The COVID-19 outbreak in the United States has caused business disruption including mandated and voluntary closing of various businesses. While the disruption is currently expected to be temporary, there is considerable uncertainty around the duration of the closings and the impact of the pandemic on our business. Therefore, the Company expects this matter to continue to negatively impact its operating results in future periods. The full financial impact and duration cannot be reasonably estimated at this time.
Page 10
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
| 12. | Paycheck Protection Program Loan |
On April 15, 2020, the Company received
loan proceeds of $
In March 2021, the Company submitted
a PPP Loan Forgiveness application to the SBAS 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 $
| 13. | Geneva Consulting Group Acquisition |
On September 1, 2020, the Company completed the acquisition of all of the outstanding stock of Geneva Consulting Group, Inc., a New York corporation (“Geneva”) and provider of temporary and permanent information technology personnel based in Port Washington, New York. The stock of Geneva was purchased from the three shareholders of Geneva (the “Sellers”), none of which had, or will have following the acquisition, a material relationship with the Company or its affiliates.
The purchase price for the shares of Geneva is comprised of the following: (i) $1,452,000 in cash paid to Sellers at the closing of the acquisition, (ii) an amount of $748,000, that is equal to the amount of Geneva’s loan under the PPP that was not assumed by the Company and is expected to be substantially forgiven by the SBA, (iii) an amount up to $300,000, which may be paid as an earnout payment in part in February 2021 and in part in August 2021 (the “Earnout Payments”), (iv) bonus payments payable in $10,000 increments, (v) $747,000 for the net working capital of Geneva as of closing and (vi) other purchase price adjustments of which $36,000 has been paid to date. Any Earnout Payments and bonus payments will be determined based upon the achievement of certain criteria relating to the number the Company’s contractors working full-time at the Company’s client locations on such dates.
The initial Earnout Payments and bonus payment liability was valued at its fair value using an option pricing based approach with a risk-neutral framework using Black Scholes due to the option-like nature of the earn-out payment structure (Level 3 of the fair value hierarchy). The Earnout Payments were revalued quarterly prior to the resolution discussed below, using a present value approach and any resulting increase or decrease was recorded into selling, general and administrative expenses. Any changes in the amount of the actual results and forecasted scenarios could impact the fair value. Significant judgment was employed in determining the appropriateness of the assumptions used in calculating the fair value of the Earnout Payments as of the acquisition date and subsequent period ends.
On March 17, 2021, the Company entered
into an agreement with the Sellers’ representatives pursuant to which the parties agreed to resolve certain interpretive differences
regarding the Sellers’ entitlement to the bonus payments described above.
Page 11
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
The acquisition was accounted for as an acquisition of a business in accordance with the acquisition method of accounting. The acquired assets and assumed liabilities have been recorded at their fair values. The Company determined the fair values with the assistance of valuations performed by an independent third-party specialist.
The Company has incurred approximately
$
The following table summarizes the components of the purchase price at fair values at September 1, 2020:
| Cash consideration paid to date | $ | |||
| Estimated earnout and other liabilities | ||||
| Total purchase price | $ |
The following table summarizes the allocation of purchase price at estimated fair values at September 1, 2020:
| Cash | $ | |||
| Accounts receivable | ||||
| Prepaid expenses | ||||
| Intangible assets (see Note 15) | ||||
| Goodwill | ||||
| Accrued expenses | ( | ) | ||
| Net assets | $ |
The following unaudited pro forma financial information presents the combined operating results of the Company and Geneva as if the acquisition had occurred as of the beginning of the earliest period presented. Pro forma data is subject to various assumptions and estimates and is presented for informational purposes only. This pro forma data does not purport to represent or be indicative of the consolidated operating results that would have been reported had the transaction been completed as described herein, and the data should not be taken as indicative of future operating results.
Unaudited pro forma financial information assuming the acquisition of Geneva as of June 1, 2020 is presented in the following table (in thousands):
| Six Months Ended | ||||||||
| November 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenue | $ | $ | ||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Diluted earnings (loss) per share | $ | $ | ( | ) | ||||
Page 12
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
| 14. | 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, 2021 and no impairment was found.
| 15. | 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 identified in the Geneva acquisition are as follows:
| May 31, | November 30, | |||||||||||
| 2021 | Amortization | 2021 | ||||||||||
| $ | $ | $ | ||||||||||
| $ | $ | $ | ||||||||||
No instances of triggering events or impairment indicators were identified at November 30, 2021.
| 16. | 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 Fintech Consulting LLC were both principal stockholders of the Company, each owning more than
On February 3, 2021, the transaction
was completed and QAR Industries, Inc. purchased
Page 13
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
| 17. | Stock-based Compensation Expense |
On January 28, 2021, the Company granted
Page 14
TSR, INC. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the notes to such financial statements.
Forward-Looking Statements
Certain statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations, including statements concerning the Company’s plans, future prospects and the Company’s future cash flow requirements are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projections in the forward-looking statements due to known and unknown risks and uncertainties, including but not limited to the following: 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 has a negative impact on the Company’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, 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; 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 a party; and other risks and uncertainties set forth in the Company’s filings with the Securities and Exchange Commission. The Company is under no obligation to publicly update or revise forward-looking statements.
Results of Operations
The following table sets forth, for the periods indicated, certain financial information derived from the Company’s condensed consolidated statements of operations. There can be no assurance that trends in operating results will continue in the future.
Three months ended November 30, 2021 compared with three months ended November 30, 2020:
| (Dollar amounts in thousands) Three Months Ended | ||||||||||||||||
| November 31, 2021 | November 31, 2020 | |||||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | |||||||||||||
| Revenue, net | $ | 23,864 | 100.0 | % | $ | 16,069 | 100.0 | % | ||||||||
| Cost of sales | 19,816 | 83.0 | % | 13,234 | 82.4 | % | ||||||||||
| Gross profit | 4,048 | 17.0 | % | 2,835 | 17.6 | % | ||||||||||
| Selling, general and administrative expenses | 3,633 | 15.2 | % | 3,059 | 19.0 | % | ||||||||||
| Income (loss) from operations | 415 | 1.8 | % | (224 | ) | (1.4 | )% | |||||||||
| Other expense, net | (32 | ) | (0.2 | )% | (54 | ) | (0.3 | )% | ||||||||
| Income (loss) before income taxes | 383 | 1.6 | % | (278 | ) | (1.7 | )% | |||||||||
| Provision (benefit) from income taxes | 128 | 0.5 | % | (30 | ) | (0.2 | )% | |||||||||
| Consolidated net income (loss) | 255 | 1.1 | % | (248 | ) | (1.5 | )% | |||||||||
| Less: Net income (loss) attributable to noncontrolling interest | 12 | 0.1 | % | (1 | ) | 0.0 | % | |||||||||
| Net income (loss) attributable to TSR, Inc. | $ | 243 | 1.0 | % | $ | (247 | ) | (1.5 | )% | |||||||
Page 15
TSR, INC. AND SUBSIDIARIES
Revenue
Revenue consists primarily of revenue from computer programming consulting services. Revenue for the quarter ended November 30, 2021 increased approximately $7,795,000 or 48.5% from the quarter ended November 30, 2020, primarily due to new business development, organic growth and expanded activity with Geneva clients. The average number of consultants on billing with customers increased from 449 for the quarter ended November 30, 2020 to 715 for the quarter ended November 30, 2021. There were 324 and 426 IT contractors at November 30, 2020 and 2021, respectively; while there were 126 and 289 clerical and administrative contractors at November 31, 2020 and 2021, respectively.
We experienced terminated assignments and a decrease in demand for new assignments during fiscal 2021 due to the COVID-19 pandemic, which led to the lower number of consultant placements during the year and negatively impacted the Company’s revenues. Additionally, the COVID-19 pandemic has created operational challenges. The start of certain new assignments has been and continues to be delayed due to delays in obtaining necessary clearances, as many of the agencies required to be contacted in obtaining the information needed for background checks have been fully or partially closed. By the end of the first quarter of fiscal 2021, the Company had used 100% of the $6,659,000 proceeds from the PPP Loan (as defined in Note 12 to the Condensed Consolidated Unaudited Financial Statements elsewhere in this report) it received in April 2020 to fund its payroll and other allowable expenses, which was fully forgiven in July 2021. The use of these proceeds allowed the Company to avoid certain salary reductions, furloughs and layoffs of employees during the covered period.
Cost of Sales
Cost of sales for the quarter ended November 30, 2021 increased approximately $6,582,000 or 49.7% to $19,816,000 from $13,234,000 in the prior year period. The increase in cost of sales resulted primarily from an increase in consultants placed with customers, primarily from the new business development activity, organic growth and expanded activity with Geneva clients. Cost of sales as a percentage of revenue increased from 82.4% in the quarter ended November 30, 2020 to 83.0% in the quarter ended November 30, 2021. The percentage increase in cost of sales for the quarter ended November 30, 2021 as compared to the prior year period (49.7% increase) was higher than the percentage increase in revenue for the quarter ended November 30, 2021 as compared to the prior year period (48.5% increase), causing a decrease in gross margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of expenses relating to account executives, technical recruiters, facilities costs, management and corporate overhead. These expenses increased approximately $574,000 or 18.9% from $3,059,000 in the quarter ended November 30, 2020 to $3,633,000 in the quarter ended November 30, 2021. The increase in these expenses primarily resulted from an additional $456,000 in selling, general and administrative expenses from the Geneva acquisition. The Company has invested in developing both on shore and offshore recruiting teams to support the potential of the Geneva accounts. Additionally, the Company incurred non-cash compensation expenses of $177,000 in the current quarter related to the Plan. Selling, general and administrative expenses, as a percentage of revenue decreased to 15.2% in the quarter ended November 30, 2021 from 19.0% in the quarter ended November 30, 2020.
Other Income (Expense)
Other income (expense) for the quarter ended November 30, 2021 resulted primarily from net interest expense of approximately $28,000 and a mark to market loss of approximately $4,000 on the Company’s marketable equity securities. Other expense for the quarter ended November 30, 2020 resulted primarily from net interest expense of $52,000 and a mark to market loss of approximately $2,000 on the Company’s marketable equity securities. The decrease in interest expense is primarily attributed to the forgiveness of the PPP loan principal and interest in July 2021.
Income Tax Provision (Benefit)
The income tax provision (benefit) included in the Company’s results of operations for the quarters ended November 30, 2021 and 2020 reflect the Company’s estimated effective tax rate for the fiscal years ending May 31, 2022 and 2021, respectively. These rates resulted in a provision of 33.4% for the quarter ended November 30, 2021 and a benefit of 10.8% for the quarter ended November 30, 2020. The difference between the rates is that for fiscal 2022 a full year profit is projected and in fiscal 2021 a taxable loss was projected, and the expected tax benefit was reduced by certain non-deductible expenses.
Page 16
TSR, INC. AND SUBSIDIARIES
Net Income (Loss) Attributable to TSR, Inc.
Net income attributable to TSR, Inc. was approximately $243,000 in the quarter ended November 30, 2021 compared to a net loss of $247,000 in the quarter ended November 30, 2020. The net income in the current quarter was primarily attributable to the increase in revenue resulting from the increase in consultants on billing with customers.
Impact of Inflation and Changing Prices
For the quarter ended November 30, 2021 and 2020, inflation and changing prices did not have a material effect on the Company’s revenue or income from continuing operations.
Six months ended November 30, 2021 compared with six months ended November 30, 2020:
| (Dollar amounts in thousands) Six Months Ended | ||||||||||||||||
| November 30, 2021 | November 30, 2020 | |||||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | |||||||||||||
| Revenue, net | $ | 46,730 | 100.0 | % | $ | 30,583 | 100.0 | % | ||||||||
| Cost of sales | 38,871 | 83.2 | % | 25,417 | 83.1 | % | ||||||||||
| Gross profit | 7,859 | 16.8 | % | 5,166 | 16.9 | % | ||||||||||
| Selling, general and administrative expenses | 7,799 | 16.7 | % | 5,330 | 17.4 | % | ||||||||||
| Income (loss) from operations | 60 | 0.1 | % | (164 | ) | (0.5 | )% | |||||||||
| Other income (expense), net | 6,667 | 14.3 | % | (116 | ) | (0.4 | )% | |||||||||
| Income (loss) before income taxes | 6,727 | 14.4 | % | (280 | ) | (0.9 | )% | |||||||||
| Provision (benefit) from income taxes | 13 | 0.0 | % | (35 | ) | (0.1 | )% | |||||||||
| Consolidated net income (loss) | 6,714 | 14.4 | % | (245 | ) | (0.8 | )% | |||||||||
| Less: Net income attributable to noncontrolling interest | 69 | 0.2 | % | 5 | 0.0 | % | ||||||||||
| Net income (loss) attributable to TSR, Inc. | $ | 6,645 | 14.2 | % | $ | (250 | ) | (0.8 | )% | |||||||
Revenue
Revenue consists primarily of revenue from computer programming consulting services. Revenue for the six months ended November 30, 2021 increased approximately $16,147,000 or 52.8% from the six months ended November 30, 2020, primarily due to new business development, organic growth and expanded activity with Geneva clients. The average number of consultants on billing with customers increased from 422 for the six months ended November 30, 2020 to 687 for the six months ended November 30, 2021. There were 298 and 414 IT contractors at November 30, 2020 and 2021, respectively; while there were 124 and 273 clerical and administrative contractors at November 30, 2020 and 2021, respectively.
We experienced terminated assignments and a decrease in demand for new assignments during fiscal 2021 due to the COVID-19 pandemic, which led to the lower number of consultant placements during the year and negatively impacted the Company’s revenues. Additionally, the COVID-19 pandemic has created operational challenges. The start of certain new assignments has been and continues to be delayed due to delays in obtaining necessary clearances, as many of the agencies required to be contacted in obtaining the information needed for background checks have been fully or partially closed. By the end of the first quarter of fiscal 2021, the Company had used 100% of the $6,659,000 proceeds from the PPP Loan (as defined in Note 12 to the Condensed Consolidated Unaudited Financial Statements elsewhere in this report) it received in April 2020 to fund its payroll and other allowable expenses, which was fully forgiven in July 2021. The use of these proceeds allowed the Company to avoid certain salary reductions, furloughs and layoffs of employees during the covered period.
Page 17
TSR, INC. AND SUBSIDIARIES
Cost of Sales
Cost of sales for the six months ended November 30, 2021 increased approximately $13,454,000 or 52.9% to $38,871,000 from $25,417,000 in the prior year period. The increase in cost of sales resulted primarily from an increase in consultants placed with customers, primarily from the new business development activity, organic growth and expanded activity with Geneva clients. Cost of sales as a percentage of revenue increased from 83.1% in the six months ended November 30, 2020 to 83.2% in the six months ended November 30, 2021. The percentage increase in cost of sales for the six months ended November 30, 2021 as compared to the prior year period (52.9% increase) was higher than the percentage increase in revenue for the six months ended November 30, 2021 as compared to the prior year period (52.8% increase), causing a decrease in gross margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of expenses relating to account executives, technical recruiters, facilities costs, management and corporate overhead. These expenses increased approximately $2,469,000 or 46.3% from $5,330,000 in the six months ended November 30, 2020 to $7,799,000 in the six months ended November 30, 2021. The increase in these expenses primarily resulted from an additional $1,419,000 in selling, general and administrative expenses from the Geneva acquisition and a charge of $580,000 for the legal settlement with the former Chief Executive Officer. The Company has invested in developing both on shore and offshore recruiting teams to support the potential of the Geneva accounts. Additionally, the Company incurred non-cash compensation expenses of $354,000 in the current six-month period related to the Plan. Selling, general and administrative expenses, as a percentage of revenue decreased to 16.7% in the six months ended November 30, 2021 from 17.4% in the six months ended November 31, 2020.
Other Income (Expense)
Other income (expense) for the six months ended November 30, 2021 resulted primarily from the forgiveness of principal and interest on the PPP Loan of $6,735,000, offset by net interest expense of approximately $62,000 and a mark to market loss of approximately $6,000 on the Company’s marketable equity securities. Other expense for the six months ended November 30, 2020 resulted primarily from net interest expense of $104,000 and a mark to market loss of approximately $12,000 on the Company’s marketable equity securities.
Income Tax Provision (Benefit)
The income tax provision (benefit) included in the Company’s results of operations for the six months ended November 30, 2021 and 2020 reflect the Company’s estimated effective tax rate for the fiscal years ending May 31, 2022 and 2021, respectively. These rates resulted in a provision of 0.2% for the six months ended November 30, 2021 and a benefit of 12.5% for the six months ended November 30, 2020. The effective rate for the six months ended November 30, 2021 is low because of the non-taxable gain on the forgiveness of the PPP Loan principal and accrued interest.
Net Income (Loss) Attributable to TSR, Inc.
Net income attributable to TSR, Inc. was approximately $6,645,000 in the six months ended November 30, 2021 compared to a net loss of $250,000 in the six months ended November 30, 2020. The net income in the current period was primarily attributable to the forgiveness of principal and accrued interest on the PPP Loan.
Impact of Inflation and Changing Prices
For the six months ended November 30, 2021 and 2020, inflation and changing prices did not have a material effect on the Company’s revenue or income from continuing operations.
Page 18
TSR, INC. AND SUBSIDIARIES
Liquidity and Capital Resources
The Company’s cash was sufficient to enable it to meet its liquidity requirements during the six months ended November 30, 2021. The Company expects that its cash and cash equivalents and the Company’s Credit Facility pursuant to a Loan and Security Agreement with the Lender will be sufficient to provide the Company with adequate resources to meet its liquidity requirements for the 12-month period following the issuance of these financial statements. Utilizing its accounts receivable as collateral, the Company has secured this Credit Facility to increase its liquidity as necessary. As of November 30, 2021, the net borrowings outstanding against this Credit Facility were approximately $44,000. The amount the Company has borrowed fluctuates and, at times, it has utilized the maximum amount of $2,000,000 available under this facility to fund its payroll and other obligations. The Company was in compliance with all covenants under the Credit Facility as of November 30, 2021 and through the date of this filing. Additionally, in April 2020, the Company secured a PPP Loan in the amount of $6,659,000 to meet its obligations in the face of potential disruptions in its business operations and the potential inability of its customers to pay their accounts when due. As of August 31, 2020, the Company had used 100% of the PPP Loan funds to fund its payroll and for other allowable expenses under the PPP Loan. The use of these funds allowed the Company to avoid certain salary reductions, furloughs and layoffs of employees during the period. The Company applied for PPP Loan forgiveness and its application for forgiveness was accepted and approved; the PPP Loan and accrued interest were fully forgiven in July 2021.
At November 30, 2021, the Company had working capital (total current assets in excess of total current liabilities) of approximately $8,695,000, including cash and cash equivalents and marketable securities of $6,307,000 as compared to working capital of $8,898,000, including cash and cash equivalents and marketable securities of $7,416,000 at May 31, 2021.
Net cash flow of approximately $952,000 was used in operations during the six months ended November 30, 2021 as compared to $987,000 of net cash provided by operations in the prior year period. The cash used in operations for the six months ended November 30, 2021 primarily resulted from consolidated net income of $6,714,000 and an increase in accounts payable and other payables and accrued expenses of $127,000, offset by the forgiveness of the PPP Loan principal and accrued interest of $6,735,000, an increase in accounts receivable of $1,112,000 and a decrease in legal settlement payable of $284,000. The cash provided operations for the six months ended November 30, 2020 primarily resulted from an increase in accounts payable and accrued expenses of $1,435,000, offset by the consolidated loss of $244,000 and increases in accounts receivable and prepaid expenses of $171,000 and $143,000, respectively.
Net cash used in investing activities of approximately $75,000 for the six months ended November 30, 2021 primarily resulted from purchases of fixed assets. Net cash used in investing activities of $3,123,000 for the six months ended November 30, 2020 primarily resulted from the acquisition of Geneva in the amount of $3,100,000.
Net cash used in financing activities of approximately $76,000 during the six months ended November 30, 2021 resulted from net payments on the Company’s Credit Facility of $49,000 and distributions to the minority interest of $27,000. Net cash used in financing activities during the six months ended November 30, 2020 of $401,000 primarily resulted from net repayments under the Company’s Credit Facility.
The Company’s capital resource commitments at November 30, 2021 consisted of lease obligations on its branch and corporate facilities and an accrued legal settlement payable. The net present value of its future lease and settlement payments were approximately $866,000 and $583,000, respectively, as of November 30, 2021. The Company intends to finance these commitments primarily from the Company’s available cash and Credit Facility.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies
The Securities and Exchange Commission defines “critical accounting policies” as those that 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 policies are described in Note 1 to the Company’s consolidated financial statements, contained in its May 31, 2021 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission. The Company believes that those accounting policies require the application of management’s most difficult, subjective or complex judgments. There have been no changes in the Company’s significant accounting policies as of November 30, 2021.
Page 19
TSR, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As a smaller reporting company, we are not required to provide the information called for by this Item.
Item 4. 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 accounting officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934). Based on this evaluation, the principal executive officer and principal accounting 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 completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Page 20
TSR, INC. AND SUBSIDIARIES
Part II. Other Information
Item 1. Legal Proceedings
Christopher Hughes v. TSR, Inc., Docket No. 651753-2020 (NY Supr. Ct, New York County)
Christopher Hughes, the former Chief Executive Officer of the Company (“Plaintiff”), 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 alleges that he was terminated without cause or in the alternative that he resigned for reason and therefore, pursuant to the Amended and Restated Employment Agreement, dated August 9, 2018, between the Company and Plaintiff, Plaintiff seeks severance pay in the amount of $1,000,000 and reasonable costs and attorney’s fees. The Company denies Plaintiff’s allegations in their entirety and has filed counterclaims against Plaintiff for (1) declaratory relief; (2) breach of confidence/non-compete agreement; (3) declaratory and injunctive relief – confidence/non-compete; (4) tortious interference with current and prospective contractual and economic relations; (5) breach of fiduciary duty; (6) misappropriation of trade secrets; (7) declaratory and injunctive relief – unfair competition; and (8) conversion.
In October 2021, the Company and Hughes agreed through mediation to settle this matter. In order to avoid lengthy and costly litigation and discovery expenses, the Company has paid Hughes $705,000 to settle all claims. After adjusting for estimated expected insurance reimbursement, the Company accrued a charge of $580,000 to selling, general and administrative expenses in the quarter ended August 31, 2021.
Item 1A. Risk Factors
We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q and the risk factors included below, you should carefully consider the factors in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2021, as filed with the Securities and Exchange Commission.
We completed the acquisition of Geneva Consulting Group, Inc. (“Geneva”) and may conduct additional acquisitions in the future. Due to the risks and uncertainties related to the acquisition of new businesses, any such acquisitions do not guarantee that we will be able to attain or maintain profitability.
On September 1, 2020, we completed the acquisition of all of the outstanding stock of Geneva, a provider of temporary and permanent information technology personnel based in Port Washington, New York, which we believe will help diversify our business and expand the scope of our services. As part of a potential growth strategy, we may attempt to acquire or merge with certain businesses. Whether we realize the potential benefits from any such transactions, including the acquisition of Geneva, will depend in part upon the integration of the acquired businesses, the performance of the acquired assets and services, and the personnel hired in connection therewith. Accordingly, our results of operations could be adversely impacted by transaction-related costs, amortization of intangible assets, and charges for impairment of long-term assets. While we believe that we have established appropriate and adequate procedures and processes to mitigate these risks, there can be no assurance that any potential transaction will be successful.
Page 21
TSR, INC. AND SUBSIDIARIES
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
| Exhibit | Document | |
| Exhibit 10.1 | ||
| Exhibit 10.2 | ||
| Exhibit 31.1 | Rule 13a-14(a)/15d-14(a) Certification by Thomas Salerno as principal executive officer | |
| Exhibit 31.2 | Rule 13a-14(a)/15d-14(a) Certification by John G. Sharkey as principal financial officer | |
| Exhibit 32.1 | Section 1350 Certification by Thomas Salerno as principal executive officer | |
| Exhibit 32.2 | Section 1350 Certification by John G. Sharkey as principal financial officer | |
| Exhibit 101 | Interactive Data File containing the following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2021, formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to the Condensed Consolidated Financial Statements. | |
| Exhibit 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
Page 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.
| TSR, Inc. | |
| (Registrant) |
| Date: January 10, 2022 | /s/ Thomas Salerno |
| Thomas Salerno, Chief Executive Officer, President, Treasurer and Principal Executive Officer |
| Date: January 10, 2022 | /s/ John G. Sharkey |
| John G. Sharkey, Sr. Vice President, Chief Financial Officer, Secretary, Principal Financial Officer and Principal Accounting Officer |
Page 23
ExHIBIT 10.1
certain identified information has been excluded from thIS exhibit because it is both not material and is the type that the registrant treats as private or confidential.
Confidential SETTLEMENT aGREEMENT And general RELEASe
This Confidential Settlement Agreement and General Release (“Agreement”) is entered into on October 1, 2021, by and between Christopher Hughes, an individual residing in the State of New York, and, including, but not limited to any and all entities owned or controlled by Mr. Hughes, subsidiaries, affiliates, successors, agents and assigns (“Employee”) and TSR, Inc., a Delaware corporation with its principal place of business at 400 Oser Avenue, Suite 150, Hauppauge, New York 11788, its subsidiaries, affiliates, successors, and assigns (“Company” or “TSR”) (collectively, the “Parties”):
WHEREAS, Employee was employed with the Company as its Chief Executive Officer (“CEO”) until February 29, 2020;
WHEREAS, Employee executed an employment agreement on or about August 9, 2018 (“Employment Agreement”) and this Agreement shall supersede the Employment Agreement in its entirety;
WHEREAS, on or around March 18, 2020, Employee commenced an action against TSR by filing a Summons and Verified Complaint in the Supreme Court of the State of New York, County of New York, in the case styled Christopher Hughes v. TSR, Inc., New York County Index No. 651753/2020 (the “Action”), for breach of his employment agreement in relation to his separation from TSR and breach of the duty of good faith and fair dealing;
WHEREAS, on May 22, 2020, the Company filed an answer to the Complaint denying the allegations thereof, and filed Counterclaims for (1) declaratory relief that Employee’s termination was lawful; (2) breach of confidence/non-compete agreement (“Confidence/Non-Compete Agreement”); (3) declaratory and injunctive relief – confidence/non-compete; (4) tortious interference with current and prospective contractual and economic relations; (5) breach of fiduciary duty; (6) misappropriation of trade secrets; (7) declaratory and injunctive relief – unfair competition; and (8) conversion;
WHEREAS, on June 11, 2020, Employee filed an answer to the Counterclaims denying the salient allegations thereof;
WHEREAS, in an effort to avoid the time, expense, and uncertainty involved in litigating the Action, the Parties wish to finally compromise, settle and resolve the Action, and any and all claims, defenses, disputes, and controversies by, between, and among the Parties that were or could have been raised in the Action, on the terms and conditions set forth in this Agreement and in each of the instruments, documents, and agreements referred to or executed in connection herewith;
NOW, THEREFORE, in consideration of the respective representations, recitals, covenants, agreements, warranties and conditions set forth herein, and such other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:
1. Recitals. The foregoing recitals are contractual and incorporated into and made part of this Agreement.
2. Settlement Payment. In exchange for full and final settlement of this Action, and other relief acknowledged herein, Company will pay Employee the total sum of Seven Hundred and Five Thousand Dollars ($705,000.00) (the “Settlement Payment”). The Settlement Payment shall be issued as follows: (a) one check in the amount of $320,348.00, subject to IRS Form 1099, made payable to “Trief & Olk”; and (b) one check in the amount of $384,652, subject to IRS Form W-4, both of which shall be mailed to the attention of Shelly Friedland, Trief & Olk, 750 Third Avenue, Suite 2902, New York, New York 10017. The Settlement Sum shall be paid within (7) seven days following the Effective Date of this Agreement as defined in Paragraph 12, or upon receipt of all tax-related forms by Employee and Employee’s counsel, whichever is later, so long as Employee does not revoke this Agreement as provided for herein. Employee acknowledges and agrees that other than this Settlement Payment, Employee is not due any monies from Company including but not limited to wages, bonuses, incentives, paid time off, vacation, notice pay, severance, commissions, employee benefits and any fees or costs related thereto. By Employee’s signature below, Employee acknowledges and agrees that the terms set forth in this Agreement include sufficient consideration and benefits to which Employee is not otherwise entitled. Employee acknowledges that, except as expressly set forth above, after Employee’s execution of this Agreement, Employee will not be entitled to any other or further compensation, remuneration, or benefits from Company or its affiliates.
3. Discontinuance of the Action. Contemporaneously with the execution of this Agreement, the Parties shall authorize their attorneys to execute a Stipulation of Discontinuance with Prejudice in the form attached as Exhibit A. The Stipulation of Discontinuance shall be held in escrow by Company and shall be filed within three (3) days after payment is sent to Employee.
4. Tax Treatment. Employee understands and agrees that Company is neither providing tax nor legal advice, nor is Company making representations regarding tax obligations or consequences, if any, related to this Agreement. Employee further agrees that Employee will assume any such tax obligations or consequences that may arise from this Agreement, and that Employee shall not seek any indemnification from Company in this regard. Employee agrees that, in the event that any taxing body determines that any taxes are due from Employee, Employee acknowledges and assumes all responsibility for the payment of any such taxes and agrees to indemnify, defend, and hold Company harmless from the payment of such taxes, and any failure to withhold with the exception of any failure to withhold arising from the Company’s negligence, subject to Employee’s right to review the proposed withholding calculations before issuance of the check payable to Employee, as set forth in Paragraph 2. Employee further agrees to pay, on Company’s behalf, any interest or penalties imposed as a consequence of such tax obligations, and to pay any judgments, penalties, taxes, costs, and attorneys’ fees incurred by Company as a consequence of Employee’s failure to pay any taxes due.
5. Non-Solicitation. Employee agrees that from the date of this Agreement until six (6) months after the date of commencement of Employee’s new employment, and/or the launch of a new operational company or venture by Employee, he will not, directly or indirectly, solicit or contact for employment the Company’s internal or external employees or contractors or consultants, including, but not limited to, those individuals currently placed at clients by TSR. Any inadvertent good faith solicitation of a consultant currently placed at a client by TSR, whom Employee is unaware is employed by TSR, will not be deemed a violation of this provision, if, upon receipt of notice from TSR to Employee that this consultant is covered by this provision, Employee will refrain from further contact with the identified consultant for the remaining time of this provision. To avoid any confusion, by way of example, if a TSR employee or contractor contacts Employee or secures employment with Employee, his new employer, or new company independently through a recruiting service such as Indeed.com, Zip Recruiter, or other third party job search company or platform in response to a general advertisement, this provision will be inapplicable. Employee agrees to notify the Company when Employee obtains employment, by emailing katharine.liao@squirepb.com and identifying the new company and Employee’s start date.
6. Return of Company Property. Employee agrees that he has returned to Company any and all Company property in Employee’s possession. To the extent Employee still has within his possession any Company property, whether in paper or electronic form, Employee agrees to return or permanently destroy such property within seven (7) days of this executed Agreement.
7. Upon execution of this agreement, the Company agrees to immediately permanently deactivate the two TSR email addresses that had been assigned to the Employee and were active at the time of his termination (i.e., Chughes@tsrconsulting.com and chrishughes@tsrconsulting.com).
8. Release of Claims by Employee. Employee agrees that the foregoing consideration represents settlement in full of all outstanding obligations owed to Employee by Company including settlement of the Claims. THIS IS A GENERAL RELEASE OF ALL CLAIMS.
8.1. In exchange for the Settlement Payment being provided to Employee, Employee, on Employee’s own behalf, and on behalf of Employee’s respective heirs, family members, executors, administrators, attorneys, representatives, current or former agents, successors and assigns, hereby voluntarily, irrevocably, and knowingly, unconditionally and absolutely waive, remise, generally release, acquit, satisfy and forever discharge Company and its legal representatives, officers, directors, fiduciaries, employees, investors, shareholders, insurers and re-insurers, agents, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns, both in their individual and corporate capacities (collectively, the “Company Releasees”), of and from all known and unknown charges, complaints, claims, grievances, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts, penalties, fees, wages, medical costs, pain and suffering, mental anguish, emotional distress, expenses (including attorneys’ fees and costs actually incurred), punitive damages, and all other amounts now accrued or which may hereafter to accrue, of any kind or character whatsoever, in any jurisdiction whatsoever, in law or in equity, of any nature whatsoever, known or unknown, direct or indirect, fixed or contingent, suspected or unsuspected, whether or not apparent or yet to be discovered, or which may hereafter develop, for any acts or omissions related to claims asserted or that could have been asserted in the Action or arising out of or relating to Employee’s employment, including the termination of Employee’s employment, including without limitation:
| (a) | any and all claims relating to or arising from Employee’s employment relationship with Company or the Releasees and the termination of that relationship; |
2
| (b) | any and all claims relating to, or arising from, Employee’s right to purchase, or actual purchase of, shares of stock of Company, including, without limitation, any claims for fraud; misrepresentation; breach of fiduciary duty; breach of duty under applicable state corporate law; and securities fraud under any state or federal law; however Employee does not release any claims he would have a right to bring as a current shareholder of the Company.; |
| (c) | any and all claims under the law of any jurisdiction including without limitation wrongful discharge of employment; constructive discharge from employment; termination in violation of public policy; discrimination; harassment, retaliation, breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent and intentional infliction of emotional distress; negligent and intentional misrepresentation; negligent and intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; and conversion; |
| (d) | any and all claims for violation of any federal, state or municipal statute, including without limitation all employment laws, including without limitation, the Worker Adjustment and Retraining Notification (WARN) Act and any state-equivalent WARN Act; Age Discrimination in Employment Act, as amended; Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1866; the Civil Rights Act of 1871; the Fair Labor Standards Act; the Americans with Disabilities Act; the Older Workers’ Benefits Protection Act; the Family Medical Leave Act; the Equal Pay Act; the Genetic Information Nondiscrimination Act (GINA); the Immigration Reform and Control Act (IRCA); the Employee Retirement Income Security Act of 1974; the National Labor Relations Act; the New York Labor Laws; the New York State Human Rights Law (Executive Law Article 15 et seq.); the New York City Human Rights Law; and all other laws against discrimination or applicable to employment that may be the subject of a release under applicable law; |
| (e) | any and all claims for violation of the federal, or any state, constitution; |
| (f) | any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; |
| (g) | any and all claims arising out of any personnel policies, contracts of employment, any other contracts, severance pay agreements, and covenants of good faith and fair dealing; |
| (h) | any claim for any loss, cost, damage, or expense arising out of any dispute over the non-withholding or other tax treatment of any of the proceeds received by Employee as a result of this Agreement; |
| (i) | any claim or damage arising out of Employee’s employment with or separation from Company under any common law theory or any federal, state, or local statute or ordinance not specifically referred to above; |
| (j) | any and all claims for unpaid or withheld wages, severance, benefits, bonuses, commissions, and other compensation of any kind that Employee may have against the Releasees; and |
| (k) | any and all claims for attorneys’ fees and costs. |
3
8.2. Employee understands and agrees that, to the fullest extent permitted by law, Employee is precluded from filing or pursuing any legal claim of any kind against any of the Releasees at any time in the future, in any federal, state, or municipal court, administrative agency, or other tribunal, arising out of any of the claims that Employee has waived by virtue of executing this Agreement. Employee agrees not to file or pursue any such legal claims and, if Employee does pursue such legal claims, Employee waives any right to receive monetary recovery. By Employee’s signature below, Employee represents that Employee has not filed any such legal claims against any of the Releasees in any federal, state, or municipal court, administrative agency, or other tribunal. Nothing in this Agreement shall be construed to waive any claims that cannot be waived as a matter of law. In addition, this Agreement does not prevent Employee from filing an administrative charge against any Releasee that may not be released as a matter of law. Nothing in this Agreement prohibits, limits or restricts, or shall be construed to prohibit, limit or restrict, Employee from exercising any legally protected whistleblower rights without notice to or consent from Company. Employee agrees that Employee has had the opportunity to raise such claims and would feel comfortable doing so if such claims existed.
8.3. By Employee’s signature below, Employee represents that: (a) Employee is not aware of any unpaid wages, vacation, bonuses, expense reimbursements, or other amounts owed to Employee by Company, other than the Settlement Payment specifically promised in this Agreement; (b) Employee has not been denied any request for leave to which Employee believes Employee was legally entitled, and Employee was not otherwise deprived of any of Employee’s rights under the Family and Medical Leave Act or any similar state or local statute; and (c) Employee has not assigned or transferred, or purported to assign or transfer, to any person, entity, or individual whatsoever, any of the claims released in the foregoing general release and waiver. Company’s obligations under this Agreement are contingent upon Employee’s compliance with all terms and conditions provided for herein.
9. Release of Claims by Company. For the good and valuable consideration set forth above, the receipt of which is hereby acknowledged, the Company and their parent(s), predecessors, subsidiaries, affiliates, current or former agents, officers, principals, directors, executives, shareholders, employees, investors, successors and assigns, hereby voluntarily, irrevocably, and knowingly, unconditionally and absolutely waive, remise, generally release, acquit, satisfy and forever discharge Employee, and his current or former agents, successors and assigns (collectively the “Employee Releasees”) of and from all known and unknown charges, complaints, claims, grievances, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts, penalties, fees, wages, medical costs, pain and suffering, mental anguish, emotional distress, expenses (including attorneys’ fees and costs actually incurred), punitive damages, and all other amounts now accrued or which may hereafter to accrue, of any kind or character whatsoever, in any jurisdiction whatsoever, in law or in equity, of any nature whatsoever, known or unknown, direct or indirect, fixed or contingent, suspected or unsuspected, whether or not apparent or yet to be discovered, or which may hereafter develop, for any acts or omissions related to claims asserted or that could have been asserted in the Action or arising out of or relating to Employee’s employment, including the termination of Employee’s employment.
10. Mutual Release of Unknown Claims. Employee and Company expressly acknowledge that the releases and waivers herein are intended to have the broadest possible application and that Employee and Company are hereby giving a general release to the Company Releasees and Employee Releasees, respectively. Both Parties acknowledge that he or it may discover facts or law different from, or in addition to, the facts or law that Employee or Company knows or believes to be true with respect to the claims released in this Agreement and agrees, nonetheless, that this Agreement and the releases contained in it shall be and remain effective in all respects notwithstanding such different or additional facts or the discovery of them. For the purpose of implementing a full and complete release, Employee and Company expressly acknowledge that the releases given in this Agreement are intended to include, without limitation, claims that Employee and Company did not know or suspect to exist in Employee’s or Company’s favor at the time of the date of the Parties’ execution of this Agreement, regardless of whether the knowledge of such claims, or the facts upon with they might be based, would have materially affected the settlement of this matter; and that the Settlement Payment provided under this Agreement was also for the release of those claims and contemplates the extinguishment of any such unknown claims.
11. No Outstanding or Known Future Claims/Causes of Action. Each Party affirms that it has not filed with any governmental agency or court any type of action or report against the other Party other than the Action, and currently knows of no existing act or omission by the other Party that may constitute a claim or liability excluded from the release in Paragraphs 7-9 above.
4
12. Non-Disparagement. Except in response to a valid legal process, Employee will not, at any time, directly or indirectly, orally, in writing or through any medium (including, but not limited to, television or radio, newspapers, newsletters, magazines, circulars, telephonic or text messages, computer networks (including electronic mail, social networks) or bulletin boards, or any other form of communication) disparage, defame, impugn, or otherwise damage or assail the reputation, integrity or professionalism of the Company, or any officer, executive, or director of the Company. Similarly, except in response to a valid legal process, TSR will direct the Board of Directors; Chief Executive Officer; Chief Financial Officer; managers, sales people, account managers, and recruiters; and Dan Zeff (“Company Representatives”) to not, at any time, directly or indirectly, orally, in writing or through any medium (including, but not limited to, television or radio, newspapers, newsletters, magazines, circulars, telephonic or text messages, computer networks (including electronic mail, social networks) or bulletin boards, or any other form of communication) disparage, defame, impugn, or otherwise damage or assail the reputation, integrity or professionalism of Employee. The Parties understand that this provision does not apply on occasions when Employee or Company is subpoenaed or ordered by a court or other governmental authority to testify or give evidence and must respond truthfully. The Parties also understand this provision does not prohibit either Party from disclosing truthful information that a Party is permitted to disclose by law regardless of any non-disparagement or non-disclosure agreement. For purposes of this paragraph, a disparaging statement or representation is any communication which, if publicized to another, would cause or tend to cause the recipient of the communication to question the business condition, integrity, competence, good character, or product quality of the person or entity to whom the communication relates.
13. Older Workers’ Benefit Protection Act/Age Discrimination in Employment Act. Employee acknowledges, agrees and understands that under the general release detailed above, Employee is waiving and releasing, among other claims, any rights and claims that may exist under the Age Discrimination in Employment Act (“ADEA”); the waiver and release of claims set forth in the release above does not apply to any rights or claims that may arise under the ADEA after the date of execution of this Agreement; the Settlement Payment that is being provided to Employee is of significant value and is in addition to what Employee otherwise would be entitled; Employee is being advised in writing to consult with an attorney before signing this Agreement; Employee has in fact retained counsel to negotiate and represent him in negotiating this Agreement; Employee is being given a period of twenty-one (21) days within which to review and consider this Agreement before signing it, though Employee may sign earlier; Employee may revoke acceptance of this Agreement by providing written notice to Company within seven (7) days following its execution, and any notice of revocation of this Agreement must be in writing and transmitted by email to Katharine Liao at katharine.liao@squirepb.com with a read receipt; and because of Employee’s right to revoke this Agreement, this Agreement shall not become effective and enforceable until the eighth (8th) day after the return of an executed copy of this Agreement by Employee to Company (the “Effective Date”), and Employee will not be entitled to any of the benefits set forth in this Agreement until after the Effective Date.
14. Joint Public Statement. The Parties agree to issue a joint, neutral public statement to the media regarding the resolution of this Action. The joint public statement shall be approved by the Parties in substantially the form attached hereto as Exhibit B.
15. Confidentiality of Agreement. The Parties agree that the terms of this Agreement are strictly confidential, except insofar as the terms are required to be disclosed pursuant to the United States Securities and Exchange Commission (“SEC”) and the filing of a Form 8-k. Except as provided for in this Agreement, the Parties agree not to disclose, disseminate and/or publicize any of the terms of this Agreement, directly or indirectly, specifically or generally, to any person, corporation, association or governmental agency, except, (a) to the Parties’ employees, officers, directors, trustees, attorneys, tax advisors or accountants, (b) as required by law, including, but not limited to, SEC disclosure requirements; or (c) in response to an order of a court or governmental agency of competent jurisdiction or subpoena issued under proper authority; provided that notice of receipt of such order, inquiry or subpoena shall be telephonically communicated to counsel of record for the other Party in this matter as soon as reasonably possible, and also confirmed in writing to said counsel for the other Party as soon as reasonably possible, so that they will have the opportunity to intervene and assert what rights they have to nondisclosure prior to a response to the order, inquiry or subpoena. The Parties also shall advise any individual or entity to which it or they disclose information pursuant to this Agreement of the existence of these confidentiality provisions. It is agreed and understood by the Parties that any person to whom they disclose information pursuant to this Agreement shall be subject to and bound by the terms and conditions of these confidentiality provisions.
5
16. Non-Admissibility; No Admission of Liability; No Wrongdoing. The Parties agree that this Agreement shall not be admissible as evidence in any future proceeding of any kind, except in court on a claim of breach of this Agreement. The Parties understand and acknowledge that this Agreement constitutes a compromise and settlement of any disputed claims. No action taken by the Parties hereto, or either of them, either previously or in connection with this Agreement shall be deemed or construed to be: an admission of the truth or falsity of any claims heretofore made; or an acknowledgment or admission by either Party of any fault or liability whatsoever to the other Party or to any third party. Employee represents that Employee has no knowledge of any wrongdoing involving improper or false claims against a federal or state governmental agency, or any other wrongdoing that involves Employee or other present or former Company employees.
17. Representations and Warranties. Each Party represents and warrants that it has carefully read and fully understands all of the terms and conditions set forth in this Agreement and that it has had sufficient time to consider all of the terms and conditions of this Agreement and to consult with its legal counsel. Each Party represents and warrants that it enters into this Agreement freely, knowingly and without coercion and based on its own judgment and not in reliance upon any representations or promises made outside of this Agreement by the other Party. Each Party represents and warrants that it has not heretofore or otherwise transferred to any persons any claim or potential claim which it may have against the other Party, and that it has full power, right and authority to execute this Agreement and to take all steps necessary to implement its terms and conditions. Each Party represents and warrants that no consent of any person or entity not a party to this Agreement is necessary for this Agreement to be fully and completely binding upon each of the Parties. Each person signing below represents and warrants that he/she has the authority to enter into this Agreement on behalf of the Party on whose behalf he/she so signs.
18. Fees and Costs. Each Party shall be responsible for all of its own legal costs, fees, and expenses in connection with the preparation of this Agreement. If a suit or action is filed by any Party to enforce the provisions of this Agreement, the prevailing party shall be entitled to recover reasonable attorney’s fees and costs incurred in connection with such suit or action.
19. No Representations. The Parties represent that they each have had the opportunity to consult with an attorney, at their own expense, and have carefully read and understand the scope and effect of the provisions of this Agreement. Neither Party has relied upon any representations or statements made by the other Party hereto which are not specifically set forth in this Agreement.
20. Notices. All notices required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed to have been duly given (a) at the time of delivery, if delivered by hand, (b) on the date of transmission if sent by facsimile or electronic mail, or (c) three days after posting if mailed by certified mail or overnight delivery service. Notice shall be delivered or sent to the following addresses or to such other addresses as the Parties may hereafter designate by like notice similarly provided:
If to Employee:
Christopher Hughes
[***]
[***]
[***]
With a copy to:
Trief & Olk
750 Third Avenue, Suite 2902
New York, New York 10017
Attn: Ted Trief
ttrief@triefandolk.com
If to TSR:
Thomas Salerno, CEO
400 Oser Ave # 150
Hauppauge, NY 11788
tsalerno@tsrconsulting.com
With a copy to:
Squire Patton Boggs (US) LLP
1211 Avenue of the Americas, 26th floor
New York, NY 10036
Attn: Katharine Liao, Esq.
Katharine.liao@squirepb.com
6
21. Severability. In the event that any provision in this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable, or void, this Agreement shall continue in full force and effect without said provision so long as the remaining provisions remain intelligible and continue to reflect the original intent of the Parties.
22. Entire Agreement. This Agreement constitutes the complete and exclusive agreement between the Parties and supersedes all prior or contemporaneous communications, agreements and understandings, written or oral, with respect to the subject matter hereof. All previous discussions or negotiations have been merged into this Agreement. No Party to this Agreement has relied upon any oral or written representations, express or implied warranties, or agreements that are not expressly contained in the body of this Agreement or its Exhibits. The terms of this Agreement may not be modified, except by mutual consent of the Parties. Any and all modifications must be reduced to writing and signed by the Parties to be effective.
23. Joint Drafting. This Agreement was negotiated and jointly drafted by the Parties and their respective counsel and shall not be construed against any Party as the drafter hereof.
24. Successors and Assigns. Every covenant, term, and provision of this Agreement shall be binding upon and inure to the benefit of the Parties thereto and their respective successors, assigns, heirs, legatee, legal representatives and transferees.
25. Governing Law and Venue. This Agreement shall be construed, interpreted, governed, and enforced in accordance with the laws of the State of New York, without regard to choice of law principles. In the event of any dispute in connection with this Agreement, the venue in which said dispute will be resolved will be New York, New York.
26. Further Assurances and Cooperation. The Parties shall execute, acknowledge, deliver, or cause to be executed, acknowledged, or delivered, all further documents, and take all acts or cause such acts to be taken, as shall be reasonably necessary or convenient to carry out the provisions of this Agreement.
27. Construction and Headings. Words used in this Agreement that are either singular or plural, or masculine or feminine, shall be construed to include the other where appropriate. Headings are for convenience only and shall not limit, expand, affect, or alter the meaning of any text.
28. Execution. This Agreement may be executed in one or more counterparts, including digital and facsimile copies thereof, each of which shall be deemed an original, and all of which together shall constitute one and the same document. Signatures transmitted by email, facsimile or by other form of electronic transmission shall be treated as originals. Each Party agrees that this Agreement and any other documents to be delivered in connection herewith may be electronically signed, and that any electronic signatures appearing on this Agreement or such other documents are the same as handwritten signatures for the purposes of validity, enforceability, and admissibility.
29. Voluntary Execution of Agreement. This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of releasing all claims.
THE PARTIES VOLUNTARILY AND KNOWINGLY ACKNOWLEDGE, UNDERSTAND AND AGREE TO BE BOUND BY THIS AGREEMENT AND ITS TERMS.
| Dated: October 4, 2021 | By: | /s/ John G. Sharkey Sr. VP | |
| TSR, Inc. | |||
| Name: | John G. Sharkey Sr. VP | ||
| Dated: October 1, 2021 | |||
| By: | /s/ Christopher Hughes. | ||
| Christopher Hughes | |||
7
EXHIBIT 10.1 EXHIBIT A
Stipulation of Discontinuance with Prejudice
***
EXHIBIT 10.1 EXHIBIT B
Joint Statement
***
Exhibit 31.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas Salerno, Chief Executive Officer, President, Treasurer and Principal Executive Officer certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of TSR, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: January 10, 2022 | |
| /s/ Thomas Salerno | |
| Chief Executive Officer, President, Treasurer and Principal Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John G. Sharkey, Sr. Vice President, Chief Financial Officer and Principal Accounting Officer, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of TSR, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: January 10, 2022 | |
| /s/ John G. Sharkey | |
| Sr. Vice President, Chief Financial Officer, Secretary, Principal Financial Officer and Principal Accounting Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of TSR, Inc. (the “Company”) on Form 10-Q for the quarter ended November 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas Salerno, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
The foregoing certification is incorporated solely for the purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act and is not intended to be used for any other purpose.
| /s/ Thomas Salerno | |
| Chief Executive Officer, President, Treasurer and Principal Executive Officer | |
| January 10, 2022 |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of TSR, Inc. (the “Company”) on Form 10-Q for the quarter ended November 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John G. Sharkey, Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
The foregoing certification is incorporated solely for the purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act and is not intended to be used for any other purpose.
| /s/ John G. Sharkey | |
| Sr. Vice President, Chief Financial Officer, Secretary, Principal Financial Officer and Principal Accounting Officer | |
| January 10, 2022 |
Condensed Consolidated Balance Sheets (Parentheticals) - USD ($) |
Nov. 30, 2021 |
May 31, 2021 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Allowance for doubtful accounts related to accounts receivable (in Dollars) | $ 181,000 | $ 181,000 |
| Net of accumulated depreciation and amortization (in Dollars) | $ 156,075 | $ 155,006 |
| Preferred stock par value (in Dollars per share) | $ 1 | $ 1 |
| Preferred stock, shares authorized | 500,000 | 500,000 |
| Preferred stock, shares issued | ||
| Common stock par value (in Dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, shares authorized | 12,500,000 | 12,500,000 |
| Common stock, shares issued | 3,114,163 | 3,114,163 |
| Common stock, shares outstanding | 1,962,062 | 1,962,062 |
| Treasury stock, shares | 1,152,101 | 1,152,101 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Nov. 30, 2021 |
Nov. 30, 2020 |
Nov. 30, 2021 |
Nov. 30, 2020 |
|
| Income Statement [Abstract] | ||||
| Revenue, net | $ 23,863,550 | $ 16,068,577 | $ 46,729,567 | $ 30,582,583 |
| Cost of sales | 19,815,539 | 13,233,492 | 38,871,168 | 25,416,414 |
| Selling, general and administrative expenses | 3,633,160 | 3,058,618 | 7,798,465 | 5,329,919 |
| Cost and expenses, total | 23,448,699 | 16,292,110 | 46,669,633 | 30,746,333 |
| Income (loss) from operations | 414,851 | (223,533) | 59,934 | (163,750) |
| Other income (expense): | ||||
| Interest expense, net | (28,138) | (51,697) | (61,984) | (103,973) |
| Gain on PPP Loan and interest forgiveness | 6,735,246 | |||
| Unrealized loss on marketable securities, net | (3,888) | (2,080) | (6,336) | (11,664) |
| Income (loss) before income taxes | 382,825 | (277,310) | 6,726,860 | (279,387) |
| Provision (benefit) from income taxes | 128,000 | (30,000) | 13,000 | (35,000) |
| Consolidated net income (loss) | 254,825 | (247,310) | 6,713,860 | (244,387) |
| Less: Net income (loss) attributable to noncontrolling interest | 11,789 | (552) | 69,281 | 5,371 |
| Net income (loss) attributable to TSR, Inc. | $ 243,036 | $ (246,758) | $ 6,644,579 | $ (249,758) |
| Basic net income (loss) per TSR, Inc. common share (in Dollars per share) | $ 0.12 | $ (0.13) | $ 3.39 | $ (0.13) |
| Diluted net income (loss) per TSR, Inc. common share (in Dollars per share) | $ 0.12 | $ (0.13) | $ 3.27 | $ (0.13) |
| Basic weighted average number of common shares outstanding (in Shares) | 1,962,062 | 1,962,062 | 1,962,062 | 1,962,062 |
| Diluted weighted average number of common shares outstanding (in Shares) | 2,032,878 | 1,962,062 | 2,031,690 | 1,962,062 |
Condensed Consolidated Statements of Equity (Unaudited) - USD ($) |
Total |
Common stock |
Additional paid-in capital |
Retained earnings |
Treasury stock |
TSR, Inc. equity |
Non- controlling interest |
|---|---|---|---|---|---|---|---|
| Balance at May. 31, 2020 | $ 5,790,183 | $ 31,142 | $ 5,102,868 | $ 14,141,796 | $ (13,514,003) | $ 5,761,803 | $ 28,380 |
| Balance (in Shares) at May. 31, 2020 | 3,114,163 | ||||||
| Net income (Loss) attributable to noncontrolling interest | 5,923 | 5,923 | |||||
| Net income (Loss) attributable to TSR, Inc. | (3,000) | (3,000) | (3,000) | ||||
| Balance at Aug. 31, 2020 | 5,793,106 | $ 31,142 | 5,102,868 | 14,138,796 | (13,514,003) | 5,758,803 | 34,303 |
| Balance (in Shares) at Aug. 31, 2020 | 3,114,163 | ||||||
| Net income (Loss) attributable to noncontrolling interest | (552) | (552) | |||||
| Net income (Loss) attributable to TSR, Inc. | (246,758) | (246,758) | (246,758) | ||||
| Balance at Nov. 30, 2020 | 5,545,796 | $ 31,142 | 5,102,868 | 13,892,038 | (13,514,003) | 5,512,045 | 33,751 |
| Balance (in Shares) at Nov. 30, 2020 | 3,114,163 | ||||||
| Balance at May. 31, 2021 | 5,421,052 | $ 31,142 | 5,339,200 | 13,540,822 | (13,514,003) | 5,397,161 | 23,891 |
| Balance (in Shares) at May. 31, 2021 | 3,114,163 | ||||||
| Net income (Loss) attributable to noncontrolling interest | 57,492 | 57,492 | |||||
| Distribution to noncontrolling interest | (1,750) | (1,750) | |||||
| Non-cash stock compensation | 177,249 | 177,249 | 177,249 | ||||
| Net income (Loss) attributable to TSR, Inc. | 6,401,543 | 6,401,543 | 6,401,543 | ||||
| Balance at Aug. 31, 2021 | 12,055,586 | $ 31,142 | 5,516,449 | 19,942,365 | (13,514,003) | 11,975,953 | 79,633 |
| Balance (in Shares) at Aug. 31, 2021 | 3,114,163 | ||||||
| Net income (Loss) attributable to noncontrolling interest | 11,789 | 11,789 | |||||
| Distribution to noncontrolling interest | (25,640) | (25,640) | |||||
| Non-cash stock compensation | 177,249 | 177,249 | 177,249 | ||||
| Net income (Loss) attributable to TSR, Inc. | 243,036 | 243,036 | 243,036 | ||||
| Balance at Nov. 30, 2021 | $ 12,462,020 | $ 31,142 | $ 5,693,698 | $ 20,185,401 | $ (13,514,003) | $ 12,396,238 | $ 65,782 |
| Balance (in Shares) at Nov. 30, 2021 | 3,114,163 |
Condensed Consolidated Statements of Cash Flows (Unaudited) (Parentheticals) - USD ($) |
6 Months Ended | |
|---|---|---|
Nov. 30, 2021 |
Nov. 30, 2020 |
|
| Statement of Cash Flows [Abstract] | ||
| Net of cash acquired | $ 241,946 | $ 241,946 |
Basis of Presentation |
6 Months Ended | ||
|---|---|---|---|
Nov. 30, 2021 | |||
| Accounting Policies [Abstract] | |||
| Basis of Presentation |
The accompanying condensed consolidated interim financial statements include the accounts of TSR, Inc. and its subsidiaries. Unless otherwise stated or the context otherwise requires, the terms “we,” “us,” “our,” and the “Company” refer to TSR, Inc. and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. The condensed balance sheet as of May 31, 2021, which has been derived from audited financial statements, and the unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America applying to interim financial information and with the instructions to Form 10-Q of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures required by accounting principles generally accepted in the United States of America and normally included in the Company’s annual financial statements have been condensed or omitted. These condensed consolidated interim financial statements as of and for the three months and six months ended November 30, 2021 are unaudited; however, in the opinion of management, such statements include all adjustments (consisting of normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company for the periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending May 31, 2022. These condensed consolidated interim financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended May 31, 2021. |
Net Income (Loss) Per Common Share |
6 Months Ended | ||
|---|---|---|---|
Nov. 30, 2021 | |||
| Earnings Per Share [Abstract] | |||
| Net Income (Loss) Per Common Share |
Basic net income (loss) per common share is computed by dividing net income (loss) available to common stockholders of TSR, Inc. by the weighted average number of common shares outstanding during the reporting period, excluding the effects of any potentially dilutive securities. During the quarter ended February 28, 2021, the Company granted time and performance vesting restricted stock awards under its 2020 Equity Incentive Plan (see Note 17 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 restricted stock awards of 70,816 and 69,628 in the three months and six months ended November 30, 2021 have been included for dilutive shares outstanding for the three months and six months ended November 30, 2021. |
Cash and Cash Equivalents |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 30, 2021 | |||||||||||||||||||||||||||||||||||||||
| Cash and Cash Equivalents [Abstract] | |||||||||||||||||||||||||||||||||||||||
| 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 November 30, 2021 and May 31, 2021:
|
||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments |
6 Months Ended | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 30, 2021 | |||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||
| Fair Value of Financial Instruments |
Accounting Standards Codification (“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:
This topic defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-level hierarchy, which encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820-10 requires that assets and liabilities recorded at fair value be classified and disclosed in one of the following three categories:
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company classifies such financial assets or liabilities based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
ASC Topic 825, Financial Instruments, requires disclosure of the fair value of certain financial instruments. For cash and cash equivalents, accounts receivable, accounts and other payables, accrued liabilities and advances from customers, the amounts presented in the condensed consolidated financial statements approximate fair value because of the short-term maturities of these instruments. |
Marketable Securities |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments, Debt and Equity Securities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 condensed consolidated balance sheets are categorized based on the inputs to valuation techniques as follows:
The following are the major categories of assets measured at fair value on a recurring basis as of November 30, 2021 and May 31, 2021 using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2) and significant unobservable inputs (Level 3):
The Company’s equity securities are classified as trading securities, which are carried at fair value, as determined by quoted market prices, which is a Level 1 input, as established by the fair value hierarchy. The related unrealized gains and losses are included in earnings. The Company’s marketable securities at November 30, 2021 and May 31, 2021 are summarized as follows:
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. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Matters |
6 Months Ended | ||
|---|---|---|---|
Nov. 30, 2021 | |||
| Disclosure of Other Matters [Abstract] | |||
| 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 9, 10 and 16 to the Condensed Consolidated Financial Statements and in the section titled “Item 1, Legal Proceedings” in Part II of this report. |
Leases |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases |
The Company leases the space for its three offices in New York City, Hauppauge and New Jersey. Under ASC 842, at contract inception we determine whether the 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 are in our condensed consolidated balance sheets.
The Company’s leases for its three offices are classified as operating leases.
The lease agreements for New York City, Hauppauge and New Jersey expire on August 31, 2022, December 31, 2023 and May 31, 2027, respectively, and do not include any renewal options. During the fiscal year ended May 31, 2021, the Company extended its lease in Hauppauge, entered into a lease in a new location for its New Jersey office expiring May 31, 2027 and entered into an agreement to sublease the space in New York City expiring August 31, 2022. Due to the fact that the future sublease cash inflows will be less than the carrying value of the corresponding right-of-use asset, the Company recorded a right-of-use asset impairment charge of $136,599 in the quarter ended November 30, 2020.
In addition to the monthly base amounts in the lease agreements, the Company is required to pay real estate taxes and operating expenses during the lease terms.
For the six months ended November 30, 2021 and 2020, the Company’s operating lease expense for these leases was $155,000 and $231,000, respectively.
Future minimum lease payments under non-cancellable operating leases as of November 30, 2021 were as follows:
The following table sets forth the right-of-use assets and operating lease liabilities as of November 30, 2021:
The weighted average remaining lease term for the Company’s operating leases is 2.9 years. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit Facility |
6 Months Ended | ||
|---|---|---|---|
Nov. 30, 2021 | |||
| Credit Facility [Abstract] | |||
| Credit Facility |
On November 27, 2019, TSR closed on a revolving credit facility (the “Credit Facility”) pursuant to a Loan and Security Agreement with Access Capital, Inc. (the “Lender”) that initially provided up to $7,000,000 in 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 Credit Facility. Each of the borrowers has provided a security interest to the Lender in all of their respective 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 November 30, 2021 was 3.25%, indicating an interest rate of 5.0% on the line of credit. 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 financial covenants and minimum borrowing requirements under the Credit Facility, and to pay certain fees, including prepayment fees, and provide certain financial information to the Lender. The Company was in compliance with all applicable covenants at November 30, 2021.
As of November 30, 2021, the net borrowings outstanding against this line of credit facility were $44,000. The amount the Company has borrowed fluctuates and, at times, it has utilized the maximum amount of $2,000,000 available under the facility to fund its payroll and other obligations. |
Termination of Former CEO |
6 Months Ended | ||
|---|---|---|---|
Nov. 30, 2021 | |||
| Termination Of Former CEO [Abstract] | |||
| Termination of Former CEO |
The Company terminated Christopher Hughes, the former Chief Executive Officer of the Company (“Hughes”), effective February 29, 2020 for “Cause” as defined in Section 6(a) of his Amended and Restated Employment Agreement dated August 9, 2018 (the “Employment Agreement”). Despite having already been terminated from employment, 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 Section 7(c) of the Employment Agreement pursuant to which he claimed to be entitled to the “Enhanced Severance Amount” under the 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 alleged that he was terminated without cause or in the alternative that he resigned for good reason and therefore, pursuant to the Employment Agreement, Hughes sought severance pay in the amount of $1,000,000 and reasonable costs and attorney’s fees. The Company denied Plaintiff’s allegations in their entirety and filed counterclaims against Plaintiff for (1) declaratory relief; (2) breach of confidence/non-compete agreement; (3) declaratory and injunctive relief – confidence/non-compete; (4) tortious interference with current and prospective contractual and economic relations; (5) breach of fiduciary duty; (6) misappropriation of trade secrets; (7) declaratory and injunctive relief – unfair competition; and (8) conversion.
In October 2021, the Company and Hughes agreed through mediation to settle this matter. In order to avoid lengthy and costly litigation and discovery expenses, the Company has paid Hughes $705,000 to settle all claims. After adjusting for estimated expected insurance reimbursement, the Company accrued a charge of $580,000 to selling, general and administrative expenses in the quarter ended August 31, 2021 and six months ended November 30, 2021. |
Legal Settlement with Investor |
6 Months Ended | ||
|---|---|---|---|
Nov. 30, 2021 | |||
| Legal Settlement With Investor Disclosure [Abstract] | |||
| Legal Settlement with Investor |
On 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 and Release Agreement, dated as of August 30, 2019, by and between the Company, Zeff and certain other parties. In exchange for certain releases, the Term Sheet calls 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 $300,000 also on June 30, 2022, which can be paid in cash or common stock at the Company’s option. There is no interest due on these payments. The $300,000 payment due June 30, 2021 was paid during the quarter ended August 31, 2021. 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 estimated present value of the remaining payments is $583,000 at November 30, 2021. |
COVID-19 |
6 Months Ended | ||
|---|---|---|---|
Nov. 30, 2021 | |||
| Unusual or Infrequent Items, or Both [Abstract] | |||
| COVID-19 |
The COVID-19 outbreak in the United States has caused business disruption including mandated and voluntary closing of various businesses. While the disruption is currently expected to be temporary, there is considerable uncertainty around the duration of the closings and the impact of the pandemic on our business. Therefore, the Company expects this matter to continue to negatively impact its operating results in future periods. The full financial impact and duration cannot be reasonably estimated at this time. |
Paycheck Protection Program Loan |
6 Months Ended | ||
|---|---|---|---|
Nov. 30, 2021 | |||
| Payroll Protection Program Loan [Abstract] | |||
| Paycheck 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 SBAS 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 six months ended November 30, 2021 related to the forgiveness of the loan principal and accrued interest. |
Geneva Consulting Group Acquisition |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Geneva Consulting Group Acquisition |
On September 1, 2020, the Company completed the acquisition of all of the outstanding stock of Geneva Consulting Group, Inc., a New York corporation (“Geneva”) and provider of temporary and permanent information technology personnel based in Port Washington, New York. The stock of Geneva was purchased from the three shareholders of Geneva (the “Sellers”), none of which had, or will have following the acquisition, a material relationship with the Company or its affiliates.
The purchase price for the shares of Geneva is comprised of the following: (i) $1,452,000 in cash paid to Sellers at the closing of the acquisition, (ii) an amount of $748,000, that is equal to the amount of Geneva’s loan under the PPP that was not assumed by the Company and is expected to be substantially forgiven by the SBA, (iii) an amount up to $300,000, which may be paid as an earnout payment in part in February 2021 and in part in August 2021 (the “Earnout Payments”), (iv) bonus payments payable in $10,000 increments, (v) $747,000 for the net working capital of Geneva as of closing and (vi) other purchase price adjustments of which $36,000 has been paid to date. Any Earnout Payments and bonus payments will be determined based upon the achievement of certain criteria relating to the number the Company’s contractors working full-time at the Company’s client locations on such dates.
The initial Earnout Payments and bonus payment liability was valued at its fair value using an option pricing based approach with a risk-neutral framework using Black Scholes due to the option-like nature of the earn-out payment structure (Level 3 of the fair value hierarchy). The Earnout Payments were revalued quarterly prior to the resolution discussed below, using a present value approach and any resulting increase or decrease was recorded into selling, general and administrative expenses. Any changes in the amount of the actual results and forecasted scenarios could impact the fair value. Significant judgment was employed in determining the appropriateness of the assumptions used in calculating the fair value of the Earnout Payments as of the acquisition date and subsequent period ends.
On March 17, 2021, the Company entered into an agreement with the Sellers’ representatives pursuant to which the parties agreed to resolve certain interpretive differences regarding the Sellers’ entitlement to the bonus payments described above. Pursuant to this agreement, and in full satisfaction of the Company’s obligations for deferred payments under the purchase agreement for the Geneva acquisition, the Sellers’ representative acknowledged receipt of the first Earnout Payment in the amount of $100,000, the parties agreed that the Company would make aggregate bonus payments to the Sellers’ representatives in the amount of $260,000, and the Company agreed to instruct the escrow agent to release to the Sellers’ representatives the second Earnout Payment in the amount of $200,000. All amounts relating to the Earnout Payments and bonus payments that had not been paid as of the date of the agreement were either paid by the Company or released by the escrow agent on March 18, 2021. This agreement resulted in a charge to selling, general and administrative expenses of $210,000 in the quarter ended February 28, 2021. No further earnout or bonus amounts can be earned or will be paid subsequent to March 18, 2021.
The acquisition was accounted for as an acquisition of a business in accordance with the acquisition method of accounting. The acquired assets and assumed liabilities have been recorded at their fair values. The Company determined the fair values with the assistance of valuations performed by an independent third-party specialist.
The Company has incurred approximately $498,000 in legal fees, business broker fees, valuation services, accounting fees and other expenses to complete the Geneva acquisition. Included in this amount is additional bonus payments to the Sellers of $210,000 related to the March 17, 2021 agreement discussed above. All acquisition related costs have been expensed as incurred and included in selling, general and administrative expenses.
The following table summarizes the components of the purchase price at fair values at September 1, 2020:
The following table summarizes the allocation of purchase price at estimated fair values at September 1, 2020:
The following unaudited pro forma financial information presents the combined operating results of the Company and Geneva as if the acquisition had occurred as of the beginning of the earliest period presented. Pro forma data is subject to various assumptions and estimates and is presented for informational purposes only. This pro forma data does not purport to represent or be indicative of the consolidated operating results that would have been reported had the transaction been completed as described herein, and the data should not be taken as indicative of future operating results.
Unaudited pro forma financial information assuming the acquisition of Geneva as of June 1, 2020 is presented in the following table (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill |
6 Months Ended | ||
|---|---|---|---|
Nov. 30, 2021 | |||
| Disclosure Text Block Supplement [Abstract] | |||
| 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, 2021 and no impairment was found. |
Intangible Assets |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 identified in the Geneva acquisition are as follows:
No instances of triggering events or impairment indicators were identified at November 30, 2021. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions |
6 Months Ended | ||
|---|---|---|---|
Nov. 30, 2021 | |||
| Related Party Transactions [Abstract] | |||
| 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 Fintech Consulting LLC were both principal stockholders of the Company, each owning more than 5% of the Company’s outstanding common stock prior to the consummation of the acquisition. Robert Fitzgerald is the President and majority shareholder of QAR Industries, Inc. The other directors of the Company are not affiliated with QAR Industries, Inc.
On February 3, 2021, the 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, Inc., purchased 27,586 shares of TSR’s common stock from Fintech Consulting LLC at a price of $7.25 per share. The foregoing transaction is currently the subject of litigation due to a complaint filed by Fintech Consulting LLC on December 1, 2021. Please see the Company’s Current Report on Form 8-K filed with the SEC on December 21, 2021 for more information about the foregoing complaint and litigation. |
Stock-based Compensation Expense |
6 Months Ended | ||
|---|---|---|---|
Nov. 30, 2021 | |||
| Share-based Payment Arrangement [Abstract] | |||
| 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 grants. 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 common stock over a stated period of time (“market condition”). These shares had a grant date value $262,000 based on the closing price of TSR, Inc. 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 time the shares may vest. The market condition for the shares that vest on the two-year anniversary was met in October 2021. During the three and six months ending November 30, 2021, $177,000 and $354,000 has been record as stock-based compensation expense and included in selling, general and administrative expenses. As of November 30, 2021, there is approximately $497,000 of unearned compensation expense that will be expensed through February 2024; 142,666 stock awards expected to vest; and zero vested awards. |
Cash and Cash Equivalents (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 30, 2021 | |||||||||||||||||||||||||||||||||||||
| Cash and Cash Equivalents [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of considers short-term highly liquid investments |
|
||||||||||||||||||||||||||||||||||||
Marketable Securities (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of major categories of assets measured at fair value on a recurring basis |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of marketable securities |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of future minimum lease payments under non-cancelable operating leases |
|
||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of right-of-use assets and operating lease liabilities |
|
||||||||||||||||||||||||||||||||||||||||||||||||||
Geneva Consulting Group Acquisition (Tables) |
3 Months Ended | 6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2021 |
Nov. 30, 2021 |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of purchase price at fair values |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of allocation of purchase price at preliminary estimated fair values |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of unaudited pro forma financial information |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of intangible assets identified in the Geneva acquisition |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income (Loss) Per Common Share (Details) - shares |
3 Months Ended | 6 Months Ended |
|---|---|---|
Nov. 30, 2021 |
Nov. 30, 2021 |
|
| Earnings Per Share [Abstract] | ||
| Restricted stock awards | 70,816 | 69,628 |
Cash and Cash Equivalents (Details) - Schedule of considers short-term highly liquid investments - USD ($) |
Nov. 30, 2021 |
May 31, 2021 |
|---|---|---|
| Schedule of considers short-term highly liquid investments [Abstract] | ||
| Cash in banks | $ 6,214,123 | $ 7,317,517 |
| Money market funds | 53,687 | 53,129 |
| Total | $ 6,267,810 | $ 7,370,646 |
Marketable Securities (Details) - Schedule of major categories of assets measured at fair value on a recurring basis - USD ($) |
Nov. 30, 2021 |
May 31, 2021 |
|---|---|---|
| Marketable Securities (Details) - Schedule of major categories of assets measured at fair value on a recurring basis [Line Items] | ||
| Equity Securities | $ 39,360 | $ 45,696 |
| Level 1 [Member] | ||
| Marketable Securities (Details) - Schedule of major categories of assets measured at fair value on a recurring basis [Line Items] | ||
| Equity Securities | 39,360 | 45,696 |
| Level 2 [Member] | ||
| Marketable Securities (Details) - Schedule of major categories of assets measured at fair value on a recurring basis [Line Items] | ||
| Equity Securities | ||
| Level 3 [Member] | ||
| Marketable Securities (Details) - Schedule of major categories of assets measured at fair value on a recurring basis [Line Items] | ||
| Equity Securities |
Marketable Securities (Details) - Schedule of marketable securities - USD ($) |
6 Months Ended | 12 Months Ended |
|---|---|---|
Nov. 30, 2021 |
May 31, 2021 |
|
| Schedule of marketable securities [Abstract] | ||
| Equity Securities, Amortized Cost | $ 16,866 | $ 16,866 |
| Equity Securities, Gross Unrealized Holding Gains | 22,494 | 28,830 |
| Equity Securities, Gross Unrealized Holding Losses | ||
| Equity Securities, Recorded Value | $ 39,360 | $ 45,696 |
Leases (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Nov. 30, 2021 |
Nov. 30, 2020 |
|
| Leases [Abstract] | ||
| Lease expiration, description | The lease agreements for New York City, Hauppauge and New Jersey expire on August 31, 2022, December 31, 2023 and May 31, 2027, respectively, and do not include any renewal options. During the fiscal year ended May 31, 2021, the Company extended its lease in Hauppauge, entered into a lease in a new location for its New Jersey office expiring May 31, 2027 and entered into an agreement to sublease the space in New York City expiring August 31, 2022. | |
| Right-of-use asset impairment charge | $ 136,599 | |
| Operating lease expense | $ 155,000 | $ 231,000 |
| Operating lease, weighted average remaining lease term | 2 years 10 months 24 days | |
Leases (Details) - Schedule of future minimum lease payments under non-cancelable operating leases |
Nov. 30, 2021
USD ($)
|
|---|---|
| Schedule of future minimum lease payments under non-cancelable operating leases [Abstract] | |
| 2022 | $ 334,441 |
| 2023 | 218,903 |
| 2024 | 130,646 |
| 2025 | 125,388 |
| 2026 | 128,522 |
| Thereafter | 65,054 |
| Total undiscounted operating lease payments | 1,002,954 |
| Less imputed interest | 137,168 |
| Present value of operating lease payments | $ 865,786 |
Leases (Details) - Schedule of right-of-use assets and operating lease liabilities |
6 Months Ended |
|---|---|
|
Nov. 30, 2021
USD ($)
| |
| Assets | |
| Right-of-use assets, net | $ 774,452 |
| Liabilities | |
| Current operating lease liabilities | 283,841 |
| Long-term operating lease liabilities | 581,945 |
| Total operating lease liabilities | $ 865,786 |
Credit Facility (Details) - USD ($) |
1 Months Ended | 6 Months Ended |
|---|---|---|
Nov. 27, 2019 |
Nov. 30, 2021 |
|
| Credit Facility (Details) [Line Items] | ||
| Borrowed amount under credit facility | $ 2,000,000 | |
| Line of credit facility, description | 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 November 30, 2021 was 3.25%, indicating an interest rate of 5.0% on the line of credit. 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. | |
| Net borrowings outstanding | $ 44,000 | |
| Loan and Security Agreement [Member] | ||
| Credit Facility (Details) [Line Items] | ||
| Borrowed amount under credit facility | $ 7,000,000 | |
| Credit Facility [Member] | ||
| Credit Facility (Details) [Line Items] | ||
| Borrowed amount under credit facility | $ 2,000,000 |
Termination of Former CEO (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | |
|---|---|---|---|---|
Oct. 31, 2021 |
Mar. 31, 2020 |
Aug. 31, 2021 |
Nov. 30, 2021 |
|
| Termination Of Former CEO [Abstract] | ||||
| Enhanced severance amount, description | (1) breach of his employment contract; and (2) breach of duty of good faith and fair dealing. Plaintiff Hughes alleged that he was terminated without cause or in the alternative that he resigned for good reason and therefore, pursuant to the Employment Agreement, Hughes sought severance pay in the amount of $1,000,000 and reasonable costs and attorney’s fees. The Company denied Plaintiff’s allegations in their entirety and filed counterclaims against Plaintiff for (1) declaratory relief; (2) breach of confidence/non-compete agreement; (3) declaratory and injunctive relief – confidence/non-compete; (4) tortious interference with current and prospective contractual and economic relations; (5) breach of fiduciary duty; (6) misappropriation of trade secrets; (7) declaratory and injunctive relief – unfair competition; and (8) conversion. | |||
| Discovery expenses | $ 705,000 | |||
| Selling, general and administrative expenses | $ 580,000 | $ 580,000 | ||
Legal Settlement with Investor (Details) - USD ($) |
6 Months Ended | |||||
|---|---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Apr. 01, 2020 |
Nov. 30, 2021 |
Aug. 13, 2020 |
Feb. 29, 2020 |
|
| Legal Settlement with Investor (Details) [Line Items] | ||||||
| Legal settlement amount payable | $ 900,000 | |||||
| Settlement period | 3 years | |||||
| Due payment | $ 300,000 | |||||
| Accrued interest rate, percentage | 3.75% | |||||
| Estimated present value of payments | $ 818,000 | |||||
| Effective interest rate | 5.00% | |||||
| Estimated present value of payments | $ 583,000 | |||||
| Third Cash Payment [Member] | ||||||
| Legal Settlement with Investor (Details) [Line Items] | ||||||
| Cash payment | $ 300,000 | |||||
| Forecast [Member] | ||||||
| Legal Settlement with Investor (Details) [Line Items] | ||||||
| Cash payment | $ 300,000 | |||||
| Forecast [Member] | Second Cash Payment [Member] | ||||||
| Legal Settlement with Investor (Details) [Line Items] | ||||||
| Cash payment | $ 300,000 |
Paycheck Protection Program Loan (Details) - Paycheck Protection Program [Member] - USD ($) |
3 Months Ended | 6 Months Ended | |
|---|---|---|---|
Apr. 15, 2020 |
Aug. 31, 2021 |
Nov. 30, 2021 |
|
| Paycheck Protection Program Loan (Details) [Line Items] | |||
| Proceeds from loan | $ 6,659,220 | ||
| Other income | $ 6,735,246 | $ 6,735,246 |
Geneva Consulting Group Acquisition (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended |
|---|---|---|---|
Mar. 17, 2021 |
Feb. 28, 2021 |
Nov. 30, 2021 |
|
| Geneva Consulting Group Acquisition (Details) [Line Items] | |||
| Acquisition, description | The purchase price for the shares of Geneva is comprised of the following: (i) $1,452,000 in cash paid to Sellers at the closing of the acquisition, (ii) an amount of $748,000, that is equal to the amount of Geneva’s loan under the PPP that was not assumed by the Company and is expected to be substantially forgiven by the SBA, (iii) an amount up to $300,000, which may be paid as an earnout payment in part in February 2021 and in part in August 2021 (the “Earnout Payments”), (iv) bonus payments payable in $10,000 increments, (v) $747,000 for the net working capital of Geneva as of closing and (vi) other purchase price adjustments of which $36,000 has been paid to date. Any Earnout Payments and bonus payments will be determined based upon the achievement of certain criteria relating to the number the Company’s contractors working full-time at the Company’s client locations on such dates. | ||
| Earnout payments, description | Pursuant to this agreement, and in full satisfaction of the Company’s obligations for deferred payments under the purchase agreement for the Geneva acquisition, the Sellers’ representative acknowledged receipt of the first Earnout Payment in the amount of $100,000, the parties agreed that the Company would make aggregate bonus payments to the Sellers’ representatives in the amount of $260,000, and the Company agreed to instruct the escrow agent to release to the Sellers’ representatives the second Earnout Payment in the amount of $200,000. | ||
| Selling, general and administrative expenses | $ 210,000 | ||
| Payment for bonus | $ 210,000 | ||
| Geneva acquisition [Member] | |||
| Geneva Consulting Group Acquisition (Details) [Line Items] | |||
| Other expenses | $ 498,000 |
Geneva Consulting Group Acquisition (Details) - Schedule of purchase price at fair values |
Sep. 02, 2020
USD ($)
|
|---|---|
| Schedule of purchase price at fair values [Abstract] | |
| Cash consideration paid to date | $ 2,983,264 |
| Estimated earnout and other liabilities | 358,796 |
| Total purchase price | $ 3,342,060 |
Geneva Consulting Group Acquisition (Details) - Schedule of allocation of purchase price at preliminary estimated fair values |
Sep. 01, 2020
USD ($)
|
|---|---|
| Schedule of allocation of purchase price at preliminary estimated fair values [Abstract] | |
| Cash | $ 241,946 |
| Accounts receivable | 778,930 |
| Prepaid expenses | 5,249 |
| Intangible assets (see Note 15) | 1,800,000 |
| Goodwill | 785,883 |
| Accrued expenses | (269,948) |
| Net assets | $ 3,342,060 |
Geneva Consulting Group Acquisition (Details) - Schedule of unaudited pro forma financial information - USD ($) |
6 Months Ended | |
|---|---|---|
Nov. 30, 2021 |
Nov. 30, 2020 |
|
| Schedule of unaudited pro forma financial information [Abstract] | ||
| Revenue | $ 46,730 | $ 32,020 |
| Net income (loss) | $ 6,645 | $ (488) |
| Diluted earnings (loss) per share (in Dollars per share) | $ 3.27 | $ (0.25) |
Related Party Transactions (Details) - $ / shares |
Feb. 03, 2021 |
Jan. 05, 2021 |
|---|---|---|
| Related Party Transactions (Details) [Line Items] | ||
| Common stock outstanding percentage | 5.00% | |
| Chairman [Member] | ||
| Related Party Transactions (Details) [Line Items] | ||
| Share purchased | 27,586 | |
| QAR Industries, Inc. [Member] | ||
| Related Party Transactions (Details) [Line Items] | ||
| Share purchased | 348,414 | |
| Fintech Consulting LLC [Member] | ||
| Related Party Transactions (Details) [Line Items] | ||
| Price per share | $ 7.25 | |
| Fintech Consulting LLC [Member] | Chairman [Member] | ||
| Related Party Transactions (Details) [Line Items] | ||
| Price per share | $ 7.25 |
Stock-based Compensation Expense (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended |
|---|---|---|---|
Jan. 28, 2021 |
Nov. 30, 2021 |
Nov. 30, 2021 |
|
| Stock-based Compensation Expense (Details) [Line Items] | |||
| Shares granted (in Shares) | 108,333 | ||
| Stock option vested (in Shares) | 69,167 | ||
| Shares granted | $ 826,000 | ||
| Option granted based on the closing price | $ 262,000 | ||
| Stock based compensation expense | $ 177,000 | $ 354,000 | |
| Compensation expense, description | As of November 30, 2021, there is approximately $497,000 of unearned compensation expense that will be expensed through February 2024; 142,666 stock awards expected to vest; and zero vested awards. | ||
| Minimum [Member] | |||
| Stock-based Compensation Expense (Details) [Line Items] | |||
| Estimated forfeiture rates | 40.00% | ||
| Maximum [Member] | |||
| Stock-based Compensation Expense (Details) [Line Items] | |||
| Estimated forfeiture rates | 60.00% |