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TSR INC - Quarter Report: 2022 August (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended August 31, 2022

 

☐ Transition report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _______ to _______

 

Commission File Number: 001-38838

 

TSR, Inc.
(Exact name of registrant as specified in its charter)

 

Delaware   13-2635899
(State or other jurisdiction of
Incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

400 Oser Avenue, Suite 150, Hauppauge, NY 11788
(Address of principal executive offices)
 
631 - 231-0333
(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
Common Stock, par value $0.01 per share   TSRI   NASDAQ Capital Market

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted 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). ☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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 ☐
Non-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 ☒ No

 

As of October 7, 2022, there were 2,142,060 shares of common stock, par value $0.01 per share, issued and outstanding.

 

 

 

 

 

 

TSR, INC. AND SUBSIDIARIES

INDEX

 

    Page
Number
     
Part I. Financial Information: 1
   
Item 1. Financial Statements: 1
     
  Condensed Consolidated Balance Sheets – August 31, 2022 and May 31, 2022 1
     
  Condensed Consolidated Statements of Operations – For the three months ended August 31, 2022 and August 31, 2021 2
     
  Condensed Consolidated Statements of Equity – For the three months ended August 31, 2022 and August 31, 2021 3
     
  Condensed Consolidated Statements of Cash Flows – For the three months ended August 31, 2022 and August 31, 2021 4
     
  Notes to Condensed Consolidated Financial Statements 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
     
Item 4. Controls and Procedures 16
     
Part II. Other Information 17
     
Item 1. Legal proceedings 17
     
Item 1A. Risk Factors 17
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
     
Item 3. Defaults upon Senior Securities 17
     
Item 4. Mine Safety Disclosures 17
     
Item 5. Other Information 17
     
Item 6. Exhibits 18
     
Signatures 19

 

Page i

 

 

Part I. Financial Information

 

Item 1. Financial Statements

 

TSR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

  August 31,
2022
    May 31,
2022
 
    (Unaudited)     (see Note 1)  
ASSETS            
Current Assets:            
Cash and cash equivalents   $ 7,749,286     $ 6,490,158  
Marketable securities     25,536       35,536  
Accounts receivable, net of allowance for doubtful accounts of $181,000     12,681,576       13,427,562  
Other receivables     61,793       39,753  
Prepaid expenses     209,261       216,776  
Prepaid and recoverable income taxes     5,070       31,795  
Total Current Assets     20,732,522       20,241,580  
Equipment and leasehold improvements, net of accumulated depreciation and amortization of $214,604 and $195,094     121,067       138,794  
Other assets     63,270       63,270  
Right-of-use assets     590,249       652,020  
Intangible assets, net     1,458,000       1,500,750  
Goodwill     785,883       785,883  
Deferred income taxes     787,000       972,000  
                 
Total Assets   $ 24,537,991     $ 24,354,297  
LIABILITIES AND EQUITY                
Current Liabilities:                
Accounts payable and other payables   $ 1,285,228     $ 1,425,021  
Accrued expenses and other current liabilities     6,259,160       5,818,903  
Advances from customers     1,259,129       1,210,992  
Credit facility    
-
      61,882  
Operating lease liabilities - current     179,332       214,941  
Legal settlement payable - current    
-
      597,566  
Total Current Liabilities     8,982,849       9,329,305  
Operating lease liabilities, net of current portion     445,618       492,427  
Total Liabilities     9,428,467       9,821,732  
                 
Commitments and contingencies      
 
     
 
 
                 
Equity:                
TSR, Inc.:                
Preferred stock, $1 par value, authorized 500,000 shares; none issued    
-
     
-
 
Common stock, $.01 par value, authorized 12,500,000 shares; issued 3,298,549 shares, 2,146,448 outstanding     32,986       32,986  
Additional paid-in capital     7,543,082       7,473,866  
Retained earnings     20,964,788       20,470,042  
      28,540,856       27,976,894  
                 
Less: Treasury stock, 1,152,101 shares, at cost     13,514,003       13,514,003  
Total TSR, Inc. Equity     15,026,853       14,462,891  
                 
Noncontrolling interest     82,671       69,674  
Total Equity     15,109,524       14,532,565  
                 
Total Liabilities and Equity   $ 24,537,991     $ 24,354,297  

 

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 Ended August 31, 2022 and August 31, 2021

(UNAUDITED)

 

   Three Months Ended
August 31,
 
   2022   2021 
Revenue, net  $26,199,428   $22,866,017 
           
Cost of sales   21,766,912    19,055,629 
Selling, general and administrative expenses   3,677,605    4,165,305 
    25,444,517    23,220,934 
Income (loss) from operations   754,911    (354,917)
           
Other income (expense):          
Interest expense, net   (19,168)   (33,846)
Gain on PPP Loan and interest forgiveness   
-
    6,735,246 
Unrealized loss on marketable securities, net   (10,000)   (2,448)
Income before income taxes   725,743    6,344,035 
Provision for (benefit from) income taxes   218,000    (115,000)
Consolidated net income   507,743    6,459,035 
Less: Net income attributable to noncontrolling interest   12,997    57,492  
Net income attributable to TSR, Inc.  $494,746   $6,401,543 
Basic net income per TSR, Inc. common share  $0.23   $3.26 
Diluted net income per TSR, Inc. common share  $0.22   $3.18 
Basic weighted average number of common shares outstanding   2,146,448    1,962,062 
Diluted weighted average number of common shares outstanding   2,236,674    2,014,699 

 

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 Ended August 31, 2022 and August 31, 2021

(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, 2021   3,114,163   $31,142   $5,339,200   $13,540,822   $(13,514,003)  $5,397,161   $23,891   $5,421,052 
                                         
Net income attributable to   noncontrolling interest   -    
-
    
-
    
-
    
-
    
-
    57,492    57,492 
                                         
Distribution to   noncontrolling interest   -    
-
    
-
    
-
    
-
    
-
    (1,750)   (1,750)
Non-cash stock compensation   -    
-
    177,249    
-
    
-
    177,249    
-
    177,249 
                                         
Net income attributable to TSR, Inc.   -    
-
    
-
    6,401,543    
-
    6,401,543    
-
    6,401,543 
Balance at August 31, 2021   3,114,163   $31,142   $5,516,449   $19,942,365   $(13,514,003)  $11,975,953   $79,633   $12,055,586 

 

   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, 2022   3,298,549   $32,986   $7,473,866   $20,470,042   $(13,514,003)  $14,462,891   $69,674   $14,532,565 
                                         
Net income attributable to   noncontrolling interest   -    
-
    
-
    
-
    
-
    
-
    12,997    12,997 
                                         
Non-cash stock compensation   -    
-
    69,216    
-
    
-
    69,216    
-
    69,216 
                                         
Net income attributable to TSR, Inc.   -    
-
    
-
    494,746    
-
    494,746    
-
    494,746 
Balance at August 31, 2022   3,298,549   $32,986   $7,543,082   $20,964,788   $(13,514,003)  $15,026,853   $82,671   $15,109,524 

 

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 Three Months Ended August 31, 2022 and August 31, 2021

(UNAUDITED)

 

   Three Months Ended
August 31,
 
   2022   2021 
Cash flows from operating activities:        
Consolidated net income  $507,743   $6,459,035 
Adjustments to reconcile consolidated net income to net cash provided by operating activities:          
Depreciation and amortization   62,260    55,306 
Unrealized loss on marketable securities, net   10,000    2,448 
Deferred income taxes   185,000    (83,000)
Non-cash lease recovery   (20,647)   (14,326)
Forgiveness of principal and accrued interest on SBA PPP loan   
-
    (6,735,246)
Non-cash stock-based compensation expense   69,216    177,249 
           
Changes in operating assets and liabilities:          
Accounts receivable   745,986    (549,345)
Other receivables   (22,040)   (2,220)
Prepaid expenses   7,515    15,871 
Prepaid and recoverable income taxes   26,725    (37,405)
Other assets   -    (11,096)
Accounts payable, other payables, accrued expenses and other current liabilities   300,464    1,311,872 
Advances from customers   48,137    25,084 
Legal settlement payable   (597,566)   (291,445)
Net cash provided by operating activities   1,322,793    322,782 
Cash flows from investing activities:          
Purchases of equipment and leasehold improvements   (1,783)   (27,986)
Net cash used in investing activities   (1,783)   (27,986)
Cash flows from financing activities:          
Net repayments on credit facility   (61,882)   (57,750)
Distribution to noncontrolling interest    
-
    (1,750)
Net cash used in financing activities   (61,882)   (59,500)
Net increase in cash and cash equivalents   1,259,128    235,296 
Cash and cash equivalents at beginning of period   6,490,158    7,370,646 
Cash and cash equivalents at end of period  $7,749,286   $7,605,942 
           
Supplemental disclosures of cash flow data:          

Income taxes paid

  $6,000   $5,000 
Interest paid  $17,000   $26,000 

 

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

August 31, 2022

(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, 2022, 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 ended August 31, 2022 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, 2023. 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, 2022.

 

2.Net Income Per Common Share

 

Basic net income per common share is computed by dividing net income 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 16 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 90,226 and 52,637 have been included for dilutive shares outstanding for the three months ended August 31, 2022 and 2021, respectively.

 

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 August 31, 2022 and May 31, 2022:

 

   August 31,
2022
   May 31,
2022
 
         
Cash in banks  $7,694,847   $6,436,012 
Money market funds   54,439    54,146 
           
   $7,749,286   $6,490,158 

 

4.Fair Value of Financial Instruments

 

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

 

Page 5

 

 

TSR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2022

(Unaudited)

 

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.

 

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

 

August 31, 2022  Level 1   Level 2   Level 3   Total 
Equity Securities  $25,536   $
        -
   $
        -
   $25,536 

 

May 31, 2022  Level 1   Level 2   Level 3   Total 
Equity Securities  $35,536   $
         -
   $
            -
   $35,536 

 

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 August 31, 2022 and May 31, 2022 are summarized as follows:

 

August 31, 2022  Amortized
Cost
   Gross
Unrealized
Holding
Gains
   Gross
Unrealized
Holding
Losses
   Recorded
Value
 
Equity Securities  $16,866   $8,670   $
         -
   $25,536 

 

May 31, 2022  Amortized
Cost
   Gross
Unrealized
Holding
Gains
   Gross
Unrealized
Holding
Losses
   Recorded
Value
 
Equity Securities  $16,866   $18,670   $
           -
   $35,536 

 

Page 6

 

 

TSR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2022

(Unaudited)

 

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.

 

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 this report, including in Notes 9, 10, 14 and 17 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 offices in Hauppauge and New Jersey. The lease for the New York City office expired on August 31, 2022 and was not replaced. 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 offices are classified as operating leases.

 

The lease agreements for Hauppauge and New Jersey expire on 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.

 

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 three months ended August 31, 2022 and 2021 the Company’s operating lease expense for these leases was $84,977 and $72,935, respectively.

 

As there are no explicit rates provided in our leases, the Company’s incremental borrowing rate was used based on the information at commencement date in determining the present value of the future lease payments. Future minimum lease payments under non-cancellable operating leases as of August 31, 2022 were as follows:

 

Twelve Months Ending August 31,    
2023  $217,439 
2024   154,841 
2025   124,614 
2026   127,729 
2027   97,582 
Thereafter   
-
 
Total undiscounted operating lease payments   722,205 
Less imputed interest   97,255 
Present value of operating lease payments  $624,950 

 

Page 7

 

 

TSR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2022

(Unaudited)

 

The following table sets forth the right-of-use assets and operating lease liabilities as of August 31, 2022:

 

Assets    
Right-of-use assets, net  $590,249 
      
      
Liabilities     
Current operating lease liabilities  $179,322 
Long-term operating lease liabilities   445,618 
Total operating lease liabilities  $624,950 

 

The weighted average remaining lease term for the Company’s operating leases is 2.2 years.

 

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”) which provides funding to TSR and its direct and indirect subsidiaries, TSR Consulting Services, Inc., Logixtech Solutions, LLC and Eurologix, S.A.R.L., each of which, together with TSR, is a borrower under the 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 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 August 31, 2022 was 5.50%, indicating an interest rate of 7.25% 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 covenants at August 31, 2022.

 

As of August 31, 2022, the net payments exceeded borrowings outstanding against this line of credit facility resulting in a receivable from the Lender of $56,965 which is included in “Other receivables” on the balance sheet. 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.

 

 

Page 8

 

 

TSR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2022

(Unaudited)

 

9.Termination of Former CEO

 

The Company terminated Christopher Hughes, the former Chief Executive Officer of the Company (“Hughes”), effective February 29, 2020. Hughes filed a complaint against the Company in the Supreme Court of the State of New York in March 2020 alleging two causes of action: (1) breach of his employment contract; and (2) breach of the duty of good faith and fair dealing. Hughes alleged that he was terminated without cause or in the alternative that he resigned for good reason and therefore, pursuant to the Amended and Restated Employment Agreement, dated August 9, 2018, between the Company and Hughes, Hughes sought severance pay in the amount of $1,000,000 and reasonable costs and attorney’s fees. The Company denied Hughes’ allegations and filed various counterclaims against Hughes. 

 

In October 2021, the Company and Hughes agreed through mediation to settle this matter. In order to avoid lengthy and costly litigation and discovery expenses, the Company has paid Hughes $705,000 to settle all claims. After adjusting for insurance reimbursement, the Company accrued a charge of $580,000 to selling, general and administrative expenses in the quarter ended August 31, 2021.

 

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 $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 two cash payments of $300,000 each were made by June 30, 2022 in full satisfaction of the settlement.

 

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.

 

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TSR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2022

(Unaudited)

 

12.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 recent 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 (“PPP Lender”).

 

In March 2021, the Company submitted a PPP Loan Forgiveness application to the SBA through the PPP Lender. On July 7, 2021, the Company received notification from the PPP Lender that the SBA approved the Company’s application for forgiveness of the entire principal amount of the PPP Loan plus accrued interest. The PPP Lender has applied 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 related to the forgiveness of the loan principal and accrued interest. It should be noted that the SBA has a six-year period to review the forgiveness calculation.

 

13.Intangible Assets

 

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

 

Intangible assets are as follows:

 

   May 31,       August 31, 
   2022   Amortization   2022 
Database (estimated life 5 years)  $149,500   $11,500   $138,000 
Non-compete agreement (estimated life 2 years)   1,250    1,250    
-
 
Trademark (estimated life 3 years)   25,000    5,000    20,000 
Customer relationships (estimated life 15 years)   1,325,000    25,000    1,300,000 
Total  $1,500,750   $42,750   $1,458,000 

 

No instances of triggering events or impairment indicators were identified at August 31, 2022.

 

14.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.

 

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TSR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2022

(Unaudited)

 

On February 3, 2021, the transaction was completed and QAR Industries, Inc. purchased 348,414 shares of TSR’s common stock from Fintech Consulting LLC at a price of $7.25 per share. At the same time, Bradley M. Tirpak, Chairman of TSR, purchased 27,586 shares of TSR’s common stock from Fintech Consulting LLC at a price of $7.25 per share. The foregoing transaction is currently the subject of litigation due to a complaint filed by Fintech Consulting LLC on December 1, 2021. For more information about the foregoing complaint and litigation, please see Note 17 to the condensed consolidated financial statements and the Company’s Current Report on Form 8-K filed with the SEC on December 21, 2021.

 

The Company has provided placement services for an entity in which a Board of Director of the Company is the CEO. Revenues for such services in fiscal 2022 were approximately $59,000. There were no amounts outstanding as accounts receivable from this entity as of May 31, 2022 or August 31, 2022. There was no activity with this client in the quarters ending August 31, 2022 or 2021.

 

15.Common Stock

 

Our certificate of incorporation, as amended, authorizes the issuance of up to 12,500,000 shares of common stock, $0.01 par value per share.

 

On October 8, 2021, the Company filed an automatic shelf registration statement on Form S-3 (File No. 333-260152) (the “2021 TSRI Shelf”) which contains (i) a base prospectus, which covers the offering, issuance and sale by the Company of up to $5,000,000 in the aggregate of shares of common stock from time to time in one or more offerings; and (ii) a sales agreement prospectus, which covers the offering, issuance and sale by the Company of up to $4,167,000 in the aggregate of shares of common stock that may be issued and sold from time to time under an at-the-market sales agreement (the “2021 ATM”) by and between the Company and A.G.P./Alliance Global Partners, as sales agent (the “2021 Agent”). The $4,167,000 of common stock that may be offered, issued and sold under the sales agreement prospectus is included in the $5,000,000 of shares of common stock that may be offered, issued and sold by the Company under the base prospectus. Upon termination of the sales agreement, any portion of the $4,167,000 included in the sales agreement prospectus that is not sold pursuant to the sales agreement will be available for sale in other offerings pursuant to the base prospectus and if no shares are sold under the agreement, the full $4,167,000 of securities may be sold in other offerings pursuant to the base prospectus. Under the 2021 ATM, we pay the 2021 Agent a commission rate equal to 3.0% of the gross sales price per share of all shares sold through the 2021 Agent under the sales agreement.

 

During the fiscal year ended May 31, 2022, we sold an aggregate of 142,500 shares of common stock pursuant to the 2021 ATM for total gross proceeds of $1,965,623 at an average selling price of $13.79 per share, resulting in net proceeds of $1,783,798 after deducting $181,825 in commissions and other transactions costs. There were no shares sold during the quarters ending August 31, 2022 or 2021.

 

The 2021 TSRI Shelf is currently our only active shelf-registration statement. We may offer TSR common stock registered under the 2021 TSRI Shelf from time to time in response to market conditions or other circumstances if we believe such a plan of financing is in the best interests of our stockholders. We believe that the 2021 TSRI Shelf provides us with the flexibility to raise additional capital to finance our operations as needed. However, there is no assurance we will be successful in doing so.

 

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TSR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2022

(Unaudited)

 

16.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 of $262,000 based on the closing price of TSR common shares on the day prior to the grants discounted by an estimated forfeiture rate of 40-60%. The Company took into account the historical volatility of its common stock to assess the probability of satisfying the market condition. The associated compensation expense is recognized on a straight-line basis between the time the achievement of the performance criteria is deemed probable and the 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 quarters ended August 31, 2022 and 2021, $69,216 and $177,249, respectively, have been recorded as stock-based compensation expense and included in selling, general and administrative expenses. As of August 31, 2022, there is approximately $217,000 of unearned compensation expense that will be expensed through February 2024; 142,666 stock awards expected to vest; 56,666 awards vested to date, of which 14,780 were forfeited to pay taxes applicable to the stock awards.

 

17.Pending Legal Issue

 

On December 1, 2021, Fintech Consulting LLC filed a complaint against the Company in the United States District Court for the District of New Jersey. The named Defendants in the complaint are the Company, QAR Industries, Inc., a shareholder of TSR (“QAR”), Robert E. Fitzgerald, a director and shareholder of TSR and the President, director and a shareholder of QAR (“Fitzgerald”), and Bradley Tirpak, a shareholder and the chairman of the board of directors of TSR (“Tirpak”). The complaint purports to assert claims against the Defendants under state law and Section 10(b) of the Exchange Act in connection with a Share Purchase Agreement, dated January 31, 2021, by and between the Plaintiff, as the seller of shares of TSR’s common stock, and QAR and Tirpak, as the purchasers of such shares (the “SPA”). The plaintiff seeks (i) judgment declaring the transactions represented by the SPA null and void and for the return of the shares; (ii) judgment cancelling the SPA and returning the shares in exchange for return of the purchase price; (iii) judgement unwinding the transaction; (iv) compensatory damages; (v) punitive damages; (vi) pre-judgment interest; (vii) costs of lawsuit including attorneys’ fees; and (viii) such other relief as the Court may find appropriate. See Note 14 to the condensed consolidated financial statements elsewhere in this report and the Company’s Current Report on Form 8-K filed with the SEC on December 21, 2021 for more information.

 

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

 

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

 

18.Stock Repurchase Program

 

On September 12, 2022, the Board of Directors authorized a stock repurchase program of up to $500,000 of the Company’s outstanding common stock, par value $0.01 per share. The stock repurchase program commenced two business days after the filing of the related Form 8-K and is authorized for the next twelve months.

 

The shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in accordance with federal securities laws. The actual timing, number and value of shares repurchased under the program will be determined by the Board of Directors at its discretion and will depend on a number of factors, including the market price of Company’s stock, general market and economic conditions, and applicable legal and contractual requirements. The Company has no obligation or commitment to repurchase all or any portion of the shares covered by this authorization.

 

Page 12

 

 

TSR, INC. AND SUBSIDIARIES

MANAGEMENT’S 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 August 31, 2022 compared with three months ended August 31, 2021:

 

   (Dollar amounts in thousands)
Three Months Ended
 
   August 31,
2022
   August 31,
2021
 
   Amount   % of
Revenue
   Amount   % of
Revenue
 
Revenue, net  $26,199    100.0%  $22,866    100.0%
Cost of sales   21,767    83.1%   19,056    83.3%
Gross profit   4,432    16.9%   3,810    16.7%
Selling, general and administrative expenses   3,677    14.0%   4,165    18.2%
Income (loss) from operations   755    2.9%   (355)   (1.5)%
Other income (expense), net   (29)   (0.1)%   6,699    29.3%
Income before income taxes   726    2.8%   6,344    27.8%
Provision for (benefit from) income taxes   218    0.8%   (115)   (0.5)%
Consolidated net income    508    2.0%   6,459    28.3%
Less: Net income attributable to noncontrolling interest   13    0.1%   57    0.2%
Net income attributable to TSR, Inc.  $495    1.9%  $6,402    28.1%

 

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TSR, INC. AND SUBSIDIARIES

 

Revenue

 

Revenue consists primarily of revenue from computer programming consulting services. Revenue for the quarter ended August 31, 2022 increased approximately $3,333,000 or 14.6% from the quarter ended August 31, 2021, primarily due to new business development, organic growth and expanded activity with Geneva clients. The average number of consultants on billing with customers increased from 659 for the quarter ended August 31, 2021 to 680 for the quarter ended August 31, 2022. There were 403 and 464 IT contractors at August 31, 2021 and 2022, respectively; while there were 256 and 216 clerical and administrative contractors at August 31, 2021 and 2022, respectively.

 

Cost of Sales

 

Cost of sales for the quarter ended August 31, 2022 increased approximately $2,711,000 or 14.2% to $21,767,000 from $19,056,000 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 decreased from 83.3% in the quarter ended August 31, 2021 to 83.1% in the quarter ended August 31, 2022. The percentage increase in cost of sales for the quarter ended August 31, 2022 as compared to the prior year period (14.2% increase) was lower than the percentage increase in revenue for the quarter ended August 31, 2022 as compared to the prior year period (14.6% increase), causing an increase 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 decreased approximately $488,000 or 11.7% from $4,165,000 in the quarter ended August 31, 2021 to $3,677,000 in the quarter ended August 31, 2022. The decrease in these expenses primarily resulted from a charge of $580,000 for the legal settlement with the former Chief Executive Officer in the prior year period. Additionally, the Company incurred non-cash compensation expenses of $69,000 in the quarter ended August 31, 2022 and $177,000 in the quarter ended August 31, 2021 related to the Plan. Selling, general and administrative expenses, as a percentage of revenue decreased from 18.2% in the quarter ended August 31, 2021 to 14.0% in the quarter ended August 31, 2022.

 

Other Income (Expense)

 

Other expense for the quarter ended August 31, 2022 resulted primarily from net interest expense of $19,000 and a mark to market loss of approximately $10,000 on the Company’s marketable equity securities. Other income for the quarter ended August 31, 2021 resulted primarily from income of $6,735,000 from the forgiveness of principal and interest on the PPP Loan offset by net interest expense of approximately $34,000 and a mark to market loss of approximately $2,000 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 quarters ended August 31, 2022 and 2021 reflect the Company’s estimated effective tax rate for the fiscal years ending May 31, 2023 and 2022, respectively. These rates resulted in a provision of 30.0% for the quarter ended August 31, 2022 and a benefit of 1.8% for the quarter ended August 31, 2021. The effective rate for the quarter ended August 31, 2021 is low because of the non-taxable gain on the forgiveness of the PPP Loan principal and interest.

 

Net Income Attributable to TSR, Inc.

 

Net income attributable to TSR, Inc. was approximately $495,000 in the quarter ended August 31, 2022 compared to $6,402,000 in the quarter ended August 31, 2021. The net income in the prior year quarter was primarily attributable to the forgiveness of principal and interest on the PPP Loan.

 

Impact of inflation and Changing Prices

 

For the quarter ended August 31, 2022 and 2021, inflation and changing prices did not have a material effect on the Company’s revenue or income from continuing operations.

 

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TSR, INC. AND SUBSIDIARIES

 

Liquidity and Capital Resources

 

The Company’s cash was sufficient to enable it to meet its liquidity requirements during the quarter ended August 31, 2022. 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 August 31, 2022, the Company had no net borrowings outstanding against this Credit Facility. 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 August 31, 2022 and through the date of this filing. Additionally, in April 2020, the Company secured a PPP Loan in the amount of $6,659,000 to meet its obligations in the face of potential disruptions in its business operations and the potential inability of its customers to pay their accounts when due. As of August 31, 2020, the Company had used 100% of the PPP Loan funds to fund its payroll and for other allowable expenses under the PPP Loan. The use of these funds allowed the Company to avoid certain salary reductions, furloughs and layoffs of employees during the period. The Company applied for PPP Loan forgiveness and its application for forgiveness was accepted and approved; the PPP Loan and accrued interest were fully forgiven in July 2021.

 

At August 31, 2022, the Company had working capital (total current assets in excess of total current liabilities) of approximately $11,750,000, including cash and cash equivalents and marketable securities of $7,775,000 as compared to working capital of $10,912,000, including cash and cash equivalents and marketable securities of $6,526,000 at May 31, 2022.

 

Net cash flow of approximately $1,323,000 was provided by operations during the quarter ended August 31, 2022 as compared to $323,000 of net cash provided by operations in the prior year period. The cash provided by operations for the quarter ended August 31, 2022 primarily resulted from consolidated net income of $508,000, a decrease in accounts receivable of $746,000 and an increase in accounts payable and accrued expenses of $300,000 offset by a decrease in legal settlement payable of $598,000. The cash provided by operations for the quarter ended August 31, 2021 primarily resulted from consolidated net income of $6,459,000 and an increase in accounts payable and other payables and accrued expenses of $1,312,000, offset by the forgiveness of the PPP Loan principal and accrued interest of $6,735,000, an increase in accounts receivable of $549,000 and a decrease in legal settlement payable of $291,000.

 

Net cash used in investing activities of approximately $2,000 for the quarter ended August 31, 2022 primarily resulted from purchases of fixed assets. Net cash used in investing activities of $28,000 for the quarter ended August 31, 2021 primarily resulted from purchases of fixed assets.

 

Net cash used in financing activities during the quarter ended August 31, 2022 of $62,000 primarily resulted from net repayments under the Company’s Credit Facility. Net cash used in financing activities of approximately $60,000 during the quarter ended August 31, 2021 resulted from net payments on the Company’s Credit Facility of $58,000 and a distribution of the minority interest of $2,000.

 

The Company’s capital resource commitments at August 31, 2022 consisted of lease obligations on its branch and corporate facilities. The net present value of its future lease payments were approximately $625,000 as of August 31, 2022. The Company intends to finance these commitments primarily from the Company’s available cash and Credit Facility.

 

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TSR, INC. AND SUBSIDIARIES

 

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 Estimates

 

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

 

The Company’s significant accounting policies are described in Note 1 to the Company’s consolidated financial statements, contained in its May 31, 2022 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 and are thus considered critical accounting estimates under the Securities Act. There have been no changes in the Company’s significant accounting policies as of August 31, 2022.

 

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.

 

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TSR, INC. AND SUBSIDIARIES

 

Part II. Other Information

 

Item 1. Legal Proceedings

 

Fintech Consulting LLC v. TSR, Inc., et al., case number 2:21-cv-20181(KSH)(AME) (U.S. Dist. Ct., Dist. of New Jersey)

 

On December 1, 2021, Fintech Consulting LLC filed a complaint against the Company in the United States District Court for the District of New Jersey. The named Defendants in the complaint are the Company, QAR Industries, Inc., a shareholder of TSR (“QAR”), Robert E. Fitzgerald, a director and shareholder of TSR and the President, director and a shareholder of QAR (“Fitzgerald”), and Bradley Tirpak, a shareholder and the chairman of the board of directors of TSR (“Tirpak”). The complaint purports to assert claims against the Defendants under state law and Section 10(b) of the Exchange Act in connection with a Share Purchase Agreement, dated January 31, 2021, by and between the Plaintiff, as the seller of shares of TSR’s common stock, and QAR and Tirpak, as the purchasers of such shares (the “SPA”). The plaintiff seeks (i) judgment declaring the transactions represented by the SPA null and void and for the return of the shares; (ii) judgment cancelling the SPA and returning the shares in exchange for return of the purchase price; (iii) judgement unwinding the transaction; (iv) compensatory damages; (v) punitive damages; (vi) pre-judgment interest; (vii) costs of lawsuit including attorneys’ fees; and (viii) such other relief as the Court may find appropriate. See Note 17 to the condensed consolidated financial statements elsewhere in this report and the Company’s Current Report on Form 8-K filed with the SEC on December 21, 2021 for more information.

 

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

 

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

 

Item 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, 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, 2022, as filed with the Securities and Exchange Commission. We are not aware of any material updates to the risk factors described in our previously filed Annual Report on Form 10-K.

 

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.

 

Page 17

 

 

TSR, INC. AND SUBSIDIARIES

 

Item 6. Exhibits

 

Exhibit   Document
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 August 31, 2022, 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 18

 

 

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: October 11, 2022 /s/ Thomas Salerno
  Thomas Salerno, Chief Executive Officer, President, Treasurer and Principal Executive Officer

 

Date: October 11, 2022 /s/ John G. Sharkey
  John G. Sharkey, Sr. Vice President, Chief Financial Officer, Secretary, Principal Financial Officer and Principal Accounting Officer

 

 

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