TSR INC [TSRI] Filings

Basic net income per common share is computed by dividing net income available to common stockholders of TSR by the weighted average number of common shares outstanding during the reporting period, excluding the effects of any potentially dilutive securities. During the quarters ended February 29, 2024 and February 28, 2021, the Company granted time and performance vesting restricted stock awards under the TSR, Inc. 2020 Equity Incentive Plan (the “Plan”) (see Note 12 for further information). Diluted earnings per share gives effect to all potentially dilutive common shares outstanding during the reporting period. The common stock equivalents associated with these restricted stock awards of 99,940 and 94,829 have been included for dilutive shares outstanding for the three and nine months ended February 28, 2023. There were no dilutive shares in the three and nine months ended February 29, 2024.

The Company considers short-term highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents were composed of the following as of February 29, 2024 and May 31, 2023:

Accounting Standards Codification (“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.

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:

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, included in Note 10 to the condensed consolidated financial statements.

The Company leases the space for its offices in Hauppauge, New York and Edison, 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 offices are classified as operating leases.

The lease agreements for Hauppauge, New York and Edison, New Jersey expire on December 31, 2026 and May 31, 2027, respectively, and do not include any renewal options.

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 February 29, 2024 and February 28, 2023, the Company’s operating lease expense for these leases was $67,776 and $64,963, respectively. For the nine months ended February 29, 2024 and February 28, 2023, the Company’s operating lease expense for these leases was $204,684 and $213,845, respectively.

As there are no explicit rates provided in our leases, the Company’s incremental borrowing rate was used based on the information available as of the commencement date in determining the present value of the future lease payments. Future minimum lease payments under non-cancellable operating leases as of February 29, 2024 are as follows:

The following table sets forth the right-of-use assets and operating lease liabilities as of February 29, 2024:

The weighted average remaining lease term for the Company’s operating leases is 3.1 years. The weighted average incremental borrowing rate was 8.42%

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, Inc. 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, Inc., 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, Inc. 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 (a) 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 (b) 1.75%. The prime rate as of February 29, 2024 was 8.50%, indicating an interest rate of 10.25% 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, Inc. 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 February 29, 2024.

As of February 29, 2024, the net payments exceeded borrowings outstanding against this Credit Facility resulting in a receivable from the Lender of $43,484 which is included in “Other receivables” on the condensed consolidated balance sheets. 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.

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:

No instances of triggering events or impairment indicators were identified as of February 29, 2024.

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

On February 3, 2021, the acquisition was completed and QAR Industries, Inc. purchased 348,414 shares of TSR, Inc. 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 the Company’s common stock from Fintech Consulting LLC at a price of $7.25 per share.

On December 1, 2021, Fintech Consulting LLC (the “Plaintiff”) filed a complaint against the Company in the United States District Court for the District of New Jersey, related to the foregoing transaction. The named defendants in the complaint were the Company, QAR Industries, Inc., Robert E. Fitzgerald, a director and a stockholder of QAR Industries, Inc., and Bradley Tirpak (the “Defendants”). The complaint purported to assert claims against the Defendants under state law and Section 10(b) of the Securities Exchange Act of 1934, as amended (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 the Company’s common stock, and QAR Industries, Inc. and Mr. Tirpak, as the purchasers of such shares (the “SPA”). The Plaintiff sought (i) judgment declaring the transactions represented by the SPA null and void and for the return of the shares; (ii) judgment cancelling the SPA and returning the shares in exchange for return of the purchase price; (iii) judgment unwinding the transaction; (iv) compensatory damages; (v) punitive damages; (vi) pre-judgment interest; (vii) costs of the lawsuit including attorneys’ fees; and (viii) such other relief as the Court may find appropriate. The Plaintiff filed its first amended complaint on March 2, 2022 which the Defendants moved to dismiss on April 19, 2022. On December 7, 2022, the court granted the Defendants’ motion and dismissed the New Jersey Action on jurisdictional grounds.

Following the dismissal of the original lawsuit, the Plaintiff filed another complaint relating to the SPA against the Defendants on January 12, 2023, in the Court of Chancery of the State of Delaware (the “Delaware Chancery Action”), asserting claims and seeking relief substantially similar to that which was asserted and sought in the preceding lawsuit. The Delaware Chancery Action was dismissed without prejudice by the court on January 23, 2023.

On January 22, 2023, the Plaintiff filed a complaint against the Company in the United States District Court for the District of Delaware (the “Delaware Federal Action”). The Delaware Federal Action, in sum and substance, asserted claims and sought relief substantially similar to that contained in both the New Jersey Action and the Delaware Chancery Action.

Although the Company believed the Delaware Federal Action described above to be without merit, to avoid the time and expense of litigation, the Company negotiated with the Plaintiff to settle this matter pursuant to a settlement agreement and release dated April 24, 2023. An amount of $75,000 was paid in the fourth quarter of fiscal year 2023 to settle this matter. Upon the payment of the settlement amount (i) the Plaintiff forever released and discharged the Defendants from any and all claims or liability of any nature whatsoever; (ii) the Defendants forever released and discharged the Plaintiff from any and all claims or liability of any nature whatsoever that relate to the Delaware Federal Action or the SPA; and (iii) the Plaintiff filed a Stipulation of Dismissal with Prejudice on April 27, 2023.

The Company has provided placement services for an entity in which a Board of Director of the Company is the former CEO. Revenues for such services were $8,600 in the three months ended February 29, 2024, and $35,000 in the three months ended February 28, 2023. Revenues for such services in the nine months ended February 29, 2024, and February 28, 2023 were approximately $25,400 and $70,800, respectively. There were no amounts outstanding as accounts receivable from this entity as of February 29, 2024 or February 28, 2023.

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 or nine months ended February 29, 2024 and February 28, 2023.

The 2021 TSRI Shelf is currently our only active shelf-registration statement. We may offer TSR, Inc. 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.

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 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 the Company’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”). On January 29, 2024, the Company granted 69,167 shares in time and performance vesting restricted stock awards under the Plan.

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 2021 and 2024 shares had grant date values of $262,000 and $300,000, respectively, based on the closing price of the Company’s common stock 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. During the three months ended February 29, 2024 and February 28, 2023, $28,000 and $55,000, respectively, have been recorded as stock-based compensation expense and included in selling, general and administrative expenses. During the nine months ended February 29, 2024 and February 28, 2023, $79,000 and $193,000, respectively, have been recorded as stock-based compensation expense and included in selling, general and administrative expenses. As of February 29, 2024, there is approximately $290,000 of unearned compensation expense that will be expensed through January 2027; 34,333 stock awards expected to vest; 108,333 awards vested to date, of which 16,635 were forfeited to pay taxes applicable to the stock awards.

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 twelve (12) months following the commencement date.

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

During the three months and nine months ended February 28, 2023, 8,017 and 22,834 shares of the Company’s common stock were repurchased at an aggregate cost of $64,043 and $180,469, respectively. No shares were repurchased in the three months and nine months ended February 29, 2024.

In January 2024, the New York State Office of Unclaimed Funds approved a Voluntary Disclosure Agreement (“VDA”) with the Company to resolve aged remittances received from customers that were not able to be reconciled and applied to invoices. These amounts have historically been carried as liabilities under the heading “Advances from Customers.” The process of identifying and remediating these payments where possible resulted in a payment to New York State of approximately $69,000. The approved VDA released the Company from liability for items aged beyond the scope of the ten year lookback period for items identified as New York based or unknown addresses. This resulted in the reversal of approximately $547,000 of these items from advances from customers. This amount is recorded as “Other Income” in the third quarter of fiscal 2024.