Item
1.
Business
General
TSR,
Inc. (the “Company”) is primarily engaged in the business of providing contract computer programming services to its
customers. The Company provides its customers with technical computer personnel to supplement their in-house information technology
(“IT”) capabilities. The Company’s customers for its contract computer programming services consist primarily
of Fortune 1000 companies with significant technology budgets. In the year ended May 31, 2016, the Company provided IT staffing
services to 77 customers.
The
Company was incorporated in Delaware in 1969. The Company’s executive offices are located at 400 Oser Avenue, Suite 150,
Hauppauge, NY 11788, and its telephone number is (631) 231-0333. This annual report, and each of our other periodic and current
reports, including any amendments, are available, free of charge, on our website,
www.tsrconsulting.com
, as soon as reasonably
practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. The information
contained on our website is not incorporated by reference into this annual report on Form 10-K and should not be considered part
of this report.
Contract
Computer Programming Services
STAFFING
SERVICES
The
Company’s contract computer programming services involve the provision of technical staff to customers to meet the specialized
requirements of their IT operations. The technical personnel provided by the Company generally supplement the in-house capabilities
of the Company’s customers. The Company’s approach is to make available to its customers a broad range of technical
personnel to meet their requirements rather than focusing on specific specialized areas. The Company has staffing capabilities
in the areas of mainframe and mid-range computer operations, personal computers and client-server support, internet and e-commerce
operations, voice and data communications (including local and wide area networks) and help desk support. The Company’s
services provide customers with flexibility in staffing their day-to-day operations, as well as special projects, on a short-term
or long-term basis.
The
Company provides technical employees for projects, which usually range from three months to one year. Generally, customers may
terminate projects at any time. Staffing services are provided at the client’s facility and are billed primarily on an hourly
basis based on the actual hours worked by technical personnel provided by the Company and with reimbursement for out-of-pocket
expenses. The Company pays its technical personnel on a semi-monthly basis and invoices its customers, not less frequently than
monthly.
The
Company’s success is dependent upon, among other things, its ability to attract and retain qualified professional computer
personnel. The Company believes that there is significant competition for software professionals with the skills and experience
necessary to perform the services offered by the Company. Although the Company generally has been successful in attracting employees
with the skills needed to fulfill customer engagements, demand for qualified professionals conversant with certain technologies
may outstrip supply as new and additional skills are required to keep pace with evolving computer technology or as competition
for technical personnel increases. Increasing demand for qualified personnel could also result in increased expenses to hire and
retain qualified technical personnel and could adversely affect the Company’s profit margins.
In
the past several years, an increasing number of companies are using or are considering using low cost offshore outsourcing centers,
particularly in India, to perform technology related work and projects. This trend has contributed to the decline in domestic
IT staffing revenue. There can be no assurance that this trend will not continue to adversely impact the Company’s IT staffing
revenue.
OPERATIONS
The
Company provides contract computer programming services in the New York metropolitan area, New England, and the Mid-Atlantic region.
The Company provides its services principally through offices located in New York, New York, Edison, New Jersey and Long Island,
New York. The Company does not currently intend to open additional offices.
In
the fall of 2010, the Company established a program to hire and train recent college graduates to become technical recruiters.
The initial costs associated with the hiring and training of such personnel have increased the costs of recruitment, although,
over time, the Company believes this program will provide the Company with a larger pool of skilled technical recruiters at a
lower cost than hiring experienced technical recruiters. Competition from larger competitors for the newly trained recruiters
has created more turnover than expected, making it more difficult to increase the number of technical recruiters on staff. The
Company has also hired additional account executives in an effort to increase growth. Turnover has also been greater than expected
with account executives due to increased competition. As of May 31, 2016, the Company employed 23 persons who are responsible
for recruiting technical personnel and 13 persons who are account executives. As of May 31, 2015, the Company had employed 24
technical personnel recruiters and 13 account executives. Although the number of technical recruiters and account executives has
remained substantially the same in fiscal 2016 and fiscal 2015, there have been several personnel changes within each group.
MARKETING
AND CUSTOMERS
The
Company focuses its marketing efforts on large businesses and institutions with significant IT budgets and recurring staffing
and software development needs. The Company provided services to 77 customers during the year ended May 31, 2016 as compared to
74 in the prior fiscal year. The Company has historically derived a significant percentage of its total revenue from a relatively
small number of customers. In the fiscal year ended May 31, 2016, the Company had four customers which each provided more than
10% of consolidated revenues: Pontoon, formerly Beeline (17.7%), Citigroup (16.3%), Credit Suisse (10.7%) and Consolidated Edison
(10.3%). Pontoon provides vendor management services under an arrangement where the Company enters into a subcontract with Pontoon
and Pontoon directly contracts with five end customers. The Pontoon end customers for which the Company provides services include
Bristol Myers Squibb, which alone constituted 9.8% of the Company’s consolidated revenue for the year ended May 31, 2016.
Additionally, the Company’s top ten customers (including end customers of vendor management companies) accounted for 82%
of consolidated revenue in fiscal 2016 and 80% in fiscal 2015. While continuing its efforts to further expand its client base,
the Company’s marketing efforts are focused primarily on increasing business from its existing accounts. Approximately 35%
of the Company’s revenue is derived from end customers in the financial services business. Continuing economic pressures
in financial services have affected the net effective rates that the Company charges to certain of the Company’s end customers
in this industry, which has negatively affected the Company’s gross profit margins.
Many
of the Company’s major customers, totaling over 46% of revenue, have retained a third party to provide vendor management
services and centralize the consultant hiring process. Under this system, the third party retains the Company to provide contract
computer programming services, the Company bills the third party and the third party bills the ultimate customer. This process
has weakened the relationships the Company has built with its customers’ project managers, who are the Company’s primary
contacts with its customers and with whom the Company would normally work to place consultants. Instead, the Company is required
to interface with the vendor management provider, making it more difficult to maintain its relationships with its customers and
preserve and expand its business. These changes have also reduced the Company’s profit margins because the vendor management
company is retained for the purpose of keeping costs down for the end client and receives a processing fee which is deducted from
the payment to the Company.
In
accordance with industry practice, most of the Company’s contracts for contract computer programming services are terminable
by either the client or the Company on short notice. The Company does not believe that backlog is material to its business.
PROFESSIONAL
STAFF AND RECRUITMENT
In
addition to using internet based job boards such as Dice, Monster and Discover.org, the Company maintains a database of technical
personnel with a wide range of skills. The Company uses a sophisticated proprietary computer system to match potential employees’
skills and experience with client requirements. The Company periodically contacts personnel within its database to update their
availability, skills, employment interests and other matters and continually updates its database. This database is made available
to the account executives and recruiters at each of the Company’s offices.
The
Company employs technical personnel primarily on an hourly basis, as required in order to meet the staffing requirements under
particular contracts or for particular projects. The Company recruits technical personnel by posting jobs on the Internet, publishing
advertisements in local newspapers and attending job fairs on a periodic basis. The Company devotes significant resources to recruiting
technical personnel, maintaining 23 recruiters based in the U.S. and contracting with an India based company for 6 recruiters
in India to help locate U.S. based technical consultants. Potential applicants are
generally interviewed and tested by
the Company’s recruiting personnel, by third parties that have the required technical backgrounds to review the qualifications
of the applicants, or by on-line testing services. In some cases, instead of employing technical personnel directly, the Company
uses subcontractors who employ the technical personnel who are provided to the Company’s customers. For a small fee, the
Company may sometimes process payments on behalf of customers to contractors identified by the customers directly instead of through
the normal recruiting process; this is known as “payrolling”.
Competition
The
technical staffing industry is highly competitive and fragmented and has low barriers to entry. The Company competes for potential
customers with providers of outsourcing services, systems integrators, computer systems consultants, other providers of technical
staffing services and, to a lesser extent, temporary personnel agencies. Many of the Company’s competitors are significantly
larger and have greater financial resources than the Company. The Company believes that the principal competitive factors in obtaining
and retaining customers are accurate assessment of customers’ requirements, timely assignment of technical employees with
appropriate skills and the price of services. The principal competitive factors in attracting qualified technical personnel are
compensation, availability, quality and variety of projects and schedule flexibility. The Company believes that many of the technical
personnel included in its database may also be pursuing other employment opportunities. Therefore, the Company believes that its
responsiveness to the needs of technical personnel is an important factor in the Company’s ability to fill projects. Although
the Company believes it competes favorably with respect to these factors, it expects competition to increase and there can be
no assurance that the Company will remain competitive.
Intellectual
Property Rights
The
Company relies primarily upon a combination of trade secret, nondisclosure and other contractual arrangements to protect its proprietary
rights. The Company generally enters into confidentiality agreements with its employees, consultants, customers and potential
customers and limits access to and distribution of its proprietary information. There can be no assurance that the steps taken
by the Company in this regard will be adequate to deter misappropriation of its proprietary information or that the Company will
be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights.
Personnel
As
of May 31, 2016, the Company employed 320 people including its 3 executive officers. Of such employees, 13 were engaged in sales,
23 were recruiters for programmers, 268 were technical and programming consultants, and 13 were in administrative and clerical
functions. None of the Company’s employees belong to unions.
Item
1A.
Risk Factors
Certain
statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and “Business”, including statements concerning the Company’s future prospects and the Company’s future
cash flow requirements are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Actual
results may differ materially from those projections in the forward-looking statements, which statements involve risks and uncertainties,
including but not limited to the factors set forth below.
Dependence
Upon Key Personnel
The
Company is dependent on its Chairman of the Board, Chief Executive Officer, President and Treasurer, Joseph F. Hughes. The Company
does not have an employment agreement with Mr. Joseph F. Hughes. The Company is also dependent on its Senior Vice President and
President of TSR Consulting Services, Inc., Christopher Hughes. The Company has an employment agreement with Mr. Christopher Hughes
which expires February 28, 2017. The Company is also dependent on certain of its account executives who are responsible for servicing
its principal customers and attracting new customers. The Company does not have employment contracts with these persons. There
can be no assurance that the Company will be able to retain its existing personnel or find and attract additional qualified employees.
The loss of the service of any of these personnel could have a material adverse effect on the Company.
Dependence
on Significant Customers
In
the fiscal year ended May 31, 2016, the Company’s four largest customers Pontoon, Citigroup, Credit Suisse and
Consolidated Edison, accounted for 17.7%, 16.3%, 10.7% and 10.3% of the Company’s consolidated revenue, respectively.
Pontoon is a vendor management company through which the Company provides services to five end customers, of which
Bristol
Myers Squibb is the most significant. In total, the Company derives over 46% of its revenue from accounts with vendor
management companies. The Company’s ten largest customers provided 82% of consolidated revenue in fiscal 2016. Client
contract terms vary depending on the nature of the engagement, and there can be no assurance that a client will renew a
contract when it terminates. In addition, the Company’s contracts are generally cancelable by the client at any time on
short notice, and customers may unilaterally reduce their use of the Company’s services under such contracts without
penalty. Approximately 35% of the Company’s revenue is derived from end customers in the financial services business.
Continuing economic pressures in financial services have affected the net effective rates that the Company charges to certain
end customers in this industry, which has negatively affected the Company’s gross profit margins. See “Rapidly
Changing Industry” below.
The
accounts receivable balances associated with the Company’s largest customers were $3,735,000 for four customers at May 31,
2016 and $2,109,000 for two customers at May 31, 2015. Because of the significant amount of outstanding receivables that the Company
may have with its larger customers at any one time, if a client, including a vendor management company which then contracts with
the ultimate client, filed for bankruptcy protection, it could prevent the Company from collecting on the receivables and have
an adverse effect on the Company’s results of operations.
Dependence
on Reputation
The
Company’s reputation among its customers, potential customers and the staffing services industry depends on the performance
of the technical personnel that the Company places with its customers. If the Company’s customers are not satisfied with
the services provided by the technical personnel placed by the Company, or if the technical personnel placed by the Company lack
the qualifications or experience necessary to perform the services required by the Company’s customers, the Company may
not be able to successfully maintain its relationships with its customers or expand its client base.
Competitive
Market for Technical Personnel
The
Company’s success is dependent upon its ability to attract and retain qualified computer professionals to provide as temporary
personnel to its customers. Competition for the limited number of qualified professionals with a working knowledge of certain
sophisticated computer languages, which the Company requires for its contract computer services business, is intense. The Company
believes that there is a shortage of, and significant competition for, software professionals with the skills and experience necessary
to perform the services offered by the Company.
The
Company’s ability to maintain and renew existing engagements and obtain new business in its contract computer programming
business depends, in large part, on its ability to hire and retain technical personnel with the IT skills that keep pace with
continuing changes in software evolution, industry standards and technologies, and client preferences. Although the Company generally
has been successful in attracting employees with the skills needed to fulfill customer engagements, demand for qualified professionals
conversant with certain technologies may outstrip supply as new and additional skills are required to keep pace with evolving
computer technology or as competition for technical personnel increases. Increasing demand for qualified personnel could also
result in increased expenses to hire and retain qualified technical personnel and could adversely affect the Company’s profit
margins.
Competitive
Market for Account Executives and Technical Recruiters
The
Company faces a highly competitive market for the limited number of qualified personnel. The competitive market for such personnel
could affect the Company’s ability to hire and retain such personnel, and, if the Company is successful in hiring technical
recruiters and account executives, there can be no assurance that such hiring will result in increased revenue.
Rapidly
Changing Industry
The
computer industry is characterized by rapidly changing technology and evolving industry standards. These include the overall
increase in the sophistication and interdependency of computer technology and a focus by IT managers on cost-efficient
solutions. There can be no assurance that these changes will not adversely affect demand for technical staffing services.
Organizations may elect to perform such services in-house or outsource such functions to companies that do not utilize
temporary staffing, such as that provided by the Company.
Additionally,
a number of companies have, in recent years, limited the number of vendors on their approved vendor lists, and are
continuing to do so. In some cases this has required the Company to subcontract with a company on the approved vendor list to
provide services to customers. The staffing industry has also experienced margin erosion caused by this increased
competition, and customers leveraging their buying power by consolidating the number of vendors with which they deal. In
addition to these factors, there has been intense price competition in the area of IT staffing, pressure on billing rates and
pressure by customers for discounts. The Company has endeavored to increase its technical recruiting staff in order to better
respond to customers’ increasing demands for both the timeliness and quantities of resume submittals against job
requisitions.
The
Company cannot predict at this time what long-term effect these changes will have on the Company’s business and results
of operations.
Vendor
Management Companies
There
have been changes in the industry which have affected the Company’s operating results. Many customers have retained third
parties to provide vendor management services, and these companies now comprise in excess of 46% of the Company’s revenue.
The third party is then responsible for retaining companies to provide temporary IT personnel. This results in the Company contracting
with such third parties and not directly with the ultimate customer. This change weakens the Company’s relationship with
its customer, which makes it more difficult for the Company to maintain and expand its business. It also reduces the Company’s
profit margins.
In
addition, the agreements with the vendor management companies are frequently structured as subcontracting agreements, with the
vendor management company entering into a services agreement directly with the end customers. As a result, in the event of a bankruptcy
of a vendor management company, the Company’s ability to collect its outstanding receivables and continue to provide services
could be adversely affected.
Effect
of Current Economic Uncertainties and Limited Growth in Company’s Business
Demand
for the Company’s IT staffing services has been and is significantly affected by the general economic environment. During
periods of slowing economic activity, customers may reduce their IT projects and their demand for outside consultants. As a result,
any significant economic downturn could have material adverse effect on the Company’s results of operations. As a result
of the broad based economic downturn, the Company experienced a decrease in the number of consultants on billing with customers,
only recently returning to the early 2008 numbers of consultants on billing with customers. While customers’ IT spending
during the 2016 fiscal year appears to have increased, any improvements have been slow and uncertain, with a decrease in profitability
on placements, particularly those with financial services customers. The Company expects that economic conditions will continue
to affect the number of consultants on billing with customers and the Company’s profitability. In addition to the impact
of the economic uncertainties, the Company has not been successful in increasing its penetration with existing customers or expanding
its customer base. There is no assurance that the Company will achieve growth in its revenue.
Effect
of Increases in Payroll-related Costs
The
Company is required to pay a number of federal, state and local payroll and related costs, including unemployment insurance,
workers’ compensation insurance, employer’s portion of Social Security and Medicare taxes, among others, for our
employees, including those placed with customers. Significant increases in the effective rates of any payroll-related costs
would likely have a material adverse effect on the Company. Recently, many of the states in which the Company conducts
business have significantly increased their state unemployment tax rates in an effort to increase funding for unemployment
benefits. Costs could also increase as a result of health care reforms and the imposition of penalties for failure to provide
health insurance to employees under the Affordable Care Act which went into effect January 1, 2015. Additionally, the New
York City Council has approved a measure which went into effect in April 2014 requiring the Company to provide five paid sick
days per year. Several municipalities, such as Newark and Jersey City, New Jersey, have enacted similar statutes. The Company
has not been able to sufficiently increase the fees charged to its customers to cover these mandated cost increases.
There
are also proposals on the federal and state levels to phase in paid or partially paid family medical leave. It is too early
to determine how this will affect the Company’s profitability.
Effect
of Offshore Outsourcing
The
current trend of companies moving technology jobs and projects offshore has caused and could continue to cause revenue to decline.
In the past few years, more companies are using or are considering using low cost offshore outsourcing centers, particularly in
India and other east Asian countries, to perform technology related work and projects. This trend has contributed to the decline
in domestic IT staffing revenue for the industry. There can be no assurance that this trend will not continue to adversely impact
the Company’s IT staffing revenue.
Effect
of Immigration Restrictions
The
Company obtains many of its technical personnel by subcontracting with companies that utilize foreign nationals entering the
U.S. on work visas, primarily under the H-1B visa classification. The H-1B visa classification enables U.S. employers to hire
qualified foreign nationals in positions that require an education at least equal to a bachelor’s degree. U.S.
Immigration laws and regulations are subject to legislative and administrative changes, as well as changes in the application
of standards and enforcement. Current and future restrictions on the availability of such visas could restrain the
Company’s ability to acquire the skilled professionals needed to meet our customers’ requirements, which could
have a material adverse effect on our business. The scope and impact of these changes on the staffing industry and the
Company remain unclear, however a narrow interpretation and vigorous enforcement could adversely affect the ability of
entities with which the Company subcontracts to utilize foreign nationals and/or renew existing foreign national consultants
on assignment. There can be no assurance that the Company’s subcontractors will be able to keep or replace all foreign
nationals currently on assignment, or continue to acquire foreign national talent at the same rates as in the
past.
Fluctuations
in Quarterly Operating Results
The
Company’s revenue and operating results are subject to significant variations from quarter to quarter. Revenue is subject
to fluctuation based upon a number of factors, including the timing and number of client projects commenced and completed during
the quarter, delays incurred in connection with projects, the growth rate of the market for contract computer programming services
and general economic conditions. Unanticipated termination of a project or the decision by a client not to proceed to the next
stage of a project anticipated by the Company could result in decreased revenue and lower utilization rates which could have a
material adverse effect on the Company’s business, operating results and financial condition. Compensation levels can be
impacted by a variety of factors, including competition for highly skilled employees and inflation.
The
Company’s operating results also fluctuate due to seasonality. Typically, our billable hours, which directly affect our
revenue and profitability, decrease in our third fiscal quarter. The holiday season and winter weather cause the number of billable
work days for consultants on billing with customers to decrease. Additionally, at the beginning of the calendar year, which also
falls within our third fiscal quarter, payroll taxes are at their highest. This results in our lowest gross margins of the year.
The Company’s operating results are also subject to fluctuation as a result of other factors.
Competition
The
technical staffing industry is highly competitive and fragmented and has low barriers to entry. The Company competes for potential
customers with providers of outsourcing services, systems integrators, computer systems consultants, other providers of technical
staffing services and, to a lesser extent, temporary personnel agencies. The Company competes for technical personnel with other
providers of technical staffing services, systems integrators, providers of outsourcing services, computer systems consultants,
customers and temporary personnel agencies. Many of the Company’s competitors are significantly larger and have greater
financial resources than the Company. The Company believes that the principal competitive factors in obtaining and retaining customers
are accurate assessment of customers’ requirements, timely assignment of technical employees with appropriate skills and
the price of services. The principal competitive factors in attracting qualified technical personnel are compensation, availability,
quality and variety of projects and schedule flexibility. The Company believes that many of the technical personnel included in
its database may also be pursuing other employment opportunities. Therefore, the Company believes that its responsiveness to the
needs of technical personnel is an important factor in the Company’s ability to fill projects. Although the Company believes
it competes favorably with respect to these factors, it expects competition to increase, and there can be no assurance that the
Company will remain competitive.
Potential
for Contract and Other Liability
The
personnel provided by the Company to customers provide services involving key aspects of its customers’ software
applications. A failure in providing these services could result in a claim for substantial damages against the Company,
regardless of the Company’s responsibility for such failure. The Company attempts to limit, contractually, its
liability for damages arising from negligence or omissions in rendering services, but it is not always successful in
negotiating such limits. However, due to increased competition and the requirements of vendor management companies, the
Company may be required to accept less favorable terms regarding limitations on liability, including assuming obligations to
indemnify customers for damages sustained in connection with the provision of our services. There can be no assurance our
contracts will include the desired limitations of liability or that the limitations of liability set forth in our contracts
would be enforceable or would otherwise protect the Company from liability for damages.
The
Company’s contract computer programming services business involves assigning technical personnel to the workplace of the
client, typically under the client’s supervision. Although the Company has little control over the client’s workplace,
the Company may be exposed to claims of discrimination and harassment and other similar claims as a result of inappropriate actions
allegedly taken against technical personnel by customers. As an employer, the Company is also exposed to other possible employment-related
claims. The Company is exposed to liability with respect to actions taken by its technical personnel while on a project, such
as damages caused by technical personnel errors, misuse of client proprietary information or theft of client property. To reduce
such exposures, the Company maintains insurance policies and a fidelity bond covering general liability, worker’s compensation
claims, errors and omissions and employee theft. In certain instances, the Company indemnifies its customers for these exposures.
Certain of these costs and liabilities are not covered by insurance. There can be no assurance that insurance coverage will continue
to be available and at its current price or that it will be adequate to, or will, cover any such liability.
Data
Security
Our
ability to protect client, employee, and Company data and information is critical to our reputation and the success of our business.
Our clients and employees expect that their confidential, personal and private information will be secure in our possession. Attacks
against security systems have become increasingly sophisticated along with developments in technology, and such attacks have become
more prevalent. Consequently, the regulatory environment surrounding cybersecurity and privacy has become more and more demanding
and has resulted in new requirements and increasingly demanding standards for protection of information. As a result, the Company
may incur increased expenses associated with adequately protecting confidential client, employee, and Company data and complying
with applicable regulatory requirements. There can be no assurance that we will be able to prevent unauthorized third parties
from breaching our systems and gaining unauthorized access to confidential client, employee, and Company data even if our cybersecurity
measures are compliant with regulatory requirements and standards. Unauthorized third party access to confidential client, employee,
and Company data stored in our system whether as a result of a third party system breach, systems failure or employee negligence,
fraud or misappropriation, could damage our reputation and cause us to lose customers, and could subject us to monetary damages,
fines and/or criminal prosecution. Furthermore, unauthorized third party access to or through our information systems or those
we develop for our customers, whether by our employees or third parties, could result in system disruptions, negative publicity,
legal liability, monetary damages, and damage to our reputation.
Intellectual
Property Rights
The
Company relies primarily upon a combination of trade secret, nondisclosure and other contractual agreements to protect its proprietary
rights. The Company generally enters into confidentiality agreements with its employees, consultants, customers and potential
customers and limits access to and distribution of its proprietary information. There can be no assurance that the steps taken
by the Company in this regard will be adequate to deter misappropriation of its proprietary information or that the Company will
be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights.
Voting
Power of Major Stockholder
Joseph
F. Hughes and members of his family own Common Stock representing approximately 46.9% of the Company’s voting power as of
June 30, 2016. As such, Joseph F. Hughes has significant voting power on all matters submitted to a vote of the Company’s
common stockholders.
Certain
Anti-Takeover Provisions May Inhibit a Change of Control
In
addition to the significant ownership of Common Stock by Joseph F. Hughes and his family, certain provisions of the Company’s
charter and by-laws may have the effect of discouraging a third party from making an acquisition proposal for the Company and
may thereby inhibit a change in control of the Company under circumstances that could give the holders of Common Stock the opportunity
to realize a premium over the then-prevailing market prices. Such provisions include a classified Board of Directors and advance
notice requirements for nomination of directors and certain stockholder proposals set forth in the Company’s Certificate
of Incorporation and by-laws.
New
Classes and Series of Stock
The
Company’s charter authorizes the Board of Directors to create new classes and series of preferred stock and to establish
the preferences and rights of any such classes and series without further action of the stockholders. The issuance of additional
classes and series of capital stock may have the effect of delaying, deferring or preventing a change in control of the Company.
The
Company’s stock price could be extremely volatile and, as a result, investors may not be able to resell their shares at
or above the price they paid for them.
Among
the factors that could affect the Company’s stock price are:
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limited
float and a low average daily trading volume;
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industry
trends and the performance of the Company’s customers;
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fluctuations
in the Company’s results of operations;
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general
market conditions.
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The
stock market has, and may in the future, experience extreme volatility that has often been unrelated to the operating performance
of particular companies. These broad market fluctuations may adversely affect the market price of the Company’s Common Stock.