Amendment No. 1
☒ Annual
Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
☐ Transition Report Under
Section 13 or 15(d) of The Securities Exchange Act of 1934
Indicate by check mark if the Registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the Registrant is not required to
file reports pursuant to Section 13 or Section 15 (d) of the Exchange Act. ☐ Yes ☒ No
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
electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) 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 the definitions
of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the
Registrant has elected not to use extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant has filed a report
on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☐
Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of voting and non-voting common equity
held by non-affiliates of the Registrant based upon the closing price of $3.20 at November 30, 2019 was $3,169,000.
The number of shares of the Registrant’s common stock
(“Common Stock”) outstanding as of September 25, 2020 was 1,962,062.
Certain statements
included in this Annual Report on Form 10-K, as amended, and other filings of the Registrant under the Securities Act of 1933,
as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
including statements as to the Registrant’s plans, future prospects and 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
set forth 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 Registrant’s plan for growth, both internal and through the previously
announced pursuit of suitable acquisition candidates; the successful integration of announced acquisitions and any anticipated
benefits therefrom; the impact of adverse economic conditions on client spending which have a negative impact on the Registrant’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; risks relating to the competitive nature of the markets
for contract computer programming services; the extent to which market conditions for the Registrant’s contract computer
programming services will continue to adversely affect the Registrant’s business; the concentration of the Registrant’s
business with certain customers; uncertainty as to the Registrant’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 Registrant’s ability to
adapt to changing market conditions; the risks, uncertainties and expense of the legal proceedings to which the Registrant is a
party; and other risks and uncertainties described in the Registrant’s filings under the Exchange Act.
In some cases, forward-looking
statements can be identified by terminology such as “may,” “will,” “should,” “could,”
“expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,”
“potential” or “continue” or the negative of such terms or other comparable terminology. Although the Registrant
believes that the expectations reflected in the forward-looking statements contained herein are reasonable, the Registrant cannot
guarantee future results, levels of activity, performance or achievements. Moreover, neither the Registrant, nor any other person,
assumes responsibility for the accuracy and completeness of such statements. The Registrant is under no duty to update any of the
forward-looking statements contained herein after the date of this Annual Report on Form 10-K, as amended.
TSR, Inc. (the “Company”)
is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) to its Form 10-K for the fiscal year ended May 31,
2020, which was filed with the SEC on August 17, 2020 (the “Original Filing”).
This
Amendment is being filed for the purpose of providing the information required by Items 10 through 14 of Part III of Form 10-K. This
information was previously omitted from the Original Filing in reliance on General Instruction G(3) to Form 10-K, which permits
the above-referenced Items to be incorporated in the Annual Report on Form 10-K by reference from a definitive proxy
statement, if such definitive proxy statement is filed no later than 120 days after the last day of the Company’s fiscal
year on May 31, 2020.
In
accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the
cover page to the Original Filing and Items 10 through 14 of Part III of the Original Filing are hereby amended and restated in
their entirety. In addition, pursuant to Rule 12b-15 under the Exchange Act, the Company is including Item 15 of Part
IV, solely to file the certifications required under Section 302 of the Sarbanes-Oxley Act of 2002 with this Amendment.
PART III
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Item 10.
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Directors, Executive Officers and Corporate Governance.
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Directors and Executive Officers
Set forth below are
the names, ages and positions and offices held with the Company of each director and executive officer of the Company. Directors
are classified as either Class I, Class II or Class III directors, with each class serving for a term of three (3) years. The term
of Class I directors is set to expire at the 2021 annual meeting of stockholders of the Company. The term of Class II directors
is set to expire at the 2020 annual meeting of stockholders, and the term of Class III directors is set to expire at the 2019 annual
meeting of stockholders. There is currently no Class III director on the Board of Directors of the Company (the “Board”).
Executive officers serve until such time as their successor is duly elected and qualifies.
|
Name
|
|
Age
|
|
Position
|
|
Year First
Officer or
Director
|
|
Bradley M. Tirpak(1)(2)(3)(4)
|
|
50
|
|
Chairman of the Board and Class I Director
|
|
2019
|
|
Thomas Salerno
|
|
52
|
|
Chief Executive Officer, President and Treasurer
|
|
2020
|
|
John G. Sharkey
|
|
61
|
|
Senior Vice President, Chief Financial Officer and Secretary
|
|
1990
|
|
H. Timothy Eriksen(1)(2)(3)(4)(5)(7)
|
|
51
|
|
Class I Director
|
|
2019
|
|
Robert Fitzgerald(1)(2)(3)(4)(6)
|
|
56
|
|
Class II Director
|
|
2019
|
|
(1)
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Member of the Compensation Committee of the Board.
|
|
(2)
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Member of the Audit Committee of the Board.
|
|
(3)
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Member of the Nominating Committee of the Board.
|
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(4)
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Member of the Special Committee of the Board.
|
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(5)
|
Mr. Eriksen is the Chairman of the Audit Committee of the Board and the Chairman of the Nominating Committee of the Board.
|
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(6)
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Mr. Fitzgerald is the Chairman of the Compensation Committee of the Board and the Chairman of the Special Committee of the Board.
|
|
(7)
|
Lead independent director.
|
There are no family relationships between
any of the Company’s executive officers and directors. None of the Company’s directors currently serves, or has served
during the past five years, as a director of any company with a class of securities registered pursuant to Section 12 of the Exchange
Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under
the Investment Company Act of 1940. There is no arrangement between any director or director nominee and any other person pursuant
to which he was or is to be selected as a director or director nominee except that Mr. Eriksen and Mr. Tirpak were nominated by
Zeff Capital, L.P. as Class I directors at the Company’s 2018 annual meeting of stockholders held on October 22, 2019 in
accordance with the terms and conditions of that certain settlement and release agreement, dated August 30, 2019, between the Company
and certain investor parties, including Zeff Capital, L.P., Zeff Holding Company, LLC and Daniel Zeff, QAR Industries, Inc. and
Robert Fitzgerald, and Fintech Consulting, LLC and Tajuddin Haslani (the “Settlement Agreement”). The terms of the
Settlement Agreement are more fully described in the Company’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 3, 2019. Mr. Eriksen and Mr. Tirpak were subsequently elected as directors at the annual meeting of shareholders
on October 22, 2019.
Biographical Information
Mr. Bradly M. Tirpak was elected
as a Class I director of the Company at the 2018 annual meeting of stockholders on October 22, 2019. He was appointed as the Chairman
of the Board on December 30, 2019. Mr. Tirpak is a professional investor with more than 25 years of investing experience. Since
September 2016, he has served as a portfolio manager and Managing Director at Palm Active Partners, LLC, a private investment company.
From October 2008 to August 2016, Mr. Tirpak served as Managing Member of Locke Partners, LLC, a private investment company. He
also previously served as a portfolio manager at Credit Suisse First Boston, Caxton Associates and Sigma Capital Management and
Chilton Investment Company. Mr. Tirpak served as a director at Applied Minerals, Inc., a publicly traded specialty materials
company, from April 2015 to March 2017, as a director at Flowgroup plc, an energy supply and services business in the United Kingdom,
from June 2017 to October 2018 and as a director at Birner Dental Management Services, Inc., a dental service organization,
from December 2017 to January 2019. Since December of 2014, Mr. Tirpak has served as a director of Full House Resorts, Inc., a
publicly traded gaming company, and since October of 2019 as a director of Liberated Syndication Inc., a publicly traded provider
of podcast and webhosting services, and since April of 2020 as a director of Barnwell Industries Inc., a publicly traded company
engaged in real estate development and oil and gas exploration. Mr. Tirpak also currently serves as trustee of The Halo Trust,
the world’s largest humanitarian mine clearance organization focused on clearing the debris of war currently operating in
over 25 countries. Mr. Tirpak earned a B.S.M.E. from Tufts University and an M.B.A. from Georgetown University.
The Company believes that Mr. Tirpak is
a valuable member of the Board due to his knowledge and experience in investing, capital allocation and corporate governance, as
well as his experience serving on the boards of publicly traded companies.
Mr. H. Timothy Eriksen was
elected as a Class I director of the Company at the 2018 annual meeting of stockholders on October 22, 2019. He was appointed by
the Board as the Chairman of the Audit Committee of the Board on December 30, 2019. Mr. Eriksen founded Eriksen Capital Management,
a Lynden, Washington-based investment advisory firm (“ECM”), in 2005. Mr. Eriksen is the President of ECM.
Mr. Eriksen is the Chief Executive Officer and Chief Financial Officer of, and since July 2015 has been a director of, Solitron
Devices, Inc. (“Solitron”). Solitron designs, develops, manufactures and markets solid-state semiconductor components
and related devices primarily for the military and aerospace markets. Since April 2018, Mr. Eriksen has been a director of
Novation Companies, Inc. (“Novation”). Novation owns Healthcare Staffing, Inc., which, among other activities, provides
outsourced healthcare staffing and related services. Prior to founding ECM, Mr. Eriksen worked for Walker’s Manual,
Inc., a publisher of books and newsletters on micro-cap stocks, unlisted stocks and community banks. Earlier in his career,
Mr. Eriksen worked for Kiewit Pacific Co, a subsidiary of Peter Kiewit Sons, as an administrative engineer on the Benicia
Martinez Bridge project. Mr. Eriksen received a B.A. from The Master’s University and an M.B.A. from Texas A&M University.
The Company believes that Mr. Eriksen is
a valuable member of the Board based on his strong business and financial background, and his experience serving in leadership-
and management-level roles with responsibility for formulating business and operational strategy.
Mr. Robert Fitzgerald was appointed
as a Class II director of the Company by the Board on December 30, 2019. Mr. Fitzgerald is a seasoned business executive with over
25 years of experience helping companies grow. From 1999 through 2008, he served as the CEO of YDI/Proxim Wireless, an early pioneer
of the wireless networking equipment industry. From 2009 through 2010, he served as a consultant and later the President of Ubiquiti
Networks, now Ubiquiti, Inc. (NYSE: UI), a world leading provider of wireless and non-wireless networking equipment. He currently
serves as the CEO of QAR Industries, Inc., an investment company that holds interests in a portfolio of public and private companies,
including Antenna Products Corporation and SeeView Securities, Inc. Mr. Fitzgerald earned a Bachelor of Arts in Economics and Juris
Doctorate from the University of California, Los Angeles.
The Company believes that Mr. Fitzgerald’s
extensive experience in and knowledge of the information technology (“IT”) industry and career serving in management-level
positions for public and private companies make him a valuable member of the Board.
Thomas Salerno was appointed President,
Chief Executive Officer and Treasurer of the Company effective as of March 23, 2020. Since 2011, Mr. Salerno had served as
the Managing Director of TSR Consulting Services, Inc., the Company’s IT consulting services subsidiary and largest business
unit. Mr. Salerno has over 20 years of experience in the technology consulting industry. Prior to joining the Company, Mr. Salerno
spent eight years at Open Systems Technology as Associate Director, two years as Vice President of Sales and Recruiting for Versatech
Consulting, and three years as an Account Representative for Robert Half Technologies. Mr. Salerno holds a Bachelor’s Degree
from Johnson and Wales University.
Mr. John G. Sharkey was appointed
Senior Vice President, Chief Financial Officer and Secretary of the Company effective June 1, 2019. He had served as the Vice President,
Finance, Controller and Secretary of the Company since 1990. Mr. Sharkey received a Master’s Degree in Finance from Adelphi
University and received his Certified Public Accountant certification from the State of New York. From 1987 until joining the Company
in October 1990, Mr. Sharkey was Controller of a publicly-held electronics manufacturer. From 1984 to 1987, he served as Deputy
Auditor of a commercial bank, having responsibility over the internal audit department. Prior to 1984, Mr. Sharkey was employed
by KPMG LLP as a senior accountant.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the
Exchange Act requires the Company’s officers and directors and persons who beneficially own more than ten percent of a registered
class of the Company’s equity securities to file reports of ownership and changes in ownership with the Securities and Exchange
Commission (the “SEC”). Officers, directors and greater than ten percent Stockholders are required by regulation of
the SEC to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its
review of the copies of such forms received by it, or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that all of its officers, directors and greater than ten percent beneficial owners
complied with all filing requirements applicable to them with respect to reports required to be filed by Section 16(a) of the Exchange
Act during the fiscal year ended May 31, 2020.
Code of Ethics
The Company has adopted
a code of ethics that applies to all of its employees, including the chief executive officer and chief financial and accounting
officer. The code of ethics is available on the Investor Relations page of the Company’s website at www.tsrconsulting.com.
The Company intends to post on its website all disclosures that are required by law or NASDAQ Capital Market listing standards
concerning any amendments to, or waivers from, the Company’s code of ethics. Stockholders may request a free copy of the
code of ethics by writing to Corporate Secretary, TSR, Inc., 400 Oser Avenue, Suite 150, Hauppauge, NY 11788. Disclosure regarding
any amendments to, or waivers from, provisions of the code of ethics that apply to the Company’s directors or principal executive
and financial officers will be included in a Current Report on Form 8-K filed with the SEC within four business days following
the date of the amendment or waiver, unless website posting of such amendments or waivers is then permitted by the rules of the
NASDAQ Capital Market and the SEC.
Audit Committee
The Audit Committee’s
current members are H. Timothy Eriksen, Bradly M. Tirpak and Robert Fitzgerald. Each of the members of the Audit Committee is an
independent director under the rules of the NASDAQ Capital Market. The Audit Committee’s primary functions are to assist
the Board in monitoring the integrity of the Company’s financial statements and systems of internal control. The Audit Committee
has direct responsibility for the appointment, independence and performance of the Company’s independent auditors. The Audit
Committee is responsible for pre-approving any engagements of the Company’s independent auditors. The Audit Committee operates
under a written charter approved by the Board on September 16, 2004, and amended as of October 10, 2008. A copy of the Audit Committee
Charter is available on the Investor Relations page of the Company’s website at www.tsrconsulting.com.
The Board has determined
that H. Timothy Eriksen, the Chairman of the Audit Committee, Bradley M. Tirpak and Robert Fitzgerald all meet the requirements
of an “audit committee financial expert” as such term is defined in applicable regulations of the SEC.
|
|
Item 11.
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Executive Compensation.
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Executive Compensation
The following table
sets forth information concerning the annual and long-term compensation of the Named Executive Officers (as defined below) for
services in all capacities to the Company for the fiscal years ended May 31, 2020 and 2019. The Named Executive Officers for the
fiscal years ended May 31, 2020 and 2019 are (1) Thomas Salerno, our President and Chief Executive Officer; (2) John G. Sharkey,
our Senior Vice President and Chief Financial Officer; and (3) Christopher Hughes, who served as President and Chief Executive
Officer prior to his removal effective February 29, 2020 (the “Named Executive Officers”).
SUMMARY COMPENSATION TABLE
|
Name and Principal Position
|
|
Fiscal
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Non-Equity
Incentive
Plan
Compensation
|
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
|
|
|
All Other
Compensation
|
|
|
Total
|
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Thomas Salerno,
President and Chief Executive Officer (1)
|
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2020
|
|
$
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317,000
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(4)
|
|
$
|
25,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,000
|
(5)
|
|
$
|
345,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John G. Sharkey,
|
|
2020
|
|
$
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295,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,000
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(6)
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|
$
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301,000
|
|
|
Senior Vice President and Chief Financial Officer (2)
|
|
2019
|
|
$
|
250,000
|
|
|
$
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75,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,000
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(6)
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|
$
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331,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher Hughes,
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|
2020
|
|
$
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300,000
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(7)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
22,000
|
(9)
|
|
$
|
322,000
|
|
|
Former President and Chief Executive Officer (3)
|
|
2019
|
|
$
|
390,000
|
|
|
$
|
100,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
25,000
|
(8)
|
|
$
|
515,000
|
|
|
|
(1)
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Thomas Salerno was appointed as President and Chief Executive Officer of the Company effective
March 23, 2020 and served as Acting CEO of the Company from January 27, 2020 to March 23, 2020 due to a leave of absence by Mr.
Hughes during this time. He has also served as the Managing Director of TSR Consulting Services, Inc., the Company’s IT consulting
services subsidiary and largest business unit, in fiscal year 2020.
|
|
|
(2)
|
John G. Sharkey was appointed as Senior Vice President and Chief Financial Officer effective June
1, 2019. Previously, Mr. Sharkey served as Vice President, Finance.
|
|
|
(3)
|
Christopher Hughes served as President and Chief Executive Officer of the Company in the 2019 fiscal
year and a portion of the 2020 fiscal year until he was removed from his officer positions effective February 29, 2020.
|
|
|
(4)
|
Represents the sum of the pro-rated amount of an annual base salary of $300,000 for the period
from June 1, 2019 to January 26, 2020 and the pro-rated amount of an annual base salary of $350,000 for the period beginning on
January 27, 2020.
|
|
|
(5)
|
Amount related to Mr. Salerno’s personal use of an automobile provided by the Company.
|
|
|
(6)
|
Amounts related to Mr. Sharkey’s personal use of an automobile provided by the Company.
|
|
|
(7)
|
Represents the pro-rated amount of an annual base salary of $400,000 for the period ended on February 29, 2020.
|
|
|
(8)
|
Of this amount, $3,000 related to Mr. Christopher Hughes’ personal use of an automobile provided by the Company for the
2019 fiscal year; and $22,000 was paid to Mr. Christopher Hughes for premiums for medical insurance benefits for the 2019 fiscal
year.
|
|
|
(9)
|
Of this amount, $4,000 related to Mr. Christopher Hughes’ personal use of an automobile provided by the Company for the
period ended on February 29, 2020; and $18,000 was paid to Mr. Christopher Hughes for premiums for medical insurance benefits for
the period ended on February 29, 2020. The nature of certain additional expenses incurred by Mr. Hughes
is currently the subject of litigation and thus, the Company cannot determine at this time what, if any, amount of such additional
expenses may constitute All Other Compensation.
|
Outstanding Equity Awards at Fiscal
Year End
There were no outstanding
equity awards at the end of the fiscal year ended May 31, 2020.
Employment Agreements and Arrangements
Employment Agreement
with Thomas Salerno
On July 11, 2018, TSR
Consulting Services, Inc. entered into a written employment agreement with Thomas Salerno (the “Salerno Employment Agreement).
The Salerno Employment Agreement expires July 10, 2021 (“Expiration Date”) and any continued employment will be on
an “at-will” basis. The Salerno Employment Agreement provided for an annualized base salary in the amount of $250,000,
which has been increased to $350,000 in connection with Mr. Salerno’s appointment to the chief executive officer position.
In addition to base salary, the Salerno Employment Agreement provides that Mr. Salerno will receive a car allowance and will be
eligible to receive an annual cash bonus for each fiscal year in an amount determined by the company. In connection with Mr. Salerno’s
appointment to the chief executive officer position, the Company also paid him a sign-on bonus of $25,000.
In the event that the
company terminates Mr. Salerno’s employment other than (a) for “Cause” (as defined in the Salerno Employment
Agreement), (b) as a result of Mr. Salerno’s death or disability or, (c) due to the expiration of the term, both (A) prior
to the Expiration Date and (B) upon, within one year following the consummation of a Change in Control (as defined in the Salerno
Employment Agreement), then in addition to Mr. Salerno’s Accrued Obligations (as defined in the Salerno Employment Agreement),
(i) the company shall be obligated to pay to Mr. Salerno a severance payment equal to the sum of (A) one year of his base salary
(at the rate in effect on the termination date) plus (B) one times the amount of the annual bonus paid to him in the prior fiscal
year (collectively, the “Severance Payment”); (ii) if Mr. Salerno timely elects to continue and maintain group health
plan coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the company
will reimburse him for a portion of the healthcare continuation payments under COBRA actually paid by him for the coverage period
ending on the earlier of (A) the one year anniversary of his termination date, and (B) the date he becomes eligible to
obtain healthcare coverage from a new employer (the “COBRA Assistance Period”), which portion will be equal to (x)
the amount of the monthly health care premium payment under COBRA actually paid by him for COBRA coverage during the COBRA Assistance
Period, less (y) the amount he would have been required to contribute toward health insurance coverage during the COBRA Assistance
Period if he had remained an active employee of the company (the “COBRA Assistance”). The company’s obligation
to provide the Severance Payment and COBRA Assistance to Mr. Salerno shall be contingent upon his executing a general release of
all claims against the Company, its subsidiaries and their respective officers, directors, shareholders, partners, members, employees,
agents and related parties in a form satisfactory to the company.
The Salerno Employment
Agreement incorporates the terms and provisions of a Maintenance of Confidence and Non-Compete Agreement between the company and
Mr. Salerno dated as of June 16, 2011. The Maintenance of Confidence and Non-Compete Agreement sets forth Mr. Salerno’s covenants
against the disclosure of confidential information and covenants against the solicitation of customers, employees and independent
contractors (all in accordance with the terms set forth therein).
Amended and Restated
Employment Agreement with John G. Sharkey
On May 24, 2019, the
Company entered into a written amended and restated employment agreement with John G. Sharkey (the “Sharkey Employment Agreement”)
that superseded the employment agreement that the Company and Mr. Sharkey had entered into in June 2015. The Sharkey Employment
Agreement terminates May 31, 2020 and automatically renews for successive renewal terms of one (1) year each unless either party
gives notice of non-renewal to the other party at least thirty (30) days prior to the expiration of the initial term or the then-current
renewal term. The Sharkey Employment Agreement provides for an annualized base salary in the amount of $285,000 for the period
from June 1, 2019 through December 31, 2019. Beginning January 1, 2020, the annualized base salary increases to the amount of $310,000.
Thereafter, the Compensation Committee will review Mr. Sharkey’s base salary on an annual basis and the Board may increase
his base salary, in its sole discretion. In addition to base salary, the Sharkey Employment Agreement provides that Mr. Sharkey
will be eligible to receive an annual cash bonus for each fiscal year in an amount determined by the Compensation Committee in
its sole discretion and subject to the approval of the Board, which may be based upon standards that the Compensation Committee
establishes with Mr. Sharkey, subject to the Board’s approval. The target amount of the annual bonus will not be less than
$85,000, provided that the actual amount of the annual bonus may be higher or lower than the target amount. The Sharkey Employment
Agreement further provides that the Company pay Mr. Sharkey an annual bonus in the amount of $75,000 for the fiscal year ended
May 31, 2019, which is the annual bonus that is to be paid to Mr. Sharkey under the terms of the Mr. Sharkey’s former employment
agreement for the fiscal year ending May 31, 2019 and which the Company paid in a lump sum. As set forth in the Summary Compensation
Table above, the Company did not pay an annual bonus to Mr. Sharkey for the fiscal year ended May 31, 2020.
In the event that (a)
the Company terminates Mr. Sharkey’s employment without “Cause” (as defined in the Sharkey Employment Agreement),
(b) Mr. Sharkey terminates his employment for “Good Reason” (as defined in the Sharkey Employment Agreement) or (c)
Mr. Sharkey’s employment terminates upon the expiration of the term as a result of the Company providing a notice of non-renewal
of the then-current term of the Sharkey Employment Agreement, then Mr. Sharkey will be entitled to receive the following: (i) a
severance payment equal to the sum of (x) 1.5 times Mr. Sharkey’s annual base salary at the rate in effect on the date of
termination, (y) 1.5 times Mr. Sharkey’s annual bonus based on the bonus awarded to him for the fiscal year prior to the
fiscal year in which the date of termination occurred, and (z) in the case of a termination by the Company without “Cause”
or a termination by Mr. Sharkey for “Good Reason,” the base salary that Mr. Sharkey would have received if he had remained
employed from the date of termination through the last day of the initial term or then-current renewal term, which severance payment
will be payable in a single lump sum on the Company’s first regular pay date following the date on which the General Release
(as defined in the Sharkey Employment Agreement) becomes effective; (ii) payment of the full bonus for the fiscal year in which
the date of termination occurs (the “Termination Year Bonus”), which Termination Year Bonus will be based on the bonus
awarded to Mr. Sharkey for the fiscal year prior to the fiscal year in which the date of termination occurred and will be payable
within thirty (30) days following the date of termination; (iii) continued medical and dental insurance benefits for Mr. Sharkey
and his family that are at least comparable to the benefits generally offered to all eligible Company employees until the earlier
of (x) the two-year anniversary of Mr. Sharkey’s employment termination date, and (y) the date that Mr. Sharkey is eligible
for comparable coverage under the group health insurance plans of another employer; and (iv) for two (2) years following the date
of termination, the Company will reimburse Mr. Sharkey for the monthly cost of his car lease, subject to certain parameters described
in the Sharkey Employment Agreement. In addition to the foregoing benefits, the Company will also pay Mr. Sharkey the Accrued Obligations
(as defined in the Sharkey Employment Agreement). With the exception of the Accrued Obligations and the Termination Year Bonus,
the Company’s obligation to pay the foregoing benefits is subject to Mr. Sharkey’s execution and non-revocation of
a general release of claims against the Company, and his continued compliance with all post-termination covenants.
In the event that either
(a) the Company terminates Mr. Sharkey’s employment for “Cause,” (b) Mr. Sharkey terminates his employment without
“Good Reason” or (c) Mr. Sharkey’s employment terminates due to his death, disability or the expiration of the
then-current term of the Sharkey Employment Agreement as a result of Mr. Sharkey providing a notice of non-renewal, then the Company’s
sole obligations to Mr. Sharkey shall be: (i) the payment of Mr. Sharkey’s accrued but unpaid base salary and business expenses
incurred by Mr. Sharkey that had not yet been reimbursed; (ii) in the case of a termination by Mr. Sharkey without “Good
Reason” or a termination due to Mr. Sharkey’s death or disability, a pro-rated bonus for the fiscal year in which the
date of termination occurs (calculated based on the bonus awarded for the prior fiscal year and pro-rated based upon the number
of days that Mr. Sharkey was employed in the fiscal year in which the date of termination occurs) (the “Pro-Rata Bonus”);
and (iii) in the case of the expiration of the then-current term of the Sharkey Employment Agreement as a result of Mr. Sharkey
providing a notice of non-renewal, his Termination Year Bonus (calculated based on the bonus awarded for the prior fiscal year).
The Company will pay the Accrued Obligations, the Pro-Rata Bonus and the Termination Year Bonus in a single lump sum within thirty
(30) days following the date of termination.
The Sharkey Employment
Agreement incorporates the terms and provisions of a Maintenance of Confidence and Non-Compete Agreement between the Company and
Mr. Sharkey dated as of May 24, 2019. The Maintenance of Confidence and Non-Compete Agreement sets forth Mr. Sharkey’s covenants
against the disclosure of confidential information, covenants against the solicitation of customers, employees and independent
contractors and a covenant against competition (all in accordance with the terms set forth therein) and supersedes any prior agreements
entered into by Mr. Sharkey pertaining to such covenants.
The Sharkey Employment
Agreement does not provide for any payments in connection with a change in control of the Company.
Amended and Restated
Employment Agreement with Christopher Hughes
In April 2017, in anticipation
of the expiration of Christopher Hughes’ prior employment agreement, the Company entered into a written employment agreement
with Mr. Hughes, which was effective as of May 1, 2017 and which was scheduled to terminate on May 31, 2022 (the “Hughes
Employment Agreement”). The Hughes Employment Agreement provided for an annual base salary of $350,000 and an annual bonus
for fiscal years beginning with the fiscal year ended May 31, 2018 to be approved by the Compensation Committee in its discretion,
which may be based upon standards that the Compensation Committee approves at the beginning of each fiscal year commencing with
the fiscal year beginning June 1, 2017, and which standards may be modified thereafter with the Compensation Committee’s
approval. The Hughes Employment Agreement provided that the Company shall pay any annual bonus that may become payable within 120
days of the end of the applicable fiscal year, for the period to which the bonus relates. In addition, the Hughes Employment Agreement
provided that the Company shall pay Mr. Hughes an advance on his annual bonus for the current fiscal year within 30 days after
the end of each fiscal quarter (other than the fourth fiscal quarter) in an amount equal to the bonus which would have been earned
through the end of such fiscal quarter, based on any standards approved by the Compensation Committee. Each such advance of the
bonus was to be approved by the Compensation Committee unless it is paid in accordance with a formula approved in advance for such
fiscal year. In the event that following any fiscal quarter or following completion of the Company’s audited financial statements,
any advance payment of the bonus previously paid with respect to any fiscal year (or portion thereof) exceeded the amount that
Mr. Hughes is entitled to receive through the end of such fiscal quarter or fiscal year, Mr. Hughes was required to promptly return
such excess amount to the Company.
On August 9, 2018,
the Company and Christopher Hughes entered into an Amended and Restated Employment Agreement, dated and effective as of August
9, 2018 (the “Amended and Restated Hughes Employment Agreement”), that superseded the Hughes Employment Agreement.
The Amended and Restated Hughes Employment Agreement has a term of three years, nine months and twenty-two days, and is scheduled
to expire on May 31, 2022. The Amended and Restated Hughes Employment Agreement provides for an annual base salary of $400,000,
which the Company’s Compensation Committee will review on an annual basis, and which the Company’s Board may increase
in the Board’s discretion. Mr. Hughes is eligible to receive an annual cash bonus in the discretion of the Compensation Committee,
which may be based upon standards established by the Compensation Committee and approved by the Board. Mr. Hughes is entitled to
receive advance payments of the bonus on a quarterly basis based on the amount of the bonus that would have been earned through
the end of each quarter according to such standards. Such advance payments of the bonus are subject to recapture by the Company
in the event that the amount paid as the advance exceeds the amount that Mr. Hughes was actually entitled to receive. Mr. Hughes
is entitled to participate in any pension, profit-sharing, retirement, hospitalization, insurance, medical services or other employee
benefit plan generally available to the Company’s executives, to the extent that he is eligible to participate under the
terms and conditions of such plans. Mr. Hughes is also entitled to executive medical benefits and a car (leased or owned at the
sole discretion of the Company) in such amounts for the car as determined by the Board, provided that the executive medical benefits
and car may be discontinued at the end of any fiscal year at the discretion of the Board.
The Company has the
right to immediately terminate Mr. Hughes’ employment for “Cause” (as defined in the Amended and Restated Hughes
Employment Agreement), in which event Mr. Hughes shall be entitled to receive his base salary for the month in which the termination
is effective.
The Company has the
right to terminate Mr. Hughes’ employment upon fifteen days written notice in the event Mr. Hughes is unable to perform his
duties on account of illness, accident or other physical or mental incapacity for a period of six consecutive months or an aggregate
of 180 days in any period of twelve consecutive months, in which event Mr. Hughes shall be entitled to receive his base salary
and reimbursement of approved expenses for the month in which termination is effective.
The Company may terminate
Mr. Hughes’ employment for any other reason upon thirty days written notice, in which event Mr. Hughes shall be entitled
to receive (a) reimbursement of any unpaid approved expenses, (b) severance from the Company in an amount equal to (i) two times
his base salary plus (ii) two times his bonus for the then-current fiscal year, or if that bonus amount cannot be determined, two
times the amount of the bonus paid to him in the prior fiscal year, (c) continued group health insurance benefits (including both
group health insurance benefits generally offered to all eligible employees of the Company and supplemental executive health insurance
benefits) until the earlier of the second anniversary of termination or such time as Mr. Hughes is eligible for comparable coverage
under the group health insurance plans of another employer and (d) reimbursement for the monthly cost of his car lease until the
second anniversary of the termination of his employment; provided that, as a condition to his right to receive the payments and
benefits in clauses (b), (c) and (d), Mr. Hughes executes, delivers and does not revoke a release of all claims against the Company
and its affiliates.
The Amended and Restated
Hughes Employment Agreement incorporates the terms and provisions of a Maintenance of Confidence and Non-Compete Agreement between
the Company and Mr. Hughes dated as of August 9, 2018. The Maintenance of Confidence and Non-Compete Agreement sets forth Mr. Hughes’
covenants against the disclosure of confidential information, covenants against the solicitation of customers, employees and independent
contractors and a covenant against competition (all in accordance with the terms set forth therein) and supersedes any prior agreements
entered into by Mr. Hughes pertaining to such covenants.
The Amended and Restated
Hughes Employment Agreement provides that in the event that Mr. Hughes’ employment is terminated without “cause”
during the six-month period prior to, or within one year after, a “change in control” (as defined in the Amended and
Restated Hughes Employment Agreement) of the Company, or if Mr. Hughes resigns from his employment for “good reason”
within one year after a change in control of the Company, then Mr. Hughes shall be entitled to receive (a) his base salary through
the date of termination or resignation plus his bonus pro-rated through such date, (b) an amount equal to two times his base salary
plus two times his bonus for the then-current fiscal year, or if such bonus amount cannot be determined, two times the bonus paid
to him in the prior fiscal year, provided that Mr. Hughes executes and delivers a release of all claims against the Company, (c)
continued group health insurance benefits (including both group health insurance benefits generally offered to all eligible employees
of the Company and supplemental executive health insurance benefits) until the earlier of the second anniversary of termination
or such time as Mr. Hughes is eligible for comparable coverage under the group health insurance plans of another employer and (d)
reimbursement for the monthly cost of his car lease until the second anniversary of the termination of his employment; provided
that, as a condition to his right to receive the payments and benefits in clauses (b), (c) and (d), Mr. Hughes executes, delivers
and does not revoke a release of all claims against the Company and its affiliates. “Good reason” means either (i)
a material breach by the Company of the Amended and Restated Hughes Employment Agreement, (ii) a material diminution in Mr. Hughes’
authority, duties or responsibilities, or (iii) a relocation by the Company of Mr. Hughes’ principal place of business for
the performance of his duties to a location that is anywhere outside of a 100 mile radius of the Borough of Manhattan.
The Company terminated
Christopher Hughes effective February 29, 2020 for “Cause” as defined in the Amended and Restated Hughes Employment
Agreement. On March 2, 2020, the Company received a letter from Mr. Hughes, providing notice of his intent to resign for
“Good Reason” as defined in the Amended and Restated Hughes Employment Agreement pursuant to which he claimed to be
entitled to the “Enhanced Severance Amount” under the Amended and Restated Hughes Employment Agreement. Hughes filed
a complaint against the Company in the Supreme Court of the State of New York in March 2020 alleging two causes of action: (1)
breach of his employment contract; and (2) breach of duty of good faith and fair dealing. Plaintiff Hughes alleges that he was
terminated without cause or in the alternative, that he resigned for good reason and seeks contractual severance pay in the amount
of $1,000,000 and reasonable costs and attorney’s fees. The Company denies his allegations in their entirety and filed
counterclaims against him.
Director Compensation
The following table
sets forth information concerning the compensation of the non-officer directors of the Company who served as directors during the
fiscal year ended May 31, 2020. Directors of the Company who also serve as executive officers of the Company are not paid any compensation
for their service as directors. For the fiscal year ended May 31, 2020, Christopher Hughes was the only director of the Company
who also served as an executive officer. He resigned as Chairman and member of the Board on December 30, 2019.
|
Name
|
|
Fees
Earned
Or Paid
In Cash
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Non-Equity
Incentive
Plan
Compensation
|
|
|
Change in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
|
|
|
All Other
Compensation
|
|
|
Total
|
|
|
Bradley M. Tirpak (1)
|
|
$
|
12,500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H. Timothy Eriksen (1)
|
|
$
|
12,500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Fitzgerald (2)
|
|
$
|
10,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ira D. Cohen (3)
|
|
$
|
5,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William J. Kelly (4)
|
|
$
|
6,875
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian J. Mangan (4)
|
|
$
|
11,875
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph Pennacchio (4)
|
|
$
|
5,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raymond A. Roel(3)
|
|
$
|
7,500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric M. Stein (4)
|
|
$
|
6,875
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,875
|
|
|
|
(1)
|
Elected to serve as a director of the Company at the
annual meeting of stockholders on October 22, 2019.
|
|
|
(2)
|
Appointed to serve as a director of the Company by the
Board on December 30, 2019.
|
|
|
(3)
|
Was not re-elected as a director of the Company at the
annual meeting of stockholders on October 22, 2019.
|
|
|
(4)
|
Resigned from the Board on December 30, 2019.
|
For their service,
members of the Board who are not officers of the Company received a pro-rated amount of an annual retainer of $10,000, payable
quarterly, based on period of time they respectively served during fiscal 2020.
Bradley M. Tirpak
received a pro-rated amount of an additional annual retainer of $10,000 for his service as Chairman of the Board during fiscal
2020 starting from December 30, 2019.
H. Timothy Eriksen
received a pro-rated amount of an additional annual retainer of $10,000 for his service as Chairman of the Audit Committee during
fiscal 2020 starting from December 30, 2019. Mr. Eriksen did not receive any additional retainer for his service as Chairman of
the Nominating Committee of the Board or lead independent director during fiscal 2020 starting from December 30, 2019.
Robert Fitzgerald
received a pro-rated amount of an additional annual retainer of $10,000 for his service as Chairman of the Compensation Committee
during fiscal 2020 starting from December 30, 2019. Mr. Fitzgerald did not receive any additional retainer for his service as Chairman
of the Special Committee of the Board during fiscal 2020 starting from December 30, 2019.
Raymond A. Roel received
$5,000 for his director service and $2,500 for his service as Chairman of the Compensation Committee during fiscal 2020 ended on
October 22, 2019.
Ira D. Cohen received
$5,000 for his director service and did not receive any additional fee for his service as Chairman of the Special Committee during
fiscal 2020 ended on October 22, 2019.
Brian J. Mangan received
$5,000 for his director service, $5,000 for his service as Chairman of the Audit Committee during fiscal 2020 ended on December
30, 2019 and $1,875 for his service as Chairman of the Special Committee during fiscal 2020 from October 22, 2019 to December 30,
2019.
Each of Eric M. Stein
and William J. Kelly received $5,000 for their respective director service and $1,875 for their respective service as member of
the Special Committee during fiscal 2020 ended on December 30, 2019.
Joseph Pennacchio
received $5,000 for his director service during fiscal 2020 ended on December 30, 2019.
|
|
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|
Principal Stockholders and Security Ownership of Management
The outstanding voting
stock of the Company as of September 25, 2020 consisted of 1,962,062 shares of Common Stock. The table below sets forth the beneficial
ownership of the Common Stock of the Company’s directors, executive officers and persons known to the Company to be the beneficial
owner of more than five percent (5%) of the outstanding shares of Common Stock as of September 25, 2020:
|
|
|
Beneficial Ownership of
Common Stock
|
|
|
Name of Beneficial Owner – Directors, Officers and 5% Stockholders
|
|
No. of
Shares (1)
|
|
|
Percent of
Class
|
|
|
Bradley M. Tirpak (2)(3)
|
|
|
-
|
|
|
|
-
|
|
|
H. Timothy Eriksen (2)(3)
|
|
|
-
|
|
|
|
-
|
|
|
Thomas Salerno (2)(7)
|
|
|
-
|
|
|
|
-
|
|
|
John G. Sharkey (2)(8)
|
|
|
6,750
|
|
|
|
0.3
|
%
|
|
Fintech Consulting LLC (4)
|
|
|
376,000
|
|
|
|
19.2
|
%
|
|
Robert Fitzgerald (2)(3)(5)
|
|
|
139,200
|
(6)
|
|
|
7.1
|
%
|
|
Tajuddin Haslani (4)
|
|
|
376,100
|
(12)
|
|
|
19.2
|
%
|
|
Philip J. LaBlonde (9)
|
|
|
135,000
|
|
|
|
6.9
|
%
|
|
QAR Industries, Inc. (5)
|
|
|
139,200
|
|
|
|
7.1
|
%
|
|
Zeff Capital, L.P. (10)
|
|
|
437,774
|
|
|
|
22.3
|
%
|
|
Zeff Holding Company, LLC (10)
|
|
|
437,774
|
(11)
|
|
|
22.3
|
%
|
|
Daniel Zeff (10)
|
|
|
437,774
|
(11)
|
|
|
22.3
|
%
|
|
Christopher Hughes (13)
|
|
|
11,842
|
(14)
|
|
|
0.6
|
%
|
|
All Directors and Executive Officers as a Group (5 persons)
|
|
|
145,950
|
|
|
|
7.4
|
%
|
|
|
(1)
|
In accordance with Rule 13d-3 of the Exchange Act, a person is deemed to be the beneficial owner,
for purposes of this table, of any shares of the Company’s Common Stock if such person has voting or investment power with
respect to such shares. This includes shares of Common Stock (a) subject to options exercisable within sixty (60) days, and (b)
(1) owned by a person’s spouse, (2) owned by other immediate family members who share a household with such person, or (3)
held in trust or held in retirement accounts or funds for the benefit of the such person, over which shares the person named in
the table may possess voting and/or investment power. Unless otherwise stated herein, each beneficial owner has sole voting power
and sole investment power.
|
|
|
(2)
|
This executive officer and/or director maintains a mailing address at 400 Oser Avenue, Suite 150,
Hauppauge, New York 11788.
|
|
|
(3)
|
Such person currently serves as a director of the Company.
|
|
|
(4)
|
Based on a Schedule 13D filed by Fintech Consulting LLC and Tajuddin Haslani with the SEC on July
30, 2018. Based on the Schedule 13D, Tajuddin Haslani is the managing member of Fintech Consulting LLC and the reporting persons
maintain a mailing address at 120 S. Wood Avenue, Suite 300, Iselin, New Jersey 08830.
|
|
|
(5)
|
Based on an Amendment to Schedule 13D filed by QAR Industries, Inc. and Robert Fitzgerald with
the SEC on September 10, 2019. Robert Fitzgerald is the President of QAR Industries, Inc. and the reporting persons maintain a
mailing address at 101 SE 25th Avenue, Mineral Wells, Texas 76067.
|
|
|
(6)
|
Represents the same shares owned by QAR Industries, Inc.
|
|
|
(7)
|
Mr. Thomas Salerno served as the Managing Director of TSR Consulting Services, Inc., the Company’s
IT consulting services subsidiary and largest business unit, since 2011. He was appointed as President and Chief Executive Officer
of the Company effective March 23, 2020 and served as Acting CEO of the Company from January 27, 2020 to March 23, 2020.
|
|
|
(8)
|
John G. Sharkey served as the Vice President, Finance, Controller and Secretary of the Company
until June 1, 2019. Effective June 1, 2019, Mr. Sharkey was appointed Senior Vice President, Chief Financial Officer and Secretary
of the Company.
|
|
|
(9)
|
Based on a Schedule 13D filed by Philip J. LaBlonde with the SEC on August 12, 2016. Based on the
Schedule 13D, Philip J. LaBlonde maintains a mailing address at 15120 Honors Circle, Carmel, Indiana 46033.
|
|
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(10)
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Based on an Amendment to Schedule 13D filed by Zeff Capital, L.P., Zeff Holding Company, LLC and
Daniel Zeff with the SEC on August 17, 2020. Based on the Amendment to Schedule 13D, Zeff Capital, L.P. is the owner of the 437,774
shares reported on the Amendment; Zeff Holding Company, LLC is the general partner of Zeff Capital, L.P.; Daniel Zeff is the sole
manager of Zeff Holding Company, LLC; and all of the reporting persons maintain a mailing address at 885 Sixth Avenue, New York,
New York 10001.
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(11)
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Represents the same shares owned by Zeff Capital, L.P.
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(12)
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Includes 376,000 shares owned by Fintech Consulting LLC.
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(13)
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Mr. Christopher Hughes served as President, Chief Executive Officer and Treasurer of the Company
until February 29, 2020.
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(14)
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Includes 5,566 shares held of record by Christopher Hughes’ wife, as to which Mr. Hughes has disclaimed beneficial ownership.
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Item 13.
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Certain Relationships and Related Transactions and Director Independence.
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Related Party Transactions
The Audit Committee
is responsible for reviewing and approving all transactions between the Company and any related party pursuant to the Audit Committee’s
charter. Except as described below, the Company was not a participant in any transaction since the beginning of the 2019 fiscal
year in which any related person had a direct or indirect material interest and in which the amount involved exceeded the lesser
of $120,000 or 1% of the average of the Company’s total assets at the end of each of the Company’s two prior fiscal
years, and no such transactions are currently proposed.
Regina Dowd, who served
as a director of the Company during fiscal 2019 until her resignation as a director on August 27, 2018, was also employed as a
sales executive of the Company for which she was paid compensation in the amount of $149,000 for the 2019 fiscal year. The Company
and Ms. Dowd entered into an employment agreement dated as of July 1, 2019, pursuant to which the Company employs Ms. Dowd as an
Account Manager for a three-year term expiring on June 30, 2022, and on an at-will basis thereafter, for an annual base salary
of $60,000 and eligibility to earn commissions pursuant to an incentive compensation/commission plan.
In connection with
the settlement of a civil action brought against the Company in June 2019 by Ms. Dowd and Joseph F. Hughes, the former Chief Executive
Officer and Chairman of the Company, concerning their right to indemnification by the Company for legal fees incurred by them in
connection with certain lawsuits previously disclosed by the Company in its reports filed with the SEC that affect the Company,
Ms. Dowd (in her capacity as a former director of the Company) and Mr. Joseph Hughes (in his capacity as the former Chairman, President
and Chief Executive Officer of the Company), the Company agreed to pay approximately $385,000 in legal fees incurred by them.
On August, 30, 2019,
the Company entered into the Settlement Agreement with certain investors including Zeff Capital, L.P., Zeff Holding Company, LLC
and Daniel Zeff, QAR Industries, Inc. and Robert Fitzgerald, and Fintech Consulting, LLC and Tajuddin Haslani (collectively, “Investor
Parties”), each of whom has been a beneficial owner of more than five percent (5%) of the outstanding shares of Common Stock,
with respect to the proxy contest pertaining to the election of directors at the 2018 annual meeting of stockholders, which was
held on October 22, 2019. Pursuant to the Settlement Agreement, the parties agreed to forever settle and resolve any and all disputes
between the parties, including without limitation disputes arising out of or relating to the following litigations:
(i) The complaint relating
to alleged breaches of fiduciary duties filed on November 1, 2018 by Fintech Consulting LLC against the Company in the Delaware
Court of Chancery, which was previously dismissed voluntarily;
(ii) The complaint
for declaratory and injunctive relief for violations of the federal securities laws filed on December 21, 2018 by the Company against
the Investor Parties in the United States District Court in the Southern District of New York;
(iii) Cross-claims
relating to alleged breaches of fiduciary duties and for indemnification and contribution filed on July 26, 2019 by the Company
against the Investor Parties in New York Supreme Court, Queens County; and
(iv) The complaint
to compel annual meeting of stockholders filed on August 7, 2019 by Zeff Capital, L.P. against the Company in the Delaware Court
of Chancery.
No party admitted any
liability by entering into the Settlement Agreement.
Concurrently with the
Settlement Agreement, the parties entered into a share repurchase agreement (the “Repurchase Agreement”) which provided
for the purchase by the Company and Christopher Hughes, the Company’s former President and Chief Executive Officer, of the
shares of the Company’s Common Stock held by the Investor Parties (the “Repurchase”). The Settlement Agreement
also contemplated that, if the Repurchase was completed, the Company would make a settlement payment to the Investor Parties at
the closing of the Repurchase in an amount of approximately $1,500,000 (the “Settlement Payment”). However, the Repurchase
and Settlement Payment were not completed by the deadline of December 30, 2019.
Pursuant to the Settlement
Agreement, (1) the Company agreed to adopt an amendment to the Company’s Amended and Restated By-Laws, dated April 9, 2015
(the “By-Laws Amendment”), providing that stockholders of the Company owning at least forty percent (40%) of the issued
and outstanding Common Stock may request a special meeting of stockholders; (2) the Investor Parties agreed not to take any action
to call or otherwise cause a special meeting of stockholders to occur prior to December 30, 2019 (unless the Company had failed
to hold the 2018 annual meeting of stockholders); (3) the Company agreed to amend and restate the Company’s Rights Agreement,
dated August 29, 2018 (the “Amended Rights Agreement”), to confirm that a Distribution Date (as defined in the Amended
Rights Agreement) shall not occur as a result of any request by any of the Investor Parties for a special meeting; (4) the Company
agreed that prior to the earlier of (A) the completion of the Repurchase and the payment of the Settlement Payment and (B) January
1, 2020, the Board of Directors shall not consist of more than seven (7) directors.
Pursuant to the terms
of the Settlement Agreement, the two nominees for director made by Zeff Capital, L.P., Bradley M. Tirpak and H. Timothy Eriksen,
were nominated and subsequently elected as directors at the Company’s 2018 annual meeting of stockholders held on October
22, 2019.
Pursuant to the terms
of the Settlement Agreement, inasmuch as the Repurchase was not completed and the Settlement Payment was not made by December 30,
2019, the members of the Board of Directors (other than the two directors who were nominated by Zeff Capital, L.P. and elected
as directors at the 2018 annual meeting of stockholders) resigned from the Board effective 5:00 p.m. Eastern Time on December 30,
2019. Immediately thereafter, the two remaining directors appointed Robert Fitzgerald to the Board of Directors.
In addition, the Settlement
Agreement provides for mutual releases between the Company and each of the Investor Parties and certain of their affiliates. Each
of the Investor Parties and certain of their affiliates also agreed to certain customary standstill provisions, including without
limitation, with regard to certain actions in connection with the 2018 annual meeting of stockholders, Extraordinary Transactions
(as defined in the Settlement Agreement) with the Company, and the acquisition of any securities (or beneficial ownership thereof)
of the Company, each of which expired on December 30, 2019.
The foregoing is not
a complete description of the terms of the Settlement Agreement and the Share Repurchase Agreement. For a further description of
the terms of the Settlement Agreement and the Share Repurchase Agreement, including copies of the Settlement Agreement and Share
Repurchase Agreement, please see the Company’s Current Report on Form 8-K filed by the Company with the SEC on September
3, 2019.
In addition, 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 Agreement. In exchange for certain mutual 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 $300,00 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 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.
Board of Directors and Director Independence
The Board of Directors
for the 2020 fiscal year consisted of Bradley M. Tirpak (Chairman), H. Timothy Eriksen and Robert Fitzgerald. In addition, Ira
D. Cohen and Raymond A. Roel served as directors during the 2020 fiscal year until October 22, 2019 when they were not re-elected
at the 2018 annual meeting of stockholders on such date. Christopher Hughes, William J. Kelly, Brian J. Mangan, Joseph Pennacchio
and Eric M. Stein also served as directors during the 2020 fiscal year until December 30, 2019 when they resigned on such date.
Bradley M. Tirpak,
H. Timothy Eriksen, Robert Fitzgerald, Ira D. Cohen, William J. Kelly, Brian J. Mangan, Eric M. Stein and Raymond A. Roel qualify
as “independent directors” under the NASDAQ rules.
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Item 14.
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Principal Accounting Fees and Services.
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Audit Fees
The aggregate fees
billed by CohnReznick LLP for professional services related to the audit of the Company’s consolidated financial statements
and the review of the consolidated condensed financial statements included in the Company’s quarterly reports on Form 10-Q
for the fiscal years ended May 31, 2020 and 2019 were $78,000, respectively.
Audit-Related Fees
There were no fees
billed by CohnReznick LLP for audit related services for the fiscal years ended May 31, 2020 or 2019.
Tax Fees
There were no fees
billed by CohnReznick LLP for tax services during the fiscal years ended May 31, 2020 or 2019.
All Other Fees
There were no fees
billed by CohnReznick LLP related to any other non-audit services for the fiscal years ended May 31, 2020 or 2019.
Policy on Pre-Approval of Audit and
Permissible Non-Audit Services
The Audit Committee
is responsible for appointing, setting compensation and overseeing the work of the independent registered public accounting firm.
In accordance with its charter, the Audit Committee approves, in advance, all audit and permissible non-audit services to be performed
by the independent registered public accounting firm. Such approval process ensures that the independent registered public accounting
firm does not provide any non-audit services to the Company that are prohibited by law or regulation.