TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
The accompanying condensed consolidated
interim financial statements include the accounts of TSR, Inc. and its subsidiaries. Unless otherwise stated or the context otherwise
requires, the terms “we,” “us,” “our,” and the “Company” refer to TSR, Inc. and its subsidiaries.
All significant inter-company balances and transactions have been eliminated in consolidation. The condensed balance sheet as of May 31,
2021, which has been derived from audited financial statements, and the unaudited interim financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America applying to interim financial information and with the instructions
to Form 10-Q of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and
footnote disclosures required by accounting principles generally accepted in the United States of America and normally included in the
Company’s annual financial statements have been condensed or omitted. These condensed consolidated interim financial statements
as of and for the three months and six months ended November 30, 2021 are unaudited; however, in the opinion of management, such statements
include all adjustments (consisting of normal recurring adjustments) necessary to present fairly the consolidated financial position,
results of operations and cash flows of the Company for the periods presented. The results of operations for the interim periods presented
are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending May 31, 2022.
These condensed consolidated interim financial statements should be read in conjunction with the Company’s consolidated financial
statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended May 31, 2021.
2.
|
Net Income (Loss) Per Common Share
|
Basic net income (loss) per common
share is computed by dividing net income (loss) available to common stockholders of TSR, Inc. by the weighted average number of common
shares outstanding during the reporting period, excluding the effects of any potentially dilutive securities. During the quarter ended
February 28, 2021, the Company granted time and performance vesting restricted stock awards under its 2020 Equity Incentive Plan (see
Note 17 for further information). Diluted earnings per share gives effect to all potentially dilutive common shares outstanding during
the reporting period. The common stock equivalents associated with these restricted stock awards of 70,816 and 69,628 in the three months
and six months ended November 30, 2021 have been included for dilutive shares outstanding for the three months and six months ended November
30, 2021.
3.
|
Cash and Cash Equivalents
|
The Company considers short-term highly
liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents were
comprised of the following as of November 30, 2021 and May 31, 2021:
|
|
November 30,
2021
|
|
|
May 31,
2021
|
|
Cash in banks
|
|
$
|
6,214,123
|
|
|
$
|
7,317,517
|
|
Money market funds
|
|
|
53,687
|
|
|
|
53,129
|
|
|
|
$
|
6,267,810
|
|
|
$
|
7,370,646
|
|
4.
|
Fair Value of Financial Instruments
|
Accounting Standards Codification (“ASC”)
820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), defines fair value, establishes a framework for measuring
fair value under accounting principles generally accepted in the United States of America (“GAAP”) and provides for expanded
disclosure about fair value measurements. ASC 820-10 applies to all other accounting pronouncements that require or permit fair value
measurements.
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
The Company determines or calculates
the fair value of financial instruments using quoted market prices in active markets when such information is available or using appropriate
present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information
for similar types of instruments while estimating for non-performance and liquidity risk. These techniques are significantly affected
by the assumptions used, including the discount rate, credit spreads and estimates of future cash flows.
Assets and liabilities typically recorded
at fair value on a non-recurring basis to which ASC 820-10 applies include:
|
●
|
non-financial assets and liabilities initially measured at fair value in an acquisition or business combination,
and
|
|
|
|
|
●
|
long-lived assets measured at fair value
due to an impairment assessment under ASC 360-10-15, Impairment or Disposal of Long-Lived
Assets.
|
This topic defines fair value as the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date and establishes a three-level hierarchy, which encourages an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. ASC 820-10 requires that assets and liabilities recorded at fair value
be classified and disclosed in one of the following three categories:
|
●
|
Level 1 - inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities
that the Company has the ability to access.
|
|
|
|
|
●
|
Level 2 - inputs utilize other-than-quoted prices that are observable, either directly or indirectly.
Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield
curves that are observable at commonly quoted intervals.
|
|
|
|
|
●
|
Level 3 - inputs are unobservable and are typically based on the Company’s own assumptions, including
situations where there is little, if any, market activity. Both observable and unobservable inputs may be used to determine the fair value
of positions that are classified within the Level 3 classification.
|
In certain cases, the inputs used to
measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company classifies such financial assets
or liabilities based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s
assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors
specific to the asset or liability.
ASC Topic 825, Financial Instruments,
requires disclosure of the fair value of certain financial instruments. For cash and cash equivalents, accounts receivable, accounts and
other payables, accrued liabilities and advances from customers, the amounts presented in the condensed consolidated financial statements
approximate fair value because of the short-term maturities of these instruments.
The Company has characterized its investments
in marketable securities, based on the priority of the inputs used to value the investments, into a three-level fair value hierarchy.
The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and
lowest priority to unobservable inputs (Level 3). If the inputs used to measure the investments fall within different levels of the hierarchy,
the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Investments recorded in the accompanying
condensed consolidated balance sheets are categorized based on the inputs to valuation techniques as follows:
|
●
|
Level 1 - These are investments where values are based on unadjusted quoted prices for identical assets
in an active market the Company has the ability to access.
|
|
|
|
|
●
|
Level 2 - These are investments where values are based on quoted market prices that are not active or
model derived valuations in which all significant inputs are observable in active markets.
|
|
|
|
|
●
|
Level 3 - These are investments where values are derived from techniques in which one or more significant
inputs are unobservable.
|
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
The following are the major categories
of assets measured at fair value on a recurring basis as of November 30, 2021 and May 31, 2021 using quoted prices in active markets for
identical assets (Level 1), significant other observable inputs (Level 2) and significant unobservable inputs (Level 3):
November 30, 2021
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Equity Securities
|
|
$
|
39,360
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
39,360
|
|
May 31, 2021
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Equity Securities
|
|
$
|
45,696
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
45,696
|
|
The Company’s equity securities
are classified as trading securities, which are carried at fair value, as determined by quoted market prices, which is a Level 1 input,
as established by the fair value hierarchy. The related unrealized gains and losses are included in earnings. The Company’s marketable
securities at November 30, 2021 and May 31, 2021 are summarized as follows:
November 30, 2021
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Holding
Gains
|
|
|
Gross
Unrealized
Holding
Losses
|
|
|
Recorded
Value
|
|
Equity Securities
|
|
$
|
16,866
|
|
|
$
|
22,494
|
|
|
$
|
-
|
|
|
$
|
39,360
|
|
May 31, 2021
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Holding
Gains
|
|
|
Gross
Unrealized
Holding
Losses
|
|
|
Recorded
Value
|
|
Equity Securities
|
|
$
|
16,866
|
|
|
$
|
28,830
|
|
|
$
|
-
|
|
|
$
|
45,696
|
|
The Company’s investments in
marketable securities consist primarily of investments in equity securities. Market values were determined for each individual security
in the investment portfolio. When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as
length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, and the Company’s
ability and intent to hold the investment for a period of time, which may be sufficient for anticipated recovery in market values.
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
From time to time,
the Company is party to various lawsuits, some involving material amounts. Management is not aware of any lawsuits that would have a material
adverse impact on the consolidated financial position of the Company except for the litigation disclosed elsewhere in the report, including
Notes 9, 10 and 16 to the Condensed Consolidated Financial Statements and in the section titled “Item 1, Legal Proceedings”
in Part II of this report.
The Company leases the space for its
three offices in New York City, Hauppauge and New Jersey. Under ASC 842, at contract inception we determine whether the contract is or
contains a lease and whether the lease should be classified as an operating or finance lease. Operating leases are in right-of-use assets
and operating lease liabilities are in our condensed consolidated balance sheets.
The Company’s leases for its
three offices are classified as operating leases.
The lease agreements for New York City,
Hauppauge and New Jersey expire on August 31, 2022, December 31, 2023 and May 31, 2027, respectively, and do not include any renewal options.
During the fiscal year ended May 31, 2021, the Company extended its lease in Hauppauge, entered into a lease in a new location for its
New Jersey office expiring May 31, 2027 and entered into an agreement to sublease the space in New York City expiring August 31, 2022.
Due to the fact that the future sublease cash inflows will be less than the carrying value of the corresponding right-of-use asset, the
Company recorded a right-of-use asset impairment charge of $136,599 in the quarter ended November 30, 2020.
In addition to the monthly base amounts
in the lease agreements, the Company is required to pay real estate taxes and operating expenses during the lease terms.
For the six months ended November 30,
2021 and 2020, the Company’s operating lease expense for these leases was $155,000 and $231,000, respectively.
Future minimum lease payments under
non-cancellable operating leases as of November 30, 2021 were as follows:
Twelve Months Ending November 30,
|
|
|
|
2022
|
|
$
|
334,441
|
|
2023
|
|
|
218,903
|
|
2024
|
|
|
130,646
|
|
2025
|
|
|
125,388
|
|
2026
|
|
|
128,522
|
|
Thereafter
|
|
|
65,054
|
|
Total undiscounted operating lease payments
|
|
|
1,002,954
|
|
Less imputed interest
|
|
|
137,168
|
|
Present value of operating lease payments
|
|
$
|
865,786
|
|
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
The following table sets forth the
right-of-use assets and operating lease liabilities as of November 30, 2021:
Assets
|
|
|
|
Right-of-use assets, net
|
|
$
|
774,452
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current operating lease liabilities
|
|
$
|
283,841
|
|
Long-term operating lease liabilities
|
|
|
581,945
|
|
Total operating lease liabilities
|
|
$
|
865,786
|
|
The weighted average remaining lease
term for the Company’s operating leases is 2.9 years.
On November 27,
2019, TSR closed on a revolving credit facility (the “Credit Facility”) pursuant to a Loan and Security Agreement with Access
Capital, Inc. (the “Lender”) that initially provided up to $7,000,000 in funding to TSR and its direct and indirect subsidiaries,
TSR Consulting Services, Inc., Logixtech Solutions, LLC and Eurologix, S.A.R.L., each of which, together with TSR, is a borrower under
the Credit Facility. Each of the borrowers has provided a security interest to the Lender in all of their respective assets to secure
amounts borrowed under the Credit Facility.
TSR expects to
utilize the Credit Facility for working capital and general corporate purposes. The maximum amount that may now be advanced under the
Credit Facility at any time shall not exceed $2,000,000.
Advances under
the Credit Facility accrue interest at a rate per annum equal to (x) the “base rate” or “prime rate” announced
by Citibank, N.A. from time to time, which shall be increased or decreased, as the case may be, in an amount equal to each increase or
decrease in such “base rate” or “prime rate,” plus (y) 1.75%. The prime rate as of November 30, 2021 was 3.25%,
indicating an interest rate of 5.0% on the line of credit. The initial term of the Credit Facility is five years, which shall automatically
renew for successive five-year periods unless either TSR or the Lender gives written notice to the other of termination at least 60 days
prior to the expiration date of the then-current term.
TSR is obliged to satisfy certain financial
covenants and minimum borrowing requirements under the Credit Facility, and to pay certain fees, including prepayment fees, and provide
certain financial information to the Lender. The Company was in compliance with all applicable covenants at November 30, 2021.
As of November 30, 2021, the net borrowings
outstanding against this line of credit facility were $44,000. The amount the Company has borrowed fluctuates and, at times, it has utilized
the maximum amount of $2,000,000 available under the facility to fund its payroll and other obligations.
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
9.
|
Termination of Former CEO
|
The Company terminated Christopher
Hughes, the former Chief Executive Officer of the Company (“Hughes”), effective February 29, 2020 for “Cause”
as defined in Section 6(a) of his Amended and Restated Employment Agreement dated August 9, 2018 (the “Employment Agreement”).
Despite having already been terminated from employment, on March 2, 2020, the Company received a letter from Mr. Hughes, providing notice
of his intent to resign for “Good Reason” as defined in Section 7(c) of the Employment Agreement pursuant to which he claimed
to be entitled to the “Enhanced Severance Amount” under the Employment Agreement. Hughes filed a complaint against the Company
in the Supreme Court of the State of New York in March 2020 alleging two causes of action: (1) breach of his employment contract; and
(2) breach of duty of good faith and fair dealing. Plaintiff Hughes alleged that he was terminated without cause or in the alternative
that he resigned for good reason and therefore, pursuant to the Employment Agreement, Hughes sought severance pay in the amount of $1,000,000
and reasonable costs and attorney’s fees. The Company denied Plaintiff’s allegations in their entirety and filed counterclaims
against Plaintiff for (1) declaratory relief; (2) breach of confidence/non-compete agreement; (3) declaratory and injunctive relief –
confidence/non-compete; (4) tortious interference with current and prospective contractual and economic relations; (5) breach of fiduciary
duty; (6) misappropriation of trade secrets; (7) declaratory and injunctive relief – unfair competition; and (8) conversion.
In October 2021, the Company and Hughes
agreed through mediation to settle this matter. In order to avoid lengthy and costly litigation and discovery expenses, the Company has
paid Hughes $705,000 to settle all claims. After adjusting for estimated expected insurance reimbursement, the Company accrued a charge
of $580,000 to selling, general and administrative expenses in the quarter ended August 31, 2021 and six months ended November 30, 2021.
10.
|
Legal Settlement with Investor
|
On April 1, 2020,
the Company entered into a binding term sheet (“Term Sheet”) with Zeff Capital, L.P. (“Zeff”) pursuant to which
it agreed to pay Zeff an amount of $900,000 over a period of three years in cash or cash and stock in settlement of expenses incurred
by Zeff during its solicitations in 2018 and 2019 in connection with the annual meetings of the Company, the costs incurred in connection
with the litigation initiated by and against the Company as well as negotiation, execution and enforcement of the Settlement and Release
Agreement, dated as of August 30, 2019, by and between the Company, Zeff and certain other parties. In exchange for certain releases,
the Term Sheet calls for a cash payment of $300,000 on June 30, 2021, a second cash payment of $300,000 on June 30, 2022 and a third payment
of $300,000 also on June 30, 2022, which can be paid in cash or common stock at the Company’s option. There is no interest due on
these payments. The $300,000 payment due June 30, 2021 was paid during the quarter ended August 31, 2021. The agreement also has protections
to defer such payment dates so that the debt covenants with the Company’s lender are not breached. On
August 13, 2020, the Company, Zeff, Zeff Holding Company, LLC and Daniel Zeff entered into a settlement agreement to reflect these terms.
Any installment payment which is deferred as permitted above will accrue interest at the prime rate plus 3.75%, and Zeff shall thereby
have the option to convert such deferred amounts (plus accrued interest if any) into shares of the Company’s stock. The Company
accrued $818,000, the estimated present value of these payments using an effective interest rate of 5%, in the quarter ended February
29, 2020, as the events relating to the expense occurred prior to such date. The estimated present value of the remaining payments is
$583,000 at November 30, 2021.
The COVID-19 outbreak in the United
States has caused business disruption including mandated and voluntary closing of various businesses. While the disruption is currently
expected to be temporary, there is considerable uncertainty around the duration of the closings and the impact of the pandemic on our
business. Therefore, the Company expects this matter to continue to negatively impact its operating results in future periods. The full
financial impact and duration cannot be reasonably estimated at this time.
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
12.
|
Paycheck Protection Program Loan
|
On April 15, 2020, the Company received
loan proceeds of $6,659,220 under the Paycheck Protection Program (the “PPP Loan”). The Paycheck Protection Program (“PPP”)
was established under the congressionally-approved Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and
is administered by the U.S. Small Business Administration (“SBA”). The PPP Loan to the Company was made through JPMorgan Chase
Bank, N.A., a national banking association.
In March 2021, the Company submitted
a PPP Loan Forgiveness application to the SBAS through the PPP Lender. On July 7, 2021, the Company received notification from the PPP
Lender that the SBA approved the Company’s application for forgiveness of the entire principal amount of the PPP Loan plus accrued
interest. The PPP Lender will apply the forgiveness amount to satisfy the PPP Loan. The Company has no further obligations with respect
to the PPP Loan. The Company recognized “Other Income” of $6,735,246 in the quarter ended August 31, 2021 and six months ended
November 30, 2021 related to the forgiveness of the loan principal and accrued interest.
13.
|
Geneva Consulting Group Acquisition
|
On September 1, 2020, the Company completed
the acquisition of all of the outstanding stock of Geneva Consulting Group, Inc., a New York corporation (“Geneva”) and provider
of temporary and permanent information technology personnel based in Port Washington, New York. The stock of Geneva was purchased from
the three shareholders of Geneva (the “Sellers”), none of which had, or will have following the acquisition, a material relationship
with the Company or its affiliates.
The purchase price for the shares of
Geneva is comprised of the following: (i) $1,452,000 in cash paid to Sellers at the closing of the acquisition, (ii) an amount of $748,000,
that is equal to the amount of Geneva’s loan under the PPP that was not assumed by the Company and is expected to be substantially
forgiven by the SBA, (iii) an amount up to $300,000, which may be paid as an earnout payment in part in February 2021 and in part in August
2021 (the “Earnout Payments”), (iv) bonus payments payable in $10,000 increments, (v) $747,000 for the net working capital
of Geneva as of closing and (vi) other purchase price adjustments of which $36,000 has been paid to date. Any Earnout Payments and bonus
payments will be determined based upon the achievement of certain criteria relating to the number the Company’s contractors working
full-time at the Company’s client locations on such dates.
The initial Earnout Payments and bonus
payment liability was valued at its fair value using an option pricing based approach with a risk-neutral framework using Black Scholes
due to the option-like nature of the earn-out payment structure (Level 3 of the fair value hierarchy). The Earnout Payments were revalued
quarterly prior to the resolution discussed below, using a present value approach and any resulting increase or decrease was recorded
into selling, general and administrative expenses. Any changes in the amount of the actual results and forecasted scenarios could impact
the fair value. Significant judgment was employed in determining the appropriateness of the assumptions used in calculating the fair value
of the Earnout Payments as of the acquisition date and subsequent period ends.
On March 17, 2021, the Company entered
into an agreement with the Sellers’ representatives pursuant to which the parties agreed to resolve certain interpretive differences
regarding the Sellers’ entitlement to the bonus payments described above. Pursuant to this agreement, and in full satisfaction of
the Company’s obligations for deferred payments under the purchase agreement for the Geneva acquisition, the Sellers’ representative
acknowledged receipt of the first Earnout Payment in the amount of $100,000, the parties agreed that the Company would make aggregate
bonus payments to the Sellers’ representatives in the amount of $260,000, and the Company agreed to instruct the escrow agent to
release to the Sellers’ representatives the second Earnout Payment in the amount of $200,000. All amounts relating to the Earnout
Payments and bonus payments that had not been paid as of the date of the agreement were either paid by the Company or released by the
escrow agent on March 18, 2021. This agreement resulted in a charge to selling, general and administrative expenses of $210,000 in the
quarter ended February 28, 2021. No further earnout or bonus amounts can be earned or will be paid subsequent to March 18, 2021.
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
The acquisition was accounted for as
an acquisition of a business in accordance with the acquisition method of accounting. The acquired assets and assumed liabilities have
been recorded at their fair values. The Company determined the fair values with the assistance of valuations performed by an independent
third-party specialist.
The Company has incurred approximately
$498,000 in legal fees, business broker fees, valuation services, accounting fees and other expenses to complete the Geneva acquisition.
Included in this amount is additional bonus payments to the Sellers of $210,000 related to the March 17, 2021 agreement discussed above.
All acquisition related costs have been expensed as incurred and included in selling, general and administrative expenses.
The following table summarizes the
components of the purchase price at fair values at September 1, 2020:
Cash consideration paid to date
|
|
$
|
2,983,264
|
|
Estimated earnout and other liabilities
|
|
|
358,796
|
|
Total purchase price
|
|
$
|
3,342,060
|
|
The following table summarizes the
allocation of purchase price at estimated fair values at September 1, 2020:
Cash
|
|
$
|
241,946
|
|
Accounts receivable
|
|
|
778,930
|
|
Prepaid expenses
|
|
|
5,249
|
|
Intangible assets (see Note 15)
|
|
|
1,800,000
|
|
Goodwill
|
|
|
785,883
|
|
Accrued expenses
|
|
|
(269,948
|
)
|
Net assets
|
|
$
|
3,342,060
|
|
The following unaudited pro forma financial
information presents the combined operating results of the Company and Geneva as if the acquisition had occurred as of the beginning of
the earliest period presented. Pro forma data is subject to various assumptions and estimates and is presented for informational purposes
only. This pro forma data does not purport to represent or be indicative of the consolidated operating results that would have been reported
had the transaction been completed as described herein, and the data should not be taken as indicative of future operating results.
Unaudited pro forma financial information
assuming the acquisition of Geneva as of June 1, 2020 is presented in the following table (in thousands):
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
|
2021
|
|
|
2020
|
|
Revenue
|
|
$
|
46,730
|
|
|
$
|
32,020
|
|
Net income (loss)
|
|
$
|
6,645
|
|
|
$
|
(488
|
)
|
Diluted earnings (loss) per share
|
|
$
|
3.27
|
|
|
$
|
(0.25
|
)
|
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
Goodwill is recorded when the purchase
price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill
is not amortized but is subject to impairment analysis at least once annually or more frequently upon the occurrence of an event or when
circumstances indicate that the carrying amount of a unit is greater than its fair value. The annual test of goodwill was performed as
of September 1, 2021 and no impairment was found.
The Company amortizes its intangible
assets over their estimated useful lives and will review these assets for impairment when there is evidence that events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparing
the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If intangible assets are considered to
be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value.
Intangible assets identified in the
Geneva acquisition are as follows:
|
|
May 31,
|
|
|
|
|
|
November 30,
|
|
|
|
2021
|
|
|
Amortization
|
|
|
2021
|
|
Database (estimated life 5 years)
|
|
$
|
195,500
|
|
|
$
|
23,000
|
|
|
$
|
172,500
|
|
Non-compete agreement (estimated life 2 years)
|
|
|
6,250
|
|
|
|
2,500
|
|
|
|
3,750
|
|
Trademark (estimated life 3 years)
|
|
|
45,000
|
|
|
|
10,000
|
|
|
|
35,000
|
|
Customer relationships (estimated life 15 years)
|
|
|
1,425,000
|
|
|
|
50,000
|
|
|
|
1,375,000
|
|
Total
|
|
$
|
1,671,750
|
|
|
$
|
85,500
|
|
|
$
|
1,586,250
|
|
No instances of triggering events or
impairment indicators were identified at November 30, 2021.
16.
|
Related Party Transactions
|
On January 5, 2021, the members of
the Board of Directors of the Company other than Robert Fitzgerald approved providing a waiver to QAR Industries, Inc. for its contemplated
acquisition of shares owned by Fintech Consulting LLC under the Company’s then existing rights agreement (which covered a now non-existent
class of Class A preferred stock) so that a distribution date would not occur under such agreement as a result of the acquisition. QAR
Industries, Inc. and Fintech Consulting LLC were both principal stockholders of the Company, each owning more than 5% of the Company’s
outstanding common stock prior to the consummation of the acquisition. Robert Fitzgerald is the President and majority shareholder of
QAR Industries, Inc. The other directors of the Company are not affiliated with QAR Industries, Inc.
On February 3, 2021, the transaction
was completed and QAR Industries, Inc. purchased 348,414 shares of TSR’s common stock from Fintech Consulting LLC at a price of
$7.25 per share. At the same time, Bradley M. Tirpak, Chairman of TSR, Inc., purchased 27,586 shares of TSR’s common stock from
Fintech Consulting LLC at a price of $7.25 per share. The foregoing transaction is currently the subject of litigation due to a complaint
filed by Fintech Consulting LLC on December 1, 2021. Please see the Company’s Current Report on Form 8-K filed with the SEC on December
21, 2021 for more information about the foregoing complaint and litigation.
TSR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
17.
|
Stock-based Compensation Expense
|
On January 28, 2021, the Company granted
108,333 shares in time vesting restricted stock awards and 69,167 shares in time and performance vesting restricted stock awards to officers,
directors and key employees under the TSR, Inc. 2020 Equity Incentive Plan (the “Plan”). The time vesting shares vest in tranches
at the one, two and three-year anniversaries of the grants (“service condition”). These shares had a grant date fair value
of $826,000 based on the closing price of TSR’s common stock on the day prior to the grants. The associated compensation expense
is recognized on a straight-line basis over the time between grant date and the date the shares vest (the “service period”).
The time and performance vesting shares also vest in tranches at or after the two- and three-year anniversaries of the grants. The performance
condition is defined in the grant agreements and relates to the market price of the Company’s common stock over a stated period
of time (“market condition”). These shares had a grant date value $262,000 based on the closing price of TSR, Inc. common
shares on the day prior to the grants discounted by an estimated forfeiture rate of 40-60%. The Company took into account the historical
volatility of its common stock to assess the probability of satisfying the market condition. The associated compensation expense is recognized
on a straight-line basis between the time the achievement of the performance criteria is deemed probable and the time the shares may vest.
The market condition for the shares that vest on the two-year anniversary was met in October 2021. During the three and six months ending
November 30, 2021, $177,000 and $354,000 has been record as stock-based compensation expense and included in selling, general and administrative
expenses. As of November 30, 2021, there is approximately $497,000 of unearned compensation expense that will be expensed through February
2024; 142,666 stock awards expected to vest; and zero vested awards.
TSR, INC. AND SUBSIDIARIES