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EX-32.2 - CERTIFICATION - TSR INCf10k2016ex32ii_tsrinc.htm
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EX-31.2 - CERTIFICATION - TSR INCf10k2016ex31ii_tsrinc.htm
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EX-21 - LIST OF SUBSIDIARIES - TSR INCf10k2016ex21_tsrinc.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, DC 20549

 

FORM 10-K

 

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

 

For the fiscal year ended May 31, 2016

 

or

 

☐  Transition Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934

 

For the transition period from _______ to _______

 

Commission File Number: 0-8656

 

TSR, Inc.

 

(Exact name of registrant as specified in its charter)

 

Delaware   13-2635899

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

400 Oser Avenue, Hauppauge, NY 11788

 

(Address of principal executive offices)

 

Registrant’s telephone number: 631-231-0333

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of Each Class   Name of Each Exchange on Which Registered
Common Stock, par value, $0.01 per share   The NASDAQ Capital Market

 

Securities registered pursuant to Section 12(g) of the Exchange Act:

 

None

 

(Title of Class)

 

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 and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).  ☒  Yes  ☐  No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer” or “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

☐  Large accelerated filer  ☐  Accelerated filer  ☐  Non-accelerated filer  ☒  Smaller Reporting Company

 

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 $4.83 at November 30, 2015 was $4,999,000.

 

The number of shares of the Registrant’s common stock outstanding as of June 30, 2016 was 1,962,062.

 

Documents incorporated by Reference:

 

The information required in Part III, Items 10, 11, 12, 13 and 14 is incorporated by reference to the Registrant’s Proxy Statement in connection with the 2016 Annual Meeting of Stockholders, which will be filed by the Registrant within 120 days after the close of its fiscal year.

 

 

 

 

 

 

TSR, Inc.

 

Form 10-K

 

For the Fiscal Year Ended May 31, 2016

 

Table of Contents

 

    Page No.
Part I    
     
Item 1. Business 4
Item 1A. Risk Factors 6
Item 1B. Unresolved Staff Comments 11
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Mine Safety Disclosures 11
     
Part II    
     
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 12
Item 6. Selected Financial Data 12
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 17
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 32
Item 9A. Controls and Procedures 32
Item 9B. Other Information 32
     
Part III    
     
Item 10. Directors, Executive Officers and Corporate Governance 33
Item 11. Executive Compensation 33
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 33
Item 13. Certain Relationships and Related Transactions, and Director Independence 33
Item 14. Principal Accounting Fees and Services 33
     
Part IV.    
     
Item 15. Exhibits and Financial Statement Schedules 33
  Signatures 34

 

 Page 3 

 

 

PART I

 

Item 1. Business

 

General

 

TSR, Inc. (the “Company”) is primarily engaged in the business of providing contract computer programming services to its customers. The Company provides its customers with technical computer personnel to supplement their in-house information technology (“IT”) capabilities. The Company’s customers for its contract computer programming services consist primarily of Fortune 1000 companies with significant technology budgets. In the year ended May 31, 2016, the Company provided IT staffing services to 77 customers.

 

The Company was incorporated in Delaware in 1969. The Company’s executive offices are located at 400 Oser Avenue, Suite 150, Hauppauge, NY 11788, and its telephone number is (631) 231-0333. This annual report, and each of our other periodic and current reports, including any amendments, are available, free of charge, on our website, www.tsrconsulting.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. The information contained on our website is not incorporated by reference into this annual report on Form 10-K and should not be considered part of this report.

 

Contract Computer Programming Services

 

STAFFING SERVICES

 

The Company’s contract computer programming services involve the provision of technical staff to customers to meet the specialized requirements of their IT operations. The technical personnel provided by the Company generally supplement the in-house capabilities of the Company’s customers. The Company’s approach is to make available to its customers a broad range of technical personnel to meet their requirements rather than focusing on specific specialized areas. The Company has staffing capabilities in the areas of mainframe and mid-range computer operations, personal computers and client-server support, internet and e-commerce operations, voice and data communications (including local and wide area networks) and help desk support. The Company’s services provide customers with flexibility in staffing their day-to-day operations, as well as special projects, on a short-term or long-term basis.

 

The Company provides technical employees for projects, which usually range from three months to one year. Generally, customers may terminate projects at any time. Staffing services are provided at the client’s facility and are billed primarily on an hourly basis based on the actual hours worked by technical personnel provided by the Company and with reimbursement for out-of-pocket expenses. The Company pays its technical personnel on a semi-monthly basis and invoices its customers, not less frequently than monthly.

 

The Company’s success is dependent upon, among other things, its ability to attract and retain qualified professional computer personnel. The Company believes that there is significant competition for software professionals with the skills and experience necessary to perform the services offered by the Company. Although the Company generally has been successful in attracting employees with the skills needed to fulfill customer engagements, demand for qualified professionals conversant with certain technologies may outstrip supply as new and additional skills are required to keep pace with evolving computer technology or as competition for technical personnel increases. Increasing demand for qualified personnel could also result in increased expenses to hire and retain qualified technical personnel and could adversely affect the Company’s profit margins.

 

In the past several years, an increasing number of companies are using or are considering using low cost offshore outsourcing centers, particularly in India, to perform technology related work and projects. This trend has contributed to the decline in domestic IT staffing revenue. There can be no assurance that this trend will not continue to adversely impact the Company’s IT staffing revenue.

 

 Page 4 

 

 

OPERATIONS

 

The Company provides contract computer programming services in the New York metropolitan area, New England, and the Mid-Atlantic region. The Company provides its services principally through offices located in New York, New York, Edison, New Jersey and Long Island, New York. The Company does not currently intend to open additional offices.

 

In the fall of 2010, the Company established a program to hire and train recent college graduates to become technical recruiters. The initial costs associated with the hiring and training of such personnel have increased the costs of recruitment, although, over time, the Company believes this program will provide the Company with a larger pool of skilled technical recruiters at a lower cost than hiring experienced technical recruiters. Competition from larger competitors for the newly trained recruiters has created more turnover than expected, making it more difficult to increase the number of technical recruiters on staff. The Company has also hired additional account executives in an effort to increase growth. Turnover has also been greater than expected with account executives due to increased competition. As of May 31, 2016, the Company employed 23 persons who are responsible for recruiting technical personnel and 13 persons who are account executives. As of May 31, 2015, the Company had employed 24 technical personnel recruiters and 13 account executives. Although the number of technical recruiters and account executives has remained substantially the same in fiscal 2016 and fiscal 2015, there have been several personnel changes within each group.

 

MARKETING AND CUSTOMERS

 

The Company focuses its marketing efforts on large businesses and institutions with significant IT budgets and recurring staffing and software development needs. The Company provided services to 77 customers during the year ended May 31, 2016 as compared to 74 in the prior fiscal year. The Company has historically derived a significant percentage of its total revenue from a relatively small number of customers. In the fiscal year ended May 31, 2016, the Company had four customers which each provided more than 10% of consolidated revenues: Pontoon, formerly Beeline (17.7%), Citigroup (16.3%), Credit Suisse (10.7%) and Consolidated Edison (10.3%). Pontoon provides vendor management services under an arrangement where the Company enters into a subcontract with Pontoon and Pontoon directly contracts with five end customers. The Pontoon end customers for which the Company provides services include Bristol Myers Squibb, which alone constituted 9.8% of the Company’s consolidated revenue for the year ended May 31, 2016. Additionally, the Company’s top ten customers (including end customers of vendor management companies) accounted for 82% of consolidated revenue in fiscal 2016 and 80% in fiscal 2015. While continuing its efforts to further expand its client base, the Company’s marketing efforts are focused primarily on increasing business from its existing accounts. Approximately 35% of the Company’s revenue is derived from end customers in the financial services business. Continuing economic pressures in financial services have affected the net effective rates that the Company charges to certain of the Company’s end customers in this industry, which has negatively affected the Company’s gross profit margins.

 

Many of the Company’s major customers, totaling over 46% of revenue, have retained a third party to provide vendor management services and centralize the consultant hiring process. Under this system, the third party retains the Company to provide contract computer programming services, the Company bills the third party and the third party bills the ultimate customer. This process has weakened the relationships the Company has built with its customers’ project managers, who are the Company’s primary contacts with its customers and with whom the Company would normally work to place consultants. Instead, the Company is required to interface with the vendor management provider, making it more difficult to maintain its relationships with its customers and preserve and expand its business. These changes have also reduced the Company’s profit margins because the vendor management company is retained for the purpose of keeping costs down for the end client and receives a processing fee which is deducted from the payment to the Company.

 

In accordance with industry practice, most of the Company’s contracts for contract computer programming services are terminable by either the client or the Company on short notice. The Company does not believe that backlog is material to its business.

 

PROFESSIONAL STAFF AND RECRUITMENT

 

In addition to using internet based job boards such as Dice, Monster and Discover.org, the Company maintains a database of technical personnel with a wide range of skills. The Company uses a sophisticated proprietary computer system to match potential employees’ skills and experience with client requirements. The Company periodically contacts personnel within its database to update their availability, skills, employment interests and other matters and continually updates its database. This database is made available to the account executives and recruiters at each of the Company’s offices.

 

The Company employs technical personnel primarily on an hourly basis, as required in order to meet the staffing requirements under particular contracts or for particular projects. The Company recruits technical personnel by posting jobs on the Internet, publishing advertisements in local newspapers and attending job fairs on a periodic basis. The Company devotes significant resources to recruiting technical personnel, maintaining 23 recruiters based in the U.S. and contracting with an India based company for 6 recruiters in India to help locate U.S. based technical consultants. Potential applicants are generally interviewed and tested by the Company’s recruiting personnel, by third parties that have the required technical backgrounds to review the qualifications of the applicants, or by on-line testing services. In some cases, instead of employing technical personnel directly, the Company uses subcontractors who employ the technical personnel who are provided to the Company’s customers. For a small fee, the Company may sometimes process payments on behalf of customers to contractors identified by the customers directly instead of through the normal recruiting process; this is known as “payrolling”.

 

 Page 5 

 

 

Competition

 

The technical staffing industry is highly competitive and fragmented and has low barriers to entry. The Company competes for potential customers with providers of outsourcing services, systems integrators, computer systems consultants, other providers of technical staffing services and, to a lesser extent, temporary personnel agencies. Many of the Company’s competitors are significantly larger and have greater financial resources than the Company. The Company believes that the principal competitive factors in obtaining and retaining customers are accurate assessment of customers’ requirements, timely assignment of technical employees with appropriate skills and the price of services. The principal competitive factors in attracting qualified technical personnel are compensation, availability, quality and variety of projects and schedule flexibility. The Company believes that many of the technical personnel included in its database may also be pursuing other employment opportunities. Therefore, the Company believes that its responsiveness to the needs of technical personnel is an important factor in the Company’s ability to fill projects. Although the Company believes it competes favorably with respect to these factors, it expects competition to increase and there can be no assurance that the Company will remain competitive.

 

Intellectual Property Rights

 

The Company relies primarily upon a combination of trade secret, nondisclosure and other contractual arrangements to protect its proprietary rights. The Company generally enters into confidentiality agreements with its employees, consultants, customers and potential customers and limits access to and distribution of its proprietary information. There can be no assurance that the steps taken by the Company in this regard will be adequate to deter misappropriation of its proprietary information or that the Company will be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights.

 

Personnel

 

As of May 31, 2016, the Company employed 320 people including its 3 executive officers. Of such employees, 13 were engaged in sales, 23 were recruiters for programmers, 268 were technical and programming consultants, and 13 were in administrative and clerical functions. None of the Company’s employees belong to unions.

 

Item 1A. Risk Factors

 

Certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business”, including statements concerning the Company’s future prospects and the Company’s future cash flow requirements are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projections in the forward-looking statements, which statements involve risks and uncertainties, including but not limited to the factors set forth below.

 

Dependence Upon Key Personnel

 

The Company is dependent on its Chairman of the Board, Chief Executive Officer, President and Treasurer, Joseph F. Hughes. The Company does not have an employment agreement with Mr. Joseph F. Hughes. The Company is also dependent on its Senior Vice President and President of TSR Consulting Services, Inc., Christopher Hughes. The Company has an employment agreement with Mr. Christopher Hughes which expires February 28, 2017. The Company is also dependent on certain of its account executives who are responsible for servicing its principal customers and attracting new customers. The Company does not have employment contracts with these persons. There can be no assurance that the Company will be able to retain its existing personnel or find and attract additional qualified employees. The loss of the service of any of these personnel could have a material adverse effect on the Company.

 

 Page 6 

 

 

Dependence on Significant Customers

 

In the fiscal year ended May 31, 2016, the Company’s four largest customers Pontoon, Citigroup, Credit Suisse and Consolidated Edison, accounted for 17.7%, 16.3%, 10.7% and 10.3% of the Company’s consolidated revenue, respectively. Pontoon is a vendor management company through which the Company provides services to five end customers, of which Bristol Myers Squibb is the most significant. In total, the Company derives over 46% of its revenue from accounts with vendor management companies. The Company’s ten largest customers provided 82% of consolidated revenue in fiscal 2016. Client contract terms vary depending on the nature of the engagement, and there can be no assurance that a client will renew a contract when it terminates. In addition, the Company’s contracts are generally cancelable by the client at any time on short notice, and customers may unilaterally reduce their use of the Company’s services under such contracts without penalty. Approximately 35% of the Company’s revenue is derived from end customers in the financial services business. Continuing economic pressures in financial services have affected the net effective rates that the Company charges to certain end customers in this industry, which has negatively affected the Company’s gross profit margins. See “Rapidly Changing Industry” below.

 

The accounts receivable balances associated with the Company’s largest customers were $3,735,000 for four customers at May 31, 2016 and $2,109,000 for two customers at May 31, 2015. Because of the significant amount of outstanding receivables that the Company may have with its larger customers at any one time, if a client, including a vendor management company which then contracts with the ultimate client, filed for bankruptcy protection, it could prevent the Company from collecting on the receivables and have an adverse effect on the Company’s results of operations.

 

Dependence on Reputation

 

The Company’s reputation among its customers, potential customers and the staffing services industry depends on the performance of the technical personnel that the Company places with its customers. If the Company’s customers are not satisfied with the services provided by the technical personnel placed by the Company, or if the technical personnel placed by the Company lack the qualifications or experience necessary to perform the services required by the Company’s customers, the Company may not be able to successfully maintain its relationships with its customers or expand its client base.

 

Competitive Market for Technical Personnel

 

The Company’s success is dependent upon its ability to attract and retain qualified computer professionals to provide as temporary personnel to its customers. Competition for the limited number of qualified professionals with a working knowledge of certain sophisticated computer languages, which the Company requires for its contract computer services business, is intense. The Company believes that there is a shortage of, and significant competition for, software professionals with the skills and experience necessary to perform the services offered by the Company.

 

The Company’s ability to maintain and renew existing engagements and obtain new business in its contract computer programming business depends, in large part, on its ability to hire and retain technical personnel with the IT skills that keep pace with continuing changes in software evolution, industry standards and technologies, and client preferences. Although the Company generally has been successful in attracting employees with the skills needed to fulfill customer engagements, demand for qualified professionals conversant with certain technologies may outstrip supply as new and additional skills are required to keep pace with evolving computer technology or as competition for technical personnel increases. Increasing demand for qualified personnel could also result in increased expenses to hire and retain qualified technical personnel and could adversely affect the Company’s profit margins.

 

Competitive Market for Account Executives and Technical Recruiters

 

The Company faces a highly competitive market for the limited number of qualified personnel. The competitive market for such personnel could affect the Company’s ability to hire and retain such personnel, and, if the Company is successful in hiring technical recruiters and account executives, there can be no assurance that such hiring will result in increased revenue.

 

Rapidly Changing Industry

 

The computer industry is characterized by rapidly changing technology and evolving industry standards. These include the overall increase in the sophistication and interdependency of computer technology and a focus by IT managers on cost-efficient solutions. There can be no assurance that these changes will not adversely affect demand for technical staffing services. Organizations may elect to perform such services in-house or outsource such functions to companies that do not utilize temporary staffing, such as that provided by the Company.

 

 Page 7 

 

 

Additionally, a number of companies have, in recent years, limited the number of vendors on their approved vendor lists, and are continuing to do so. In some cases this has required the Company to subcontract with a company on the approved vendor list to provide services to customers. The staffing industry has also experienced margin erosion caused by this increased competition, and customers leveraging their buying power by consolidating the number of vendors with which they deal. In addition to these factors, there has been intense price competition in the area of IT staffing, pressure on billing rates and pressure by customers for discounts. The Company has endeavored to increase its technical recruiting staff in order to better respond to customers’ increasing demands for both the timeliness and quantities of resume submittals against job requisitions.

 

The Company cannot predict at this time what long-term effect these changes will have on the Company’s business and results of operations.

 

Vendor Management Companies

 

There have been changes in the industry which have affected the Company’s operating results. Many customers have retained third parties to provide vendor management services, and these companies now comprise in excess of 46% of the Company’s revenue. The third party is then responsible for retaining companies to provide temporary IT personnel. This results in the Company contracting with such third parties and not directly with the ultimate customer. This change weakens the Company’s relationship with its customer, which makes it more difficult for the Company to maintain and expand its business. It also reduces the Company’s profit margins.

 

In addition, the agreements with the vendor management companies are frequently structured as subcontracting agreements, with the vendor management company entering into a services agreement directly with the end customers. As a result, in the event of a bankruptcy of a vendor management company, the Company’s ability to collect its outstanding receivables and continue to provide services could be adversely affected.

 

Effect of Current Economic Uncertainties and Limited Growth in Company’s Business

 

Demand for the Company’s IT staffing services has been and is significantly affected by the general economic environment. During periods of slowing economic activity, customers may reduce their IT projects and their demand for outside consultants. As a result, any significant economic downturn could have material adverse effect on the Company’s results of operations. As a result of the broad based economic downturn, the Company experienced a decrease in the number of consultants on billing with customers, only recently returning to the early 2008 numbers of consultants on billing with customers. While customers’ IT spending during the 2016 fiscal year appears to have increased, any improvements have been slow and uncertain, with a decrease in profitability on placements, particularly those with financial services customers. The Company expects that economic conditions will continue to affect the number of consultants on billing with customers and the Company’s profitability. In addition to the impact of the economic uncertainties, the Company has not been successful in increasing its penetration with existing customers or expanding its customer base. There is no assurance that the Company will achieve growth in its revenue.

 

Effect of Increases in Payroll-related Costs

 

The Company is required to pay a number of federal, state and local payroll and related costs, including unemployment insurance, workers’ compensation insurance, employer’s portion of Social Security and Medicare taxes, among others, for our employees, including those placed with customers. Significant increases in the effective rates of any payroll-related costs would likely have a material adverse effect on the Company. Recently, many of the states in which the Company conducts business have significantly increased their state unemployment tax rates in an effort to increase funding for unemployment benefits. Costs could also increase as a result of health care reforms and the imposition of penalties for failure to provide health insurance to employees under the Affordable Care Act which went into effect January 1, 2015. Additionally, the New York City Council has approved a measure which went into effect in April 2014 requiring the Company to provide five paid sick days per year. Several municipalities, such as Newark and Jersey City, New Jersey, have enacted similar statutes. The Company has not been able to sufficiently increase the fees charged to its customers to cover these mandated cost increases. There are also proposals on the federal and state levels to phase in paid or partially paid family medical leave. It is too early to determine how this will affect the Company’s profitability.

 

Effect of Offshore Outsourcing

 

The current trend of companies moving technology jobs and projects offshore has caused and could continue to cause revenue to decline. In the past few years, more companies are using or are considering using low cost offshore outsourcing centers, particularly in India and other east Asian countries, to perform technology related work and projects. This trend has contributed to the decline in domestic IT staffing revenue for the industry. There can be no assurance that this trend will not continue to adversely impact the Company’s IT staffing revenue.

 

 Page 8 

 

 

Effect of Immigration Restrictions

 

The Company obtains many of its technical personnel by subcontracting with companies that utilize foreign nationals entering the U.S. on work visas, primarily under the H-1B visa classification. The H-1B visa classification enables U.S. employers to hire qualified foreign nationals in positions that require an education at least equal to a bachelor’s degree. U.S. Immigration laws and regulations are subject to legislative and administrative changes, as well as changes in the application of standards and enforcement. Current and future restrictions on the availability of such visas could restrain the Company’s ability to acquire the skilled professionals needed to meet our customers’ requirements, which could have a material adverse effect on our business. The scope and impact of these changes on the staffing industry and the Company remain unclear, however a narrow interpretation and vigorous enforcement could adversely affect the ability of entities with which the Company subcontracts to utilize foreign nationals and/or renew existing foreign national consultants on assignment. There can be no assurance that the Company’s subcontractors will be able to keep or replace all foreign nationals currently on assignment, or continue to acquire foreign national talent at the same rates as in the past.

 

Fluctuations in Quarterly Operating Results

 

The Company’s revenue and operating results are subject to significant variations from quarter to quarter. Revenue is subject to fluctuation based upon a number of factors, including the timing and number of client projects commenced and completed during the quarter, delays incurred in connection with projects, the growth rate of the market for contract computer programming services and general economic conditions. Unanticipated termination of a project or the decision by a client not to proceed to the next stage of a project anticipated by the Company could result in decreased revenue and lower utilization rates which could have a material adverse effect on the Company’s business, operating results and financial condition. Compensation levels can be impacted by a variety of factors, including competition for highly skilled employees and inflation.

 

The Company’s operating results also fluctuate due to seasonality. Typically, our billable hours, which directly affect our revenue and profitability, decrease in our third fiscal quarter. The holiday season and winter weather cause the number of billable work days for consultants on billing with customers to decrease. Additionally, at the beginning of the calendar year, which also falls within our third fiscal quarter, payroll taxes are at their highest. This results in our lowest gross margins of the year. The Company’s operating results are also subject to fluctuation as a result of other factors.

 

Competition

 

The technical staffing industry is highly competitive and fragmented and has low barriers to entry. The Company competes for potential customers with providers of outsourcing services, systems integrators, computer systems consultants, other providers of technical staffing services and, to a lesser extent, temporary personnel agencies. The Company competes for technical personnel with other providers of technical staffing services, systems integrators, providers of outsourcing services, computer systems consultants, customers and temporary personnel agencies. Many of the Company’s competitors are significantly larger and have greater financial resources than the Company. The Company believes that the principal competitive factors in obtaining and retaining customers are accurate assessment of customers’ requirements, timely assignment of technical employees with appropriate skills and the price of services. The principal competitive factors in attracting qualified technical personnel are compensation, availability, quality and variety of projects and schedule flexibility. The Company believes that many of the technical personnel included in its database may also be pursuing other employment opportunities. Therefore, the Company believes that its responsiveness to the needs of technical personnel is an important factor in the Company’s ability to fill projects. Although the Company believes it competes favorably with respect to these factors, it expects competition to increase, and there can be no assurance that the Company will remain competitive.

 

Potential for Contract and Other Liability

 

The personnel provided by the Company to customers provide services involving key aspects of its customers’ software applications. A failure in providing these services could result in a claim for substantial damages against the Company, regardless of the Company’s responsibility for such failure. The Company attempts to limit, contractually, its liability for damages arising from negligence or omissions in rendering services, but it is not always successful in negotiating such limits. However, due to increased competition and the requirements of vendor management companies, the Company may be required to accept less favorable terms regarding limitations on liability, including assuming obligations to indemnify customers for damages sustained in connection with the provision of our services. There can be no assurance our contracts will include the desired limitations of liability or that the limitations of liability set forth in our contracts would be enforceable or would otherwise protect the Company from liability for damages.

 

 Page 9 

 

 

The Company’s contract computer programming services business involves assigning technical personnel to the workplace of the client, typically under the client’s supervision. Although the Company has little control over the client’s workplace, the Company may be exposed to claims of discrimination and harassment and other similar claims as a result of inappropriate actions allegedly taken against technical personnel by customers. As an employer, the Company is also exposed to other possible employment-related claims. The Company is exposed to liability with respect to actions taken by its technical personnel while on a project, such as damages caused by technical personnel errors, misuse of client proprietary information or theft of client property. To reduce such exposures, the Company maintains insurance policies and a fidelity bond covering general liability, worker’s compensation claims, errors and omissions and employee theft. In certain instances, the Company indemnifies its customers for these exposures. Certain of these costs and liabilities are not covered by insurance. There can be no assurance that insurance coverage will continue to be available and at its current price or that it will be adequate to, or will, cover any such liability.

 

Data Security

 

Our ability to protect client, employee, and Company data and information is critical to our reputation and the success of our business. Our clients and employees expect that their confidential, personal and private information will be secure in our possession. Attacks against security systems have become increasingly sophisticated along with developments in technology, and such attacks have become more prevalent. Consequently, the regulatory environment surrounding cybersecurity and privacy has become more and more demanding and has resulted in new requirements and increasingly demanding standards for protection of information. As a result, the Company may incur increased expenses associated with adequately protecting confidential client, employee, and Company data and complying with applicable regulatory requirements. There can be no assurance that we will be able to prevent unauthorized third parties from breaching our systems and gaining unauthorized access to confidential client, employee, and Company data even if our cybersecurity measures are compliant with regulatory requirements and standards. Unauthorized third party access to confidential client, employee, and Company data stored in our system whether as a result of a third party system breach, systems failure or employee negligence, fraud or misappropriation, could damage our reputation and cause us to lose customers, and could subject us to monetary damages, fines and/or criminal prosecution. Furthermore, unauthorized third party access to or through our information systems or those we develop for our customers, whether by our employees or third parties, could result in system disruptions, negative publicity, legal liability, monetary damages, and damage to our reputation.

 

Intellectual Property Rights

 

The Company relies primarily upon a combination of trade secret, nondisclosure and other contractual agreements to protect its proprietary rights. The Company generally enters into confidentiality agreements with its employees, consultants, customers and potential customers and limits access to and distribution of its proprietary information. There can be no assurance that the steps taken by the Company in this regard will be adequate to deter misappropriation of its proprietary information or that the Company will be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights.

 

Voting Power of Major Stockholder

 

Joseph F. Hughes and members of his family own Common Stock representing approximately 46.9% of the Company’s voting power as of June 30, 2016. As such, Joseph F. Hughes has significant voting power on all matters submitted to a vote of the Company’s common stockholders.

 

Certain Anti-Takeover Provisions May Inhibit a Change of Control

 

In addition to the significant ownership of Common Stock by Joseph F. Hughes and his family, certain provisions of the Company’s charter and by-laws may have the effect of discouraging a third party from making an acquisition proposal for the Company and may thereby inhibit a change in control of the Company under circumstances that could give the holders of Common Stock the opportunity to realize a premium over the then-prevailing market prices. Such provisions include a classified Board of Directors and advance notice requirements for nomination of directors and certain stockholder proposals set forth in the Company’s Certificate of Incorporation and by-laws.

 

 Page 10 

 

 

New Classes and Series of Stock

 

The Company’s charter authorizes the Board of Directors to create new classes and series of preferred stock and to establish the preferences and rights of any such classes and series without further action of the stockholders. The issuance of additional classes and series of capital stock may have the effect of delaying, deferring or preventing a change in control of the Company.

 

The Company’s stock price could be extremely volatile and, as a result, investors may not be able to resell their shares at or above the price they paid for them.

 

Among the factors that could affect the Company’s stock price are:

 

limited float and a low average daily trading volume;
industry trends and the performance of the Company’s customers;
fluctuations in the Company’s results of operations;
litigation; and
general market conditions.

 

The stock market has, and may in the future, experience extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the market price of the Company’s Common Stock.

 

Item 1B. Unresolved Staff Comments

 

None

 

Item 2. Properties

 

The Company leases 8,000 square feet of space in Hauppauge, New York for a term expiring December 31, 2020, with annual rentals of approximately $80,000. This space is used as executive and administrative offices for the Company and the Company’s operating subsidiary. The Company also leases sales and technical recruiting offices in New York City (lease expires July 2017) and Edison, New Jersey (lease expires February 2019), with aggregate annual rentals of approximately $282,000.

 

The Company believes the present locations are adequate for its current needs as well as for the future expansion of its existing business.

 

Item 3. Legal Proceedings

 

There are no material legal proceedings.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

 Page 11 

 

 

PART II

 

Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

The Company’s shares of Common Stock trade on the NASDAQ Capital Market under the symbol TSRI. The following are the high and low sales prices for each quarter during the fiscal years ended May 31, 2016 and 2015:

 

   JUNE 1, 2015 – MAY 31, 2016
  

1ST

QUARTER

   2ND
QUARTER
   3RD
QUARTER
  

4TH

QUARTER

 
High Sales Price  $4.77   $4.83   $5.03   $4.12 
Low Sales Price   3.51    4.00    3.49    3.37 

 

   JUNE 1, 2014 – MAY 31, 2015 
  

1ST

QUARTER

   2ND
QUARTER
  

3RD

QUARTER

  

4TH

QUARTER

 
High Sales Price  $3.88   $3.59   $4.84   $5.50 
Low Sales Price   2.90    3.05    3.34    3.66 

 

There were 67 holders of record of the Company’s Common Stock as of June 30, 2016. Additionally, the Company estimates that there were approximately 800 beneficial holders as of that date. There were no dividends declared or paid by the Company with respect to its shares of Common Stock during the last two fiscal years. The Company has no current plans to implement a quarterly dividend program or pay any other special cash dividend.

 

There are no securities authorized for issuance under any equity compensation plans.

 

Item 6. Selected Financial Data

 

(Amounts in Thousands, Except Per Share Data)

 

   Years Ended 
  May 31,
2016
   May 31,
2015
   May 31,
2014
   May 31,
2013
   May 31,
2012
 
                     
Revenue, Net  $60,998   $57,403   $49,530   $44,914   $45,215 
                          
Income (Loss) From Operations   839    432    25    (716)   (2)
                          
Net Income (Loss) Attributable to TSR, Inc.   399    193    (86)   (520)   (62)
                          
Basic Net Income (Loss) Per TSR, Inc. Common Share   0.20    0.10    (0.04)   (0.26)   (0.03)
                          
Working Capital   9,391    8,986    8,706    8,717    12,402 
                          
Total Assets   14,090    14,051    13,563    13,619    17,165 
                          
Total TSR, Inc. Equity   9,432    9,033    8,840    8,926    12,498 
                          
Book Value Per TSR, Inc. Common Share
(Total TSR Equity Divided by Common Shares Outstanding)
   4.81    4.60    4.51    4.55    6.30 
                          
Cash Dividends Declared Per TSR, Inc. Common Share  $0.00   $0.00   $0.00   $1.50   $0.00 

 

 Page 12 

 

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and notes thereto presented elsewhere in this report.

 

Results of Operations

 

The following table sets forth for the periods indicated certain financial information derived from the Company’s consolidated statements of net income. There can be no assurance that historical trends in operating results will continue in the future:

 

   Year Ended May 31,
 (Dollar Amounts in Thousands)
 
   2016   2015 
   Amount   % of
Revenue
   Amount   % of
Revenue
 
Revenue, Net  $60,998    100.0%  $57,403    100.0%
Cost of Sales   51,039    83.7    48,088    83.8 
Gross Profit   9,959    16.3    9,315    16.2 
Selling, General and Administrative Expenses   9,120    14.9    8,883    15.5 
Income from Operations   839    1.4    432    0.7 
Other Income, Net   6    0.0    12    0.1 
Income Before Income Taxes   845    1.4    444    0.8 
Provision for Income Taxes   389    0.6    152    0.3 
Consolidated Net Income   456    0.8    292    0.5 
Net Income Attributable to Noncontrollong Interest   57    0.1    99    0.2 
Net Income Attributable to TSR, Inc.  $399    0.7%  $193    0.3%

 

Revenue

 

Revenue consists primarily of revenue from computer programming consulting services. Revenue for the fiscal year ended May 31, 2016 increased $3,595,000 or 6.3% from fiscal 2015. This increase in revenue resulted primarily from the average daily rates charged for the consultants on billing with customers increasing approximately 5.5% in the current year compared with the prior fiscal year. This rate increase is primarily the result of placing more consultants in higher level positions. The increase in revenue also resulted from the average number of consultants on billing with customers increasing from approximately 346 for the fiscal year ended May 31, 2015 to approximately 350 for the fiscal year ended May 31, 2016.

 

Cost of Sales

 

Cost of sales for the fiscal year ended May 31, 2016 increased $2,951,000 or 6.1% to $51,039,000 from $48,088,000 in the prior fiscal year. The increase in cost of sales resulted primarily from the average daily rates paid to the consultants on billing with customers increasing approximately 4.5% in the current fiscal year compared with the prior fiscal year. The increase in cost of sales also resulted from the increase in the number of consultants on billing with clients. Cost of sales as a percentage of revenue decreased from 83.8% in the fiscal year ended May 31, 2015 to 83.7% in the fiscal year ended May 31, 2016.

 

 Page 13 

 

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses consist primarily of expenses relating to account executives, technical recruiters, facilities costs, management and corporate overhead. These expenses increased $237,000 or 2.7% from $8,883,000 in the fiscal year ended May 31, 2015 to $9,120,000 in the fiscal year ended May 31, 2016. This increase was primarily attributable to an increase in incentive compensation paid to account executives. Several of the account executives hired in recent years contributed increased revenues and earned incentive compensation in excess of their guaranteed incentive compensation for the first time. The Company expects selling, general and administrative expenses to continue to increase as more recruiters and sales executives are hired to stimulate growth. Selling, general and administrative expenses, as a percentage of revenue, decreased from 15.5% in the fiscal year ended May 31, 2015 to 14.9% in the fiscal year ended May 31, 2016 as a result of the additional revenue from the increase in the average daily rates charged for the consultants on billing with customers.

 

Other Income

 

Other income for the fiscal year ended May 31, 2016 resulted primarily from interest and dividend income of $9,000 decreased by a mark to market loss of approximately $3,000 on the Company’s marketable equity securities. Other income for the fiscal year ended May 31, 2015 resulted primarily from interest and dividend income of $6,000 and a mark to market gain of approximately $6,000 on the Company’s marketable equity securities.

 

Income Taxes

 

The effective income tax rates were 46.0% for the fiscal year ended May 31, 2016 and 34.2% for the fiscal year ended May 31, 2015. The effective rate for the fiscal year ended May 31, 2016 increased primarily due to additional state taxes.

 

Net Income Attributable to TSR, Inc.

 

Net income attributable to TSR, Inc. increased $206,000 from $193,000 in the fiscal year ended May 31, 2015 to net income of $399,000 in the fiscal year ended May 31, 2016. This increase in net income was primarily attributable to the increase in revenue as a result of the increase in the average daily rates charged for the consultants on billing with customers.

 

 Page 14 

 

 

Liquidity, Capital Resources and Changes in Financial Condition

 

The Company expects that its available cash, certificates of deposit and marketable securities will be sufficient to provide the Company with adequate resources to meet its liquidity requirements for the next 12 months.

 

At May 31, 2016, the Company had working capital (total current assets in excess of total current liabilities) of $9,391,000 including cash and cash equivalents and certificates of deposit and marketable securities of $6,067,000 as compared to working capital of $8,986,000 including cash and cash equivalents and certificates of deposit and marketable securities of $4,941,000 at May 31, 2015.

 

Net cash flow of $1,228,000 was provided by operations during fiscal 2016 as compared to $714,000 of net cash flow provided by operations in fiscal 2015. The cash provided by operations for fiscal 2016 primarily resulted from consolidated net income of $456,000 and a decrease in accounts receivable of $1,036,000, offset, to some extent, by a decrease in accounts and other payables and accrued and other liabilities of $155,000 and a decrease in advances from customers of $186,000. The decrease in accounts receivable primarily resulted from a greater number of clients instituting prompt payment discounts. The cash provided by operations for fiscal 2015 primarily resulted from consolidated net income of $292,000 and an increase in accounts payable and accrued expenses of $362,000.

 

Net cash used in investing activities amounted to $296,000 for fiscal 2016, compared to $224,000 in net cash provided by investing activities in fiscal 2015. The net cash used in investing activities for fiscal 2016 primarily resulted from investing in additional certificates of deposit. The cash provided in 2015 primarily resulted from maturing certificates of deposit, a portion of which were not rolled over.

 

Net cash used in financing activities of $88,000 and $109,000 during the fiscal years ended May 31, 2016 and 2015, respectively, resulted from distributions to the holder of the noncontrolling interest in the Company’s subsidiary, Logixtech Solutions, LLC.

 

The Company’s capital resource commitments at May 31, 2016 consisted of lease obligations on its branch and corporate facilities. The Company intends to finance these lease commitments from cash flow provided by operations, available cash and short-term marketable securities.

 

The Company’s cash and marketable securities were sufficient to enable it to meet its liquidity requirements during fiscal 2016.

 

 Page 15 

 

 

Impact of New Accounting Standards

 

In May 2014, the FASB issued an update to ASC 606, “Revenue from Contracts with Customers.” This update to ASC 606 provides a five-step process to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue upon transfer of promised goods or services to customers in an amount that reflects the expected consideration to be received in exchange for those goods or services. This update to ASC 606 will also result in enhanced disclosures about revenue, providing guidance for transactions that were not previously addressed comprehensively, and improving guidance for multiple-element arrangements. This update to ASC 606 is effective for the Company in the fiscal year ending May 31, 2018. The Company expects the impact of this update, if any, to be immaterial on its consolidated financial statements.

 

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which applies to the classification of deferred tax assets and liabilities. The update eliminates the requirement to classify deferred tax assets and liabilities as noncurrent or current within a classified statement of financial position. This ASU is effective for annual and interim periods beginning after December 15, 2016 and should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. The Company is currently evaluating the impact of adopting this guidance.

 

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in this update require all equity investments to be measured at fair value with changes in the fair value recognized through net income. The amendments in this update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. This update is effective for the Company in the fiscal year ending May 31, 2019. The Company is currently evaluating the impact, if any, of this update on its consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This update includes a lease accounting model that recognizes two types of leases – finance leases and operating leases. The standard requires that a lessee recognize on the balance sheet assets and liabilities relating to leases with terms of more than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease. This update is effective for the Company in the fiscal year ending May 31, 2020. The Company is currently evaluating the impact, if any, of this update on its consolidated financial statements.

 

Critical Accounting Policies

 

The SEC defines “critical accounting policies” as those that require the application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

 

The Company’s significant accounting policies are described in Note 1 to its consolidated financial statements, contained elsewhere in this report. The Company believes that the following accounting policies require the application of management’s most difficult, subjective or complex judgments:

 

Estimating Allowances for Doubtful Accounts Receivable

 

We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current creditworthiness, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based on our historical experience, customer types, creditworthiness, economic trends and any specific customer collection issues that we have identified. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of any of our significant customers, or in their willingness to pay, could have a material adverse effect on the collectibility of our accounts receivable and our future operating results.

 

 Page 16 

 

 

Valuation of Marketable Securities

 

The Company classifies its marketable securities at acquisition as either (i) held-to-maturity, (ii) trading or (iii) available-for-sale. Based upon the Company’s intent and ability to hold its certificates of deposit to maturity (which maturities range up to 12 months), such securities have been classified as held-to-maturity and are carried at amortized cost, which approximates fair value. The Company’s equity securities are classified as trading securities, which are carried at fair value, as determined by quoted market price, which is Level 1 input, as established by the fair value hierarchy. The related unrealized gains and losses are included in earnings.

 

Valuation of Deferred Tax Assets

 

We regularly evaluate our ability to recover the reported amount of our deferred income tax assets considering several factors, including our estimate of the likelihood of the Company generating sufficient taxable income in future years during the period over which temporary differences reverse. Presently, the Company believes that it is more likely than not that it will realize the benefits of its deferred tax assets based primarily on the Company’s history of and projections for taxable income in the future. In the event that actual results differ from our estimates or we adjust these estimates in future periods, we may need to establish a valuation allowance against a portion or all of our deferred tax assets, which could materially impact our financial position or results of operations.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

The Company is a smaller reporting company and is therefore not required to provide this information.

 

 Page 17 

 

 

Item 8. Financial Statements and Supplementary Data

 

Index to Consolidated Financial Statements

 

  Page
   
Report of Independent Registered Public Accounting Firm 19
   
Consolidated Financial Statements:  
   
Consolidated Balance Sheets as of May 31, 2016 and 2015 20
   
Consolidated Statements of Income for the years ended May 31, 2016 and 2015 22
   
Consolidated Statements of Equity for the years ended May 31, 2016 and 2015   23
   
Consolidated Statements of Cash Flows for the years ended May 31, 2016 and 2015 24
   
Notes to Consolidated Financial Statements 25

 

 Page 18 

 

  

Report of Independent Registered Public Accounting Firm

 

Board of Directors and Stockholders

TSR, Inc.

Hauppauge, New York

 

We have audited the accompanying consolidated balance sheets of TSR, Inc. and Subsidiaries as of May 31, 2016 and 2015, and the related consolidated statements of income, equity, and cash flows for the years then ended. TSR, Inc.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TSR, Inc. and Subsidiaries as of May 31, 2016 and 2015 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

/s/ CohnReznick LLP

 

Jericho, New York

July 28, 2016

 

 Page 19 

 

 

TSR, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

May 31, 2016 and 2015

 

ASSETS

 

   2016   2015 
         
Current Assets:        
         
Cash and cash equivalents  $4,514,157   $3,669,790 
Certificates of deposit and marketable securities   1,553,272    1,271,568 
Accounts receivable:          
Trade, net of allowance for doubtful accounts of $185,000 in 2016 and $193,000 in 2015   7,703,680    8,754,784 
Other   10,853    2,458 
    7,714,533    8,757,242 
           
Prepaid expenses   99,069    116,096 
Deferred income taxes   128,000    120,000 
Total Current Assets   14,009,031    13,934,696 
           
Equipment and leasehold improvements, at cost:          
Equipment.   99,244    102,833 
Furniture and fixtures   111,107    111,107 
Automobiles   19,665    19,665 
Leasehold improvements   60,058    60,058 
    290,074    293,663 
           
Less accumulated depreciation and amortization   262,076    254,732 
    27,998    38,931 
           
Other assets   49,653    49,653 
Deferred income taxes   3,000    28,000 
Total Assets  $14,089,682   $14,051,280 

 

See accompanying notes to consolidated financial statements.

 

 Page 20 

 

 

TSR, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

May 31, 2016 and 2015

 

LIABILITIES AND EQUITY

 

   2016   2015 
Current Liabilities:        
         
Accounts and other payables  $723,705   $1,129,105 
           
Accrued expenses and other current liabilities:          
Salaries, wages and commissions   2,481,436    2,237,628 
Other   152,674    146,214 
    2,634,110    2,383,842 
           
Income taxes payable   14,810    3,877 
Advances from customers   1,245,563    1,431,522 
Total Liabilities   4,618,188    4,948,346 
           
Commitments and Contingencies          
           
Equity:
          
TSR, Inc.          
Preferred stock, $1.00 par value, authorized 500,000 shares; none issued   -    - 
Common stock, $0.01 par value, authorized 12,500,000 shares; issued 3,114,163 shares; 1,962,062 outstanding   31,142    31,142 
Additional paid-in capital   5,102,868    5,102,868 
Retained earnings   17,811,884    17,412,658 
    22,945,894    22,546,668 
Less: treasury stock, 1,152,101 shares, at cost   13,514,003    13,514,003 
Total TSR, Inc. Equity
   9,431,891    9,032,665 
Noncontrolling Interest   39,603    70,269 
Total Equity
   9,471,494    9,102,934 
Total Liabilities and Equity  $14,089,682   $14,051,280 

 

See accompanying notes to consolidated financial statements.

 

 Page 21 

 

 

TSR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years Ended May 31, 2016 and 2015

 

   2016   2015 
         
Revenue, net  $60,998,281   $57,402,896 
Cost of sales   51,038,879    48,087,428 
Selling, general and administrative expenses   9,120,526    8,883,003 
    60,159,405    56,970,431 
Income from operations   838,876    432,465 
           
Other income:          
Interest and dividend income   8,621    6,114 
Unrealized gain (loss) from marketable securities, net   (2,296)   5,712 
    6,325    11,826 
           
Income before income taxes   845,201    444,291 
           
Provision for income taxes   389,000    152,000 
Consolidated net income   456,201    292,291 
Less: Net income attributable to noncontrolling interest   56,975    99,580 
 Net income attributable to TSR, Inc.  $399,226   $192,711 
           
Net income per TSR, Inc. common share   $0.20   $0.10 
Weighted average number of common shares outstanding    1,962,062    1,962,062 

 

See accompanying notes to consolidated financial statements.

 

 Page 22 

 

 

TSR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

Years Ended May 31, 2016 and 2015

 

   Shares of
common
stock
   Common
stock
   Additional
paid-in
capital
   Retained
earnings
   Treasury
stock
   TSR, Inc.
equity
   Non-
controlling
interest
   Total
equity
 
Balance at June 1, 2014   3,114,163   $31,142   $5,102,868   $17,219,947   $(13,514,003)  $8,839,954   $80,124   $8,920,078 
                                         
Net income attributable to noncontrolling interest   -    -    -    -    -    -    99,580    99,580 
Distribution to
noncontrolling interest
   -    -    -    -    -    -    (109,435)   (109,435)
                                         
Net income attributable to TSR, Inc.   -    -    -    192,711    -    192,711    -    192,711 
                                         
Balance at May 31, 2015   3,114,163    31,142    5,102,868    17,412,658    (13,514,003)   9,032,665    70,269    9,102,934 
                                         
Net income attributable to  noncontrolling interest   -    -    -    -    -    -    56,975    56,975 
Distribution to
noncontrolling interest
   -    -    -    -    -    -    (87,641)   (87,641)
                                         
Net income attributable to TSR, Inc.   -    -    -    399,226    -    399,226    -    399,226 
Balance at May 31, 2016   3,114,163   $31,142   $5,102,868   $17,811,884   $(13,514,003)  $9,431,891   $39,603   $9,471,494 

 

See accompanying notes to consolidated financial statements.

 

 Page 23 

 

  

TSR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended May 31, 2016 and 2015

 

   2016   2015 
Cash flows from operating activities:        
Consolidated net income  $456,201   $292,291 
Adjustments to reconcile consolidated net income to net cash provided by operating activities:          
Depreciation and amortization   22,765    20,428 
Provision for bad debts   15,000    - 
Unrealized (gain) loss from marketable securities, net   2,296    (5,712)
Deferred income taxes   17,000    68,000 
           
Changes in operating assets and liabilities:          
Accounts receivable-trade   1,036,104    35,554 
Other receivables   (8,395)   6,872 
Prepaid expenses   17,027    (41,908)
Prepaid and recoverable income taxes   -    32,159 
Accounts and other payables and accrued expenses and other current liabilities   (155,132)   362,385 
Income taxes payable   10,933    3,877 
Advances from customers   (185,959)   (60,424)
           
Net cash provided by operating activities   1,227,840    713,522 
Cash flows from investing activities:          
Proceeds from maturities of marketable securities   1,762,000    2,487,000 
Purchases of marketable securities   (2,046,000)   (2,238,000)
Purchases of equipment and leasehold improvements   (11,832)   (25,264)
Net cash provided by (used in) investing activities   (295,832)   223,736 
Cash flows from financing activities:          
Distributions to noncontrolling interest   (87,641)   (109,435)
           
Net cash used in financing activities   (87,641)   (109,435)
Net increase in cash and cash equivalents   844,367    827,823 
           
Cash and cash equivalents at beginning of year   3,669,790    2,841,967 
Cash and cash equivalents at end of year  $4,514,157   $3,669,790 
Supplemental disclosures of cash flow data:          
Income taxes paid  $361,000   $49,000 

 

See accompanying notes to consolidated financial statements.

 

 Page 24 

 

 

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2016 and 2015

 

(1)Summary of Significant Accounting Policies

 

(a)Business, Nature of Operations and Customer Concentrations

TSR, Inc. and Subsidiaries (the “Company”) are primarily engaged in providing contract computer programming services to commercial customers located primarily in the Metropolitan New York area. The Company provides its customers with technical computer personnel to supplement their in-house information technology capabilities. In fiscal 2016, four customers each accounted for more than 10% of the Company’s consolidated revenue, constituting a combined 55.0%. The largest of these constituted 17.7% of consolidated revenue. In fiscal 2015, two customers each accounted for more than 10% of the Company’s consolidated revenue, constituting a combined 34.9%. The largest of these constituted 19.2% of consolidated revenue. The accounts receivable balances associated with the Company’s largest customers were $3,735,000 for four customers at May 31, 2016 and $2,109,000 for two customers at May 31, 2015. The Company operates in one business segment, computer programming services.

 

(b)Principles of Consolidation

The consolidated financial statements include the accounts of TSR, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 

(c)Revenue Recognition

The Company’s contract computer programming services are generally provided under time and materials arrangements with its customers. Revenue is recognized in accordance with Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition”, when persuasive evidence of an arrangement exists, the services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. These conditions occur when a customer agreement is effected and the consultant performs the authorized services. Revenue is recorded net of all discounts and processing fees. Advances from customers represent amounts received from customers prior to the Company’s completion of the related services and credit balances from overpayments.

 

Reimbursements received by the Company for out-of-pocket expenses are characterized as revenue.

 

(d)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 May 31, 2016 and 2015:

 

     2016   2015 
           
  Cash in banks  $3,974,007   $2,851,802 
  Money market funds   540,150    817,988 
     $4,514,157   $3,669,790 

  

(Continued)

 

 Page 25 

 

 

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2016 and 2015

 

(e)Certificates of Deposit and Marketable Securities

The Company has characterized its investments in marketable securities, based on the priority of the inputs used to value the investments, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1), and lowest priority to unobservable inputs (Level 3). If the inputs used to measure the investments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

 

Investments recorded in the accompanying consolidated balance sheets are categorized based on the inputs to valuation techniques as follows:

 

  Level 1- These are investments where values are based on unadjusted quoted prices for identical assets in an active market the Company has the ability to access.
 
  Level 2- These are investments where values are based on quoted market prices that are not active or model derived valuations in which all significant inputs are observable in active markets.
 
  Level 3- These are investments where values are derived from techniques in which one or more significant inputs are unobservable.

 

The following are the major categories of assets measured at fair value on a recurring basis as of May 31, 2016 and 2015 using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):

  

  May 31, 2016  Level 1   Level 2   Level 3   Total 
                   
  Certificates of deposit  $-   $1,528,000   $-   $1,528,000 
  Equity securities   25,272    -    -    25,272 
     $25,272   $1,528,000   $-   $1,553,272 
                       
  May 31, 2015  Level 1   Level 2   Level 3   Total 
                       
  Certificates of deposit  $-   $1,244,000   $-   $1,244,000 
  Equity securities   27,568    -    -    27,568 
     $27,568   $1,244,000   $-   $1,271,568 

 

(Continued)

 

 Page 26 

 

 

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2016 and 2015

 

Based upon the Company’s intent and ability to hold its certificates of deposits to maturity (which maturities range up to twelve months at purchase), such securities have been classified as held-to-maturity and are carried at amortized cost, which approximates market value. 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 certificates of deposit and marketable securities at May 31, 2016 and 2015 are summarized as follows:

 

     Amortized
Cost
   Gross
Unrealized
Holding
Gains
   Gross
Unrealized
Holding
Losses
   Recorded
Value
 
  Current                
  2016: Certificates of deposit
  $1,528,000   $-   $         -   $1,528,000 
    Equity securities   16,866    8,406    -    25,272 
    $1,544,866   $8,406   $-   $1,553,272 
                       
  Current                    
  2015: Certificates of deposit
  $1,244,000   $-   $-   $1,244,000 
            Equity securities   16,866    10,702    -    27,568 
     $1,260,866   $10,702   $-   $1,271,568 

  

The Company’s investments in marketable securities consist primarily of investments in certificates of deposit and 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.

 

(f)Accounts Receivable and Credit Policies

The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. In addition to reviewing delinquent accounts receivable, management considers many factors in estimating its general allowance, including historical data, experience, customer types, creditworthiness and economic trends. From time to time, management may adjust its assumptions for anticipated changes in any of those or other factors expected to affect collectability.

 

(g)Depreciation and Amortization

Depreciation and amortization of equipment and leasehold improvements has been computed using the straight-line method over the following useful lives:

 

  Equipment 3 years
  Furniture and fixtures 3 years
  Automobiles 3 years
  Leasehold improvements Lesser of lease term or useful life

 

(Continued)

 

 Page 27 

 

 

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2016 and 2015

  

(h)Net Income Per Common Share

Basic net income per common share is computed by dividing income available to common stockholders of TSR, Inc. by the weighted average number of common shares outstanding. The Company had no stock options or other common stock equivalents outstanding during the fiscal years ended May 31, 2016 or 2015.

 

(i)Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial reporting and tax bases of the Company’s assets and liabilities at enacted rates expected to be in effect when such amounts are realized or settled. The effect of enacted tax law or rate changes is reflected in income in the period of enactment.

 

(j)Fair Value of Financial Instruments

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

 

(k)Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Such estimates include, but are not limited to, provisions for doubtful accounts receivable and assessments of the recoverability of the Company’s deferred tax assets. Actual results could differ from those estimates.

 

(l)Long-Lived Assets

The Company reviews its long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its fair value.

 

(m)Impact of New Accounting Standards

In May 2014, the FASB issued an update to ASC 606, “Revenue from Contracts with Customers.” This update to ASC 606 provides a five-step process to determine when and how revenue is recognized. The core principle of the guidance is that a Company should recognize revenue upon transfer of promised goods or services to customers in an amount that reflects the expected consideration to be received in exchange for those goods or services. This update to ASC 606 will also result in enhanced disclosures about revenue, providing guidance for transactions that were not previously addressed comprehensively, and improving guidance for multiple-element arrangements. This update to ASC 606 is effective for the Company in the fiscal year ending May 31, 2018. The Company expects the impact of the update, if any, to be immaterial on its consolidated financial statements.

 

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which applies to the classification of deferred tax assets and liabilities. The update eliminates the requirement to classify deferred tax assets and liabilities as noncurrent or current within a classified statement of financial position. This ASU is effective for annual and interim periods beginning after December 15, 2016 and should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. The Company is currently evaluating the impact of adopting this guidance.

 

(Continued)

 

 Page 28 

 

 

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2016 and 2015

 

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in this update require all equity investments to be measured at fair value with changes in the fair value recognized through net income. The amendments in this update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. This update is effective for the Company in the fiscal year ending May 31, 2019. The Company is currently evaluating the impact, if any, of this update on its consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This update includes a lease accounting model that recognizes two types of leases – finance leases and operating leases. The standard requires that a lessee recognize on the balance sheet assets and liabilities relating to leases with terms of more than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease. This update is effective for the Company in the fiscal year ending May 31, 2020. The Company is currently evaluating the impact, if any, of this update on its consolidated financial statements.

 

(n)Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, certificates of deposit, marketable securities and accounts receivable. The Company places its cash equivalents with high-credit quality financial institutions and brokerage houses. The Company has substantially all of its cash in four bank accounts. At times, such amounts may exceed Federally insured limits. The Company holds its marketable securities in brokerage accounts. The Company has not experienced losses in any such accounts. The Company’s accounts receivable represent 46 accounts with open balances as of May 31, 2016. As a percentage of revenue, the four largest customers among these 46 accounts consisted of 48.5% of the net accounts receivable balance at May 31, 2016.

 

(2)Income Taxes

A reconciliation of the provision for income taxes computed at the Federal statutory rates for fiscal 2016 and 2015 to the reported amounts is as follows:

 

     2016       2015     
     Amount   %   Amount   % 
  Amounts at statutory Federal tax rate  $287,000    34.0%  $151,000    34.0%
  Noncontrolling interest   (19,000)   (2.3)   (34,000)   (7.6)
  State and local taxes, net of Federal income tax effect   88,000    10.4    13,000    2.9 
  Non-deductible expenses and other   33,000    3.9    22,000    4.9 
     $389,000    46.0%  $152,000    34.2%


 

(Continued)

 

 Page 29 

 

 

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2016 and 2015

 

The components of the provision for income taxes are as follows:

 

   Federal   State   Total 
             
2016:   Current  $253,000   $119,000   $372,000 
Deferred   3,000    14,000    17,000 
   $256,000   $133,000   $389,000 
                
2015:   Current  $32,000   $52,000   $84,000 
Deferred   100,000    (32,000)   68,000 
   $132,000   $20,000   $152,000 

  

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets at May 31, 2016 and 2015 are as follows:

 

   2016   2015 
Allowance for doubtful accounts receivable  $78,000   $86,000 
Accrued compensation and other accrued expenses   50,000    34,000 
Net operating loss carryforward   10,000    25,000 
Equipment and leasehold improvement depreciation and amortization   (6,000)   1,000 
Acquired client relationships   2,000    5,000 
Unrealized gain   (3,000)   (3,000)
Total deferred income tax assets  $131,000   $148,000 

 

The Company believes that it is more likely than not that it will realize the benefits of its deferred tax assets based primarily on the Company’s history of and projections for taxable income in the future.

 

The Company has no unrecognized tax benefits at May 31, 2016 and 2015. The Company’s Federal and state income tax returns prior to fiscal year 2013 are closed.

 

The Company recognizes interest and penalties associated with tax matters as selling, general and administrative expenses and includes accrued interest and penalties with accrued and other liabilities in the consolidated balance sheets.

 

(Continued)

 

 Page 30 

 

 

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2016 and 2015

 

(3)Commitments and Contingencies

 

A summary of noncancellable long-term operating lease commitments for facilities as of May 31, 2016 follows:

 

  Fiscal Year  Amount 
  2017  $363,000 
  2018   248,000 
  2019   191,000 
  2020   86,000 
  2021   51,000 
  Total  $939,000 

 

Total rent expenses under all lease agreements amounted to $379,000 and $390,000 in fiscal 2016 and 2015, respectively.

 

The Company has entered into employment agreements with two of its officers expiring through 2020. The total remaining payments under these agreements is $1,225,000 at May 31, 2016.

 

From time to time, the Company is party to various lawsuits, some involving substantial amounts. Management is not aware of any lawsuits that would have a material adverse impact on the consolidated financial position of the Company.

 

(4)Stockholders’ Equity

 

During the years ended May 31, 2016 and 2015, the Company did not purchase any of its common stock on the open market under the previously announced plan. As of April 7, 2016, the previously announced plan was terminated with 56,318 shares remaining available for purchase.

 

 Page 31 

 

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None

 

Item 9A. Controls and Procedures

 

Disclosure Controls and Procedures. The Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective.

 

Internal Control Over Financial Reporting. There was no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s most recently reported completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Management’s Report on Internal Control Over Financial Reporting. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of the Company’s management, including its principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on criteria established in the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company’s management concluded that its internal control over financial reporting was effective as of May 31, 2016.

 

Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

 

Item 9B. Other Information

 

None

 

 Page 32 

 

 

Part III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

The information required by this Item 10 is incorporated by reference to the Company’s definitive proxy statement in connection with the 2016 Annual Meeting of Stockholders.

 

Item 11. Executive Compensation

 

The information required by this Item 11 is incorporated by reference to the Company’s definitive proxy statement in connection with the 2016 Annual Meeting of Stockholders.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The information required by this Item 12 is incorporated by reference to the Company’s definitive proxy statement in connection with the 2016 Annual Meeting of Stockholders.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

The information required by this Item 13 is incorporated by reference to the Company’s definitive proxy statement in connection with the 2016 Annual Meeting of Stockholders.

 

Item 14. Principal Accounting Fees and Services

 

The information required by this Item 14 is incorporated by reference to the Company’s definitive proxy statement in connection with the 2016 Annual Meeting of Stockholders.

 

Part IV

 

Item 15. Exhibits and Financial Statement Schedules

 

(a)The following documents are filed as part of this report:
  
 1. The consolidated financial statements as indicated in the index set forth on page 18.
  
 Financial Statement Schedules have been omitted, since they are either not applicable, not required or the information is included elsewhere herein.
  
 2. Exhibits as listed in Exhibit Index on page 35.

 

 Page 33 

 

 

Signatures

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the Undersigned, thereunto duly authorized.

 

TSR, INC.

 

By: /s/ Joseph F. Hughes  
 

Joseph F. Hughes,

Chairman, Chief Executive Officer,
President and Treasurer

 
     
Dated: July 28, 2016  

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.

 

/s/ Joseph F. Hughes  

Joseph F. Hughes,

Chairman, Chief Executive Officer,
President and Treasurer

 
     
/s/ John G. Sharkey  

John G. Sharkey,

Vice President, Finance and
Principal Accounting Officer

 
   
/s/ Christopher Hughes  

Christopher Hughes,

Sr. Vice President and Director

     
/s/ James J. Hill  
James J. Hill, Director  
     
/s/ Robert A. Esernio  
Robert A. Esernio, Director  
     
/s/ Raymond A. Roel  
Raymond A. Roel, Director  
     
/s/ Brian J. Mangan  
Brian J. Mangan, Director  
     
Dated: July 28, 2016  

 

 Page 34 

 

 

TSR, INC. AND SUBSIDIARIES

EXHIBIT INDEX

FORM 10-K, MAY 31, 2016

 

Exhibit

Number

 

 

Exhibit

3.1   Articles of Incorporation for the Company, as amended.  Incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K filed by the Company for the fiscal year ended May 31, 1998.
     
3.2   Bylaws of the Company, as amended incorporated by reference to Exhibit 3.1 to the Form 8-K filed by the Company on April 9, 2015.
     
10.1   Employment Agreement between TSR, Inc. and Christopher Hughes dated as of March 1, 2012.  Incorporated by reference to the Form 8-K filed by the Company on April 13, 2012.
     
10.2   Employment Agreement dated as of  June 1, 2015 between the Company and John G. Sharkey incorporated by reference to Exhibit 10.1 to the Report on Form 8-K filed by the Company on April 27, 2015.
     
21   List of Subsidiaries.
     
31.1   Certification by Joseph F. Hughes Pursuant to Securities Exchange Act Rule 13a-14(a).
     
31.2   Certification by John G. Sharkey Pursuant to Securities Exchange Act Rule 13a-14(a).
     
32.1   Certification of Joseph F. Hughes Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2   Certification of John G. Sharkey Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

Page 35