TSR(TSRI) - 2021 Q4 - Annual Report

Customer Concentration and Revenue Sources - In fiscal 2021, the Company's three largest customers accounted for 54.2% of consolidated revenue, with Consolidated Edison at 22.4%, Citigroup at 19.9%, and AgileOne at 11.9%[38]. - The Company derives over 31% of its revenue from accounts with vendor management companies, which may weaken direct customer relationships[48]. - Approximately 27% of the Company's revenue is generated from end customers in the financial services sector, which has faced competitive pressures affecting profit margins[38]. - The accounts receivable balances for the Company's three largest customers were $4,545,000 as of May 31, 2021, indicating significant reliance on a few key clients[40]. - The Company has not been successful in expanding its customer base beyond core customers, raising concerns about future revenue growth[50]. - Accounts receivable from the company's three largest customers amounted to $4,585,000 as of May 31, 2021, representing a significant concentration risk as these customers accounted for 54.3% of consolidated revenue[147]. Financial Performance and Growth - Revenue for the fiscal year ended May 31, 2021 increased by approximately $9.7 million or 16.4% compared to the previous year, primarily due to new business development and the acquisition of Geneva[98]. - The net loss attributable to TSR decreased to approximately $601,000 in fiscal 2021 from $1,126,000 in fiscal 2020, reflecting improved revenue and gross profit[104]. - TSR, Inc. reported a consolidated net loss of $577,085 for the year ended May 31, 2021, compared to a net loss of $1,098,049 in 2020, indicating an improvement of approximately 47.3%[145]. - The Company reported a net revenue of $68,821,217 for the year ended May 31, 2021, representing an increase of 16.5% compared to $59,121,401 in 2020[139]. - The average number of consultants on billing increased from 416 in fiscal 2020 to 479 in fiscal 2021, indicating growth in service capacity[98]. - The Company incurred a consolidated net loss of $577,085 in 2021, compared to a net loss of $1,098,049 in 2020, indicating an improvement in financial performance[139]. Operational Challenges - The Company has experienced limited growth, with economic uncertainties from the COVID-19 pandemic decreasing customer demand for services[50]. - Increases in payroll-related costs have adversely affected profitability, with significant state unemployment tax rate increases and health care reforms contributing to rising expenses[51]. - The trend of companies offshoring technology jobs has negatively impacted domestic IT staffing revenue, posing a risk to future growth[52]. - The Company relies on foreign nationals with work visas, particularly H-1B visas, for technical personnel, and changes in immigration laws could adversely affect its ability to retain qualified staff[53]. - The Company faces potential liability from contract claims and may not have adequate insurance coverage to protect against such risks[57][58]. - Data security incidents could damage the Company's reputation and lead to financial penalties, as the regulatory environment for cybersecurity is becoming increasingly stringent[60]. Legal and Governance Issues - The Company is currently subject to ongoing litigation with its former CEO, which may divert resources and result in substantial liabilities[36]. - The Company is involved in ongoing litigation, including a class action lawsuit related to alleged breaches of fiduciary duties by former directors[202]. - The Company filed a complaint against Zeff Capital for violations of federal securities laws, seeking to enforce disclosure requirements[207]. - The Company filed a complaint against Zeff Capital and others for failing to disclose their intention to seize control, requesting the court to enforce compliance with federal securities laws[73]. - The Company agreed to pay a total of $900,000 to Zeff Capital over three years, with $300,000 due on June 30 for 2021 and 2022[194]. - The Company is facing ongoing litigation from its former CEO, Christopher Hughes, who is seeking $1,000,000 in severance pay, while the Company has filed counterclaims against him[225]. Corporate Governance and Shareholder Matters - The Company has significant stockholder concentration, with Zeff Capital, L.P. and QAR Industries, Inc. owning approximately 47.7% of common stock, which may influence business decisions and stock price[62]. - Certain provisions in the Company's governing documents may deter third-party acquisition attempts, potentially affecting shareholder value[64]. - The Company agreed to amend its By-Laws to allow stockholders owning at least 40% of the Common Stock to request a special meeting, and the Investor Parties agreed not to call for such a meeting prior to December 30, 2019[215]. - The Company entered into a Settlement Agreement with Investor Parties, resolving disputes related to the 2018 Annual Meeting and agreeing to a settlement payment of approximately $1,500,000, which was not completed by the deadline of December 30, 2019[214]. - The Company will implement corporate governance reforms as part of a settlement with Susan Paskowitz, which will be maintained for 5 years following a final court order[220]. Financial Position and Assets - Total assets increased to $21,830,064 as of May 31, 2021, compared to $18,875,600 in 2020, reflecting a growth of 15.5%[133]. - The Company’s total liabilities rose to $16,409,012 in 2021, up from $13,085,417 in 2020, marking an increase of 25.5%[136]. - The Company’s cash and cash equivalents decreased to $7,370,646 in 2021 from $9,730,022 in 2020, a decline of 24.5%[133]. - The Company recorded goodwill of $785,883 and intangible assets of $1,671,750 as of May 31, 2021, reflecting the impact of the acquisition[133]. - The Company recognized a deferred tax asset of approximately $941,000 as of May 31, 2021, primarily due to net operating loss carryforwards and other temporary differences[173]. Lease and Operating Expenses - The Company leases office space in Hauppauge, New York, with annual rents of approximately $94,000, and believes these locations are adequate for current and future business needs[68]. - The operating lease expense for the fiscal year ended May 31, 2021, was $385,000, compared to $417,000 for the previous fiscal year[183]. - Future minimum lease payments under non-cancelable operating leases as of May 31, 2021, totaled $1,187,680, with a present value of $1,017,100 after imputed interest[184]. - The weighted average remaining lease term for the Company's operating leases is 3.3 years[186]. Cash Flow and Financing - Net cash flow from operations was approximately $1.3 million for fiscal 2021, compared to a net cash flow used in operations of $1.6 million in fiscal 2020[108]. - Net cash used in investing activities was approximately $3.2 million, primarily due to the acquisition of Geneva for $3.1 million[109]. - The Company secured a PPP Loan of $6.7 million, which was fully forgiven in July 2021, helping to avoid salary reductions and layoffs[99][106]. - TSR's net borrowings outstanding against the Credit Facility were $92,527 as of May 31, 2021, with a maximum available amount of $2,000,000[191]. - The interest rate on advances under the Credit Facility is 5.0%, based on a prime rate of 3.25% plus 1.75%[190].