TSR(TSRI) - 2022 Q4 - Annual Report

Customer Concentration and Revenue Sources - In fiscal 2022, the company's four largest customers accounted for 21.5%, 19.4%, 15.8%, and 11.1% of consolidated revenue, respectively, with the top 10 customers providing 86% of total revenue[37] - Approximately 21% of the company's revenue is derived from end customers in the financial services sector, which has faced competitive pressures affecting gross profit margins[37] - The accounts receivable balances for the company's largest customers were $8,668,000 for four customers as of May 31, 2022, indicating significant reliance on a few key clients[39] - Over 40% of the company's revenue is derived through vendor management companies, which may weaken direct customer relationships and reduce profit margins[47] - The company reported accounts receivable balances of $8,668,000 for its four largest customers, which accounted for 67.7% of consolidated revenue in 2022[127] Financial Performance and Growth - Revenue for the fiscal year ended May 31, 2022, increased by approximately $28,491,000 or 41.4% compared to the previous year, driven by new business development and organic growth[80] - Total revenue for the year ended May 31, 2022, was $97,312,449, representing a 41.3% increase from $68,821,217 in 2021[119] - Consolidated net income for the fiscal year ended May 31, 2022, was approximately $7,002,000, a significant recovery from a loss of $577,000 in the previous year[87] - The net income attributable to TSR, Inc. for the year ended May 31, 2022, was $6,929,220, compared to a net loss of $600,974 in 2021[119] - Total equity increased to $14,532,565 in 2022 from $5,421,052 in 2021, a substantial growth of 168.5%[117] Operational Challenges - The company has experienced limited growth, with economic uncertainties, including the COVID-19 pandemic, decreasing customer demand for its services[49] - Increases in payroll-related costs have adversely affected profitability, with significant state unemployment tax rate increases and health care reforms contributing to rising expenses[50] - The trend of companies offshoring technology jobs has negatively impacted domestic IT staffing revenue, posing a risk to future growth[52] - Changes in immigration laws affecting work visas could hinder the company's ability to retain qualified technical personnel, impacting service delivery[53] - The Company faces increasing competition in the technical staffing industry, with many competitors having greater financial resources[56] Cash Flow and Financial Position - The Company had working capital of approximately $10,912,000 as of May 31, 2022, an increase from $8,898,000 in the previous year[91] - Net cash flow used in operations was approximately $2,307,000 for the fiscal year ended May 31, 2022, compared to a net cash flow of $1,304,000 provided by operations in the prior year[92] - Net cash provided by financing activities was $1,514,000 during the fiscal year ended May 31, 2022, primarily from the sales of common stock[94] - Cash and cash equivalents decreased to $6,490,158 in 2022 from $7,370,646 in 2021, a decline of 11.9%[114] - The company reported a gain on PPP loan and interest forgiveness of $6,735,246 in 2022, which significantly contributed to the net income[119] Legal and Compliance Issues - The Company may incur significant legal expenses related to ongoing litigation, including a settlement of $705,000 with a former CEO[69][71] - The company is involved in a pending legal issue filed by Fintech Consulting LLC, seeking various forms of relief including compensatory and punitive damages[15] - The company believes the legal action to be without merit and intends to vigorously defend its interests, although it may incur significant additional legal expenses[16] - The Company accrued $818,000 for a legal settlement with an investor, with two cash payments of $300,000 each made by June 30, 2022[173] Internal Controls and Governance - The company conducted an evaluation of its disclosure controls and procedures, concluding they are effective as of the end of the reporting period[11] - There was no change in the company's internal control over financial reporting that materially affected its effectiveness during the most recently reported fiscal quarter[12] - The company’s management concluded that its internal control over financial reporting was effective as of May 31, 2022[13] - The company’s annual report does not include an attestation report from its independent registered public accounting firm regarding internal control over financial reporting[15] Acquisitions and Investments - The Company completed the acquisition of Geneva Consulting Group for a total purchase price of $3,342,060, which included $1,452,000 in cash and various earnout and bonus payments[185][192] - The Company incurred approximately $498,000 in acquisition-related costs for the Geneva acquisition, which were expensed as incurred[189] - The acquisition of Geneva was accounted for using the acquisition method, with fair values determined by an independent third-party specialist[188] Stock and Shareholder Information - The largest shareholders, Zeff Capital, L.P. and QAR Industries, Inc., own approximately 45.6% of the Company's Common Stock, potentially influencing business decisions[62] - The Company has no current plans to implement a quarterly dividend program or pay special cash dividends[74] - The Company sold 142,500 shares of common stock under the 2021 ATM for total gross proceeds of $1,965,623, resulting in net proceeds of $1,783,798 after commissions[204]