(Continued)

~~Page 34~~F-13

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, ~~2020~~2021 and ~~2019~~2020

~~Future minimum lease payments under non-cancelable operating leases as of May 31, 2020 were as follows:~~

~~(note: payments related to the lease expiring February 28, 2021 are not included below because it is a one-year lease)~~

Twelve Months Ended May 31,
2021 $ 208,777
2022 160,912
2023 40,629

Total undiscounted operating lease payments 410,318
Less imputed interest 29,110
Present value of operating lease payments $ 381,208

The following table sets forth the right-of-use assets and operating lease liabilities as of May 31, ~~2020:~~2021:

Assets
Right-of-use assets	$	377,182	$	895,573

Liabilities
Current operating lease liabilities	$	188,799	$	309,731
Long-term operating lease liabilities		192,409		707,369
		-
Total operating lease liabilities	$	381,208	$	1,017,100

The weighted average remaining lease term for the Company’s operating leases is ~~1.9~~3.3 years.

(4)

~~Line of~~ Credit Facility

On November 27, 2019, TSR ~~Inc. (“TSR”)~~ closed on ~~a revolving credit facility (the “Credit Facility”)~~the Credit Facility pursuant to a Loan and Security Agreement with ~~Access Capital, Inc. (the “Lender”)~~the Lender that initially provided up to $7,000,000 in funding to TSR and its direct and indirect subsidiaries, TSR Consulting Services, Inc., Logixtech Solutions, LLC and Eurologix, S.A.R.L., each of which, together with TSR, is a borrower under the Credit Facility. Each of the borrowers has provided a security interest to the Lender in all of their respective assets to secure amounts borrowed under the Credit Facility.

TSR expects to utilize the Credit Facility for working capital and general corporate purposes. TSR had also expected to utilize the Credit Facility to complete the Repurchase (as defined below) and make the Settlement ~~Payment;~~Payment (as defined below); however, TSR did not complete the Repurchase and make the Settlement Payment prior to the December 30, 2019 deadline established in the Credit Facility for such use.

Because TSR did not complete the Repurchase and make the Settlement Payment prior to the December 30, 2019 deadline, the maximum amount that may now be advanced under the Credit Facility at any time shall not exceed $2,000,000.

Advances under the Credit Facility accrue interest at a rate per annum equal to (x) the “base rate” or “prime rate” announced by Citibank, N.A. from time to time, which shall be increased or decreased, as the case may be, in an amount equal to each increase or decrease in such “base rate” or “prime rate,” plus (y) 1.75%. The prime rate as of May 31, ~~2020~~2021 was 3.25%, indicating an interest rate of 5.0% on the ~~line of credit.~~Credit Facility. The initial term of the Credit Facility is 5 years, which shall automatically renew for successive 5-year periods unless either TSR or the Lender gives written notice to the other of termination at least 60 days prior to the expiration date of the then-current term.

~~(Continued)~~

~~Page 35~~

~~TSR, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued~~

~~May 31, 2020 and 2019~~

TSR is obliged to satisfy certain financial covenants and minimum borrowing requirements under the Credit Facility, and to pay certain fees, including prepayment fees, and provide certain financial information to the Lender.

As of May 31, ~~2020,~~2021, the net borrowings outstanding against this ~~line of credit facility~~Credit Facility were ~~$501,134.~~$92,527. The amount the Company has borrowed fluctuates and, at times, it has utilized the maximum amount of $2,000,000 available under the facility to fund its payroll and other obligations.

(Continued)

F-14

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2021 and 2020

(5)

Legal Settlement with Investor

On April 1, 2020, the Company entered into a binding term sheet (“Term Sheet”) with Zeff Capital, L.P. (“Zeff”) pursuant to which it agreed to pay Zeff an amount of $900,000 over a period of three years in cash or cash and stock in settlement of expenses incurred by Zeff during its solicitations in 2018 and 2019 in connection with the annual meetings of the Company, the costs incurred in connection with the litigation initiated by and against the Company as well as negotiation, execution and enforcement of the Settlement and Release Agreement, dated as of August 30, 2019, by and between the Company, Zeff and certain other ~~parties.~~parties (See Note ~~7.)~~7). In exchange for certain ~~mutual~~ releases, the Term Sheet calls for a cash payment of $300,000 on June 30, 2021, a second cash payment of $300,000 on June 30, 2022 and a third payment of ~~$300,00~~$300,000 also on June 30, 2022, which can be paid in cash or common stock at the Company’s option. There is no interest due on these payments. The $300,000 payment due on June 30, 2021 was paid subsequent to the end of the fiscal year. The agreement also has protections to defer such payment dates so that the debt covenants with the Company’s ~~lender~~Lender are not breached. On August 13, 2020, the Company, Zeff, Zeff Holding Company, LLC and Daniel Zeff entered into a settlement agreement to reflect these terms. Any installment payment which is deferred as permitted above will accrue interest at the prime rate plus 3.75%, and Zeff shall thereby have the option to convert such deferred amounts (plus accrued interest if any) into shares of the Company’s stock. The Company accrued $818,000, the estimated present value of these payments using an effective interest rate of 5%, in the quarter ended February 29, 2020, as the events relating to the expense occurred prior to such date. The estimated present value of these payments is $867,000 at May 31, 2021.

(6)

Equity

~~Common Stock Transactions~~

On July 24, 2018, Joseph F. Hughes and Winifred Hughes filed Amendments to Schedule 13D with the United States Securities and Exchange Commission (the “SEC”) in which Joseph F. Hughes and Winifred Hughes disclosed that they had collectively sold 819,491 shares of the Company’s Common Stock jointly held by them in a privately-negotiated transaction to Zeff Capital, L.P., QAR Industries, Inc. and Fintech Consulting LLC. Joseph F. Hughes was the former Chairman and Chief Executive Officer of the Company. Zeff Capital, L.P., QAR Industries, Inc. and Fintech Consulting LLC acquired, in the aggregate, 41.8% of the Company’s issued and outstanding Common Stock in this transaction. Amendments to Schedule 13D previously filed by Joseph F. Hughes and Winifred Hughes on July 17, 2018 attached an exhibit wherein it was stated that prior to the transaction described above, Zeff Capital, L.P. owned 77,615 shares or approximately 4% of the Company’s issued and outstanding Common Stock.

The Company became aware on July 30, 2018 that Fintech Consulting LLC and Tajuddin Haslani filed a Schedule 13D with the SEC disclosing beneficial ownership of 376,100 shares of Common Stock, which represents approximately 19.2% of the Company’s issued and outstanding Common Stock.

The Company became aware on August 23, 2018 that Zeff Capital, L.P., Zeff Holding Company, LLC and Daniel Zeff filed an Amendment to Schedule 13D with the SEC disclosing the additional purchase by Zeff Capital, L.P. of an aggregate of 55,680 shares of Common Stock. As a result of these additional purchases of Common Stock, Zeff Capital, L.P., Zeff Holding Company, LLC and Daniel Zeff beneficially own a total of 437,774 shares of Common Stock, which represents approximately 22.3% of the Company’s issued and outstanding Common Stock.

The Company became aware on August 28, 2018 that QAR Industries, Inc. and Robert Fitzgerald filed an Amendment to Schedule 13D with the SEC disclosing the additional purchase by QAR Industries, Inc. of an aggregate of 4,070 shares of Common Stock. As a result of these additional purchases of Common Stock, QAR Industries, Inc. and Robert Fitzgerald beneficially own a total of 143,900 shares of Common Stock, which represents approximately 7.3% of the Company’s issued and outstanding Common Stock. The Company became aware on September 10, 2019 that QAR Industries, Inc. and Robert Fitzgerald filed an Amendment to Schedule 13D with the SEC disclosing beneficial ownership of an aggregate of 139,200 shares of Common Stock, which represents approximately 7.1% of the Company’s issued and outstanding Common Stock.

~~(Continued)~~

~~Page 36~~

~~TSR, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued~~

~~May 31, 2020 and 2019~~

Rights Plan / Preferred Stock

Amended and Restated Rights Agreement

On August 29, 2018, the Board of Directors of the Company declared a dividend of one preferred share purchase right (a “Right”) for each share of common stock, par value $0.01 per share (“Common ~~Stock~~Stock”), of the Company outstanding on August 29, 2018 ~~(the “Record Date”)~~ to the stockholders of record on that date. In connection with the distribution of the Rights, the Company entered into a Rights Agreement, ~~(the “Rights Agreement”),~~ dated as of August 29, 2018, between the Company and Continental Stock Transfer & Trust Company, as ~~Rights Agent.~~“Rights Agent”. Each Right ~~entitles~~entitled the registered holder to purchase from the Company one one-hundredth of a share of Class A Preferred Stock, Series One, par value $0.01 per share (“Preferred Stock”), of the Company at a price of $24.78 per one one-hundredth of a share of Preferred Stock represented by a Right, ~~(the “Purchase Price”),~~ subject to adjustment.

On August 30, 2019, the Company entered into a settlement and release agreement (the “Settlement Agreement”) with Zeff Capital, L.P., Zeff Holding Company, LLC, Daniel Zeff, QAR Industries, Inc., Robert Fitzgerald, Fintech Consulting LLC and Tajuddin Haslani (collectively, the “Investor Parties”), pursuant to which the Company agreed to, among other things, amend and restate the Rights Agreement to provide that a “Distribution Date” (as defined below) shall not occur as a result of any request by any of the Investor Parties calling for a special meeting pursuant to Article II, Section 5 of the Amended and Restated By-Laws of the Company in accordance with the terms of the Settlement ~~Agreement.~~Agreement (See Note 7, “Other Matters.”)

~~Distribution Date; Exercisability; Expiration~~

Initially, the Rights will be attached to all certificates for shares of Common Stock and no separate certificates evidencing the Rights (“Rights Certificates”) will be issued. Until the Distribution Date (as defined below), the Rights will be transferred with and only with shares of Common Stock. As long as the Rights are attached to the shares of Common Stock, the Company will issue one Right with each new share of Common Stock so that all such shares of Common Stock will have Rights attached.

The Rights will separate and begin trading separately from the Common Stock, and Rights Certificates will be issued to evidence the Rights, on the earlier to occur of (a) the Close of Business (as such term is defined in the Rights Agreement) on the tenth day following a public announcement, or the public disclosure of facts indicating, that a Person (as such term is defined in the Rights Agreement), group of affiliated or associated Persons or any other Person with whom such Person is Acting in Concert (as defined below) has acquired Beneficial Ownership (as defined below) of 5% or more of the outstanding Common Stock (an “Acquiring Person”) (or, in the event an exchange is effected in accordance with Section 27 of the Rights Agreement and the Board of Directors determines that a later date is advisable, then such later date) or (b) the Close of Business on the tenth Business Day (as such term is defined in the Rights Agreement) (or such later date as may be determined by action of the Board of Directors prior to such time as any Person becomes an Acquiring Person) following the commencement of a tender offer or exchange offer the consummation of which would result in the Beneficial Ownership by a Person or group of 5% or more of the outstanding Common Stock (the earlier of such dates, the “Distribution Date”). As soon as practicable after the Distribution Date, unless the Rights are recorded in book-entry or other uncertificated form, the Company will prepare and cause the Right Certificates to be sent to each record holder of Common Stock as of the Close of Business on the Distribution Date.

~~(Continued)~~

~~Page 37~~

~~TSR, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued~~

~~May 31, 2020 and 2019~~

An “Acquiring Person” will not include (i) the Company, (ii) any Subsidiary (as such term is defined in the Rights Agreement) of the Company, (iii) any employee benefit plan or employee stock plan of the Company or any Subsidiary of the Company, or any trust or other entity organized, appointed, established or holding Common Stock for or pursuant to the terms of any such plan, or (iv) any Person who or which, at the time of the first public announcement of the Rights Agreement, is a Beneficial Owner of 5% or more of the Common Shares then outstanding (a “Grandfathered Stockholder”). However, if a Grandfathered Stockholder becomes, after such time, the Beneficial Owner of any additional shares of Common Stock (regardless of whether, thereafter or as a result thereof, there is an increase, decrease or no change in the percentage of shares of Common Stock then outstanding beneficially owned by such Grandfathered Stockholder) then such Grandfathered Stockholder shall be deemed to be an Acquiring Person unless, upon such acquisition of Beneficial Ownership of additional shares of Common Stock, such Person is not the Beneficial Owner of 5% or more of the Common Stock then outstanding. In addition, upon the first decrease of a Grandfathered Stockholder’s Beneficial Ownership below 5%, such Grandfathered Stockholder will cease to be a Grandfathered Stockholder. In the event that after the time of the first public announcement of the Rights Agreement, any agreement, arrangement or understanding pursuant to which any Grandfathered Stockholder is deemed to be the Beneficial Owner of Common Stock expires, terminates or no longer confers any benefit to or imposes any obligation on the Grandfathered Stockholder, any direct or indirect replacement, extension or substitution of such agreement, arrangement or understanding with respect to the same or different shares of Common Stock that confers Beneficial Ownership of Common Stock shall be considered the acquisition of Beneficial Ownership of additional shares of Common Stock by the Grandfathered Stockholder and render such Grandfathered Stockholder an Acquiring Person for purposes of the Rights Agreement unless, upon such acquisition of Beneficial Ownership of additional shares of Common Stock, such Person is not the Beneficial Owner of 5% or more of the Common Stock then outstanding.

~~The Rights are not exercisable until the Distribution Date. The Rights will expire on the Close of Business on August 29, 2021 (the “Expiration Date”).~~

~~Redemption~~

At any time prior to the Close of Business on the earlier of (a) the tenth day following the Stock Acquisition Date or (b) the Expiration Date, the Board of Directors may redeem the Rights in whole, but not in part, at a price of $0.01 per Right (the “Redemption Price”). The “Stock Acquisition Date” is the first date on which there is a public announcement by the Company or an Acquiring Person that an Acquiring Person has become such, or such earlier date as a majority of the Board of Directors becomes aware of the existence of an Acquiring Person. The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Immediately upon the action of the Board of Directors ordering the redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price.

~~Preferred Stock Rights~~

The Preferred Stock will not be redeemable. Each share of Preferred Stock will be entitled to receive, when, as and if declared by the Board of Directors, (a) cash dividends in an amount per share (rounded to the nearest cent) equal to 100 times the aggregate per share amount of all cash dividends declared or paid on the Common Stock and (b) a preferential quarterly cash dividend (the “Preferential Dividends”) in an amount equal to $50.00 per share of Preferred Stock less the per share amount of all cash dividends declared on the Preferred Stock pursuant to clause (a) of this sentence. Each share of Preferred Stock will entitle the holder thereof to 100 votes per share, voting together with the holders of the Common Stock as a single class, except as otherwise provided in the Certificate of Designations of Class A Preferred Stock Series One filed by the Company with the Delaware Secretary of State or the Company’s Amended and Restated Certificate of Incorporation, as amended, or Amended and Restated By-laws. In the event of any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each outstanding share of Preferred Stock shall at the same time be similarly exchanged for or changed into the aggregate amount of stock, securities, cash and/or other property (payable in like kind), as the case may be, for which or into which each share of Common Stock is changed or exchanged, multiplied by 100. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, (a) no distribution shall be made to the holders of shares of stock ranking junior to the Preferred Stock unless the holders of the Preferred Stock shall have received the greater of (i) $100 per share of Preferred Stock plus an amount equal to accrued and unpaid dividends and distributions thereon or (ii) an amount equal to 100 times the aggregate amount to be distributed per share to holders of the Common Stock, and (b) no distribution shall be made to the holders of stock ranking on a parity upon liquidation, dissolution or winding up with the Preferred Stock unless simultaneously therewith distributions are made ratably to the holders of the Preferred Stock and all other shares of such parity stock in proportion to the total amounts to which the holders of shares of Preferred Stock are entitled under clause (a)(i) of this sentence and to which the holders of such parity shares are entitled, in each case upon such liquidation, dissolution or winding up.

~~(Continued)~~

~~Page 38~~

~~TSR, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued~~

~~May 31, 2020 and 2019~~

~~The foregoing rights are protected by customary anti-dilution provisions.~~

The foregoing description of the rights of the Preferred Stock does not purport to be complete and is qualified in its entirety by reference to the Certificate of Designations of Class A Preferred Stock Series One.

~~Rights of Holders~~

~~Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends.~~

Pursuant to the Settlement Agreement, the Company amended and restated the Rights Agreement on September 3, 2019 (the “A&R Rights Agreement”) to confirm that a Distribution Date (as defined in the ~~Amended and Restated~~A&R Rights Agreement) shall not occur as a result of any request by any of the Investor Parties for a special meeting of the Company’s stockholders.

First Amendment to A&R Rights Agreement

On January 5, 2021, the disinterested members of the Board of Directors of the Company approved a waiver for QAR Industries, Inc. to complete its proposed acquisition of shares owned by Fintech Consulting LLC (the “Acquisition”) under the Company’s A&R Rights Agreement so that a Distribution Date would not occur as a result of the Acquisition. On February 4, 2021, the Company entered into that certain First Amendment to the A&R Rights Agreement with the Rights Agent, which provides that a distribution date shall not occur as a result of the Acquisition.

(Continued)

F-15

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2021 and 2020

Second Amendment to A&R Rights Agreement and Termination of A&R Rights Agreement as of March 31, 2021

At the Company’s combined 2019 and 2020 annual meeting of stockholders held on November 19, 2020, the Company’s stockholders approved an advisory vote to terminate the Company’s A&R Rights Agreement no later than March 31, 2021. On March 31, 2021, the Company entered into that certain Second Amendment to A&R Rights Agreement with the Rights Agent, pursuant to which the Expiration Date was advanced from August 29, 2021 to March 31, 2021. As a result of this amendment, effective as of the close of business on March 31, 2021, the Rights expired and are no longer outstanding and the A&R Rights Agreement was terminated by its terms.

Following the expiration of the Rights and the termination of the A&R Rights Agreement on April 1, 2021, the Company filed a Certificate of Elimination (the “Certificate of Elimination”) with the Secretary of State of the State of Delaware eliminating the Class A Preferred Shares and returning them to be authorized but unissued and non-designated shares of the Company’s preferred stock.

(7)

Other Matters

From time to time, the Company is party to various lawsuits, some involving material amounts. ~~Management~~Except for the litigation disclosed below, management is not aware of any lawsuits that would have a material adverse impact on the consolidated financial position of the ~~Company except for the litigation disclosed below.~~Company.

Paskowitz Stockholder Litigation

On October 16, 2018, the Company was served with a complaint filed on October 11, 2018 in the Supreme Court of the State of New York, Queens County, by Susan Paskowitz, a stockholder of the Company, against the Company; Joseph F. Hughes and Winifred M. Hughes; former directors Christopher Hughes, Raymond A. Roel, Brian J. Mangan, Regina Dowd, James J. Hill, William Kelly, and Eric Stein; as well as stockholders Zeff Capital, L.P., QAR Industries, Inc. and Fintech Consulting LLC (the “Stockholder Litigation”). The complaint ~~purports~~purported to be a class action lawsuit asserting claims on behalf of all minority stockholders of the Company. Ms. Paskowitz ~~alleges~~alleged the following: the sale by Joseph F. Hughes and Winifred M. Hughes of an aggregate of 819,491 shares of the Company’s common stock (“controlling interest”) to Zeff Capital, L.P., QAR Industries, Inc. and Fintech Consulting LLC was in breach of Joseph F. Hughes’ and Winifred M. Hughes’ fiduciary duties and to the detriment of the Company’s minority stockholders; the former members of the Board of Directors of the Company named in the complaint breached their fiduciary duties by failing to immediately adopt a rights plan that would have prevented Joseph F. Hughes and Winifred M. Hughes from selling their shares and preserved a higher premium for all stockholders; Zeff Capital, L.P., QAR Industries, Inc. and Fintech Consulting LLC Zeff, QAR, and Fintech are “partners” and constitute a “group.” Ms. Paskowitz also ~~asserts~~asserted that Zeff Capital, L.P., QAR Industries, Inc. and Fintech Consulting LLC aided and abetted Joseph F. Hughes’ and Winifred M. Hughes’ conduct, and ultimately sought to buy out the remaining shares of the Company at an unfair price.

On June 14, 2019, Ms. Paskowitz filed an amended complaint in the Stockholder Litigation in the Supreme Court of the State of New York, Queens County with the court against the former members of the Board of Directors and Zeff Capital, L.P., QAR Industries, Inc. and Fintech Consulting LLC, which ~~asserts~~asserted substantially similar allegations to those contained in the October 11, 2018 complaint, but ~~omits~~omitted Regina Dowd, Joseph F. Hughes and Winifred M. Hughes as defendants. In addition to the former members of the Board of Directors named in the original complaint, the amended complaint ~~names~~named former directors Ira Cohen, Joseph Pennacchio, and William Kelly as defendants. The amended complaint also ~~asserts~~asserted a derivative claim purportedly on behalf of the Company against the named former members of the Board of Directors. The amended complaint ~~seeks~~sought declaratory judgment and unspecified monetary damages. The complaint ~~requests:~~requested: (1) a declaration from the court that the former members of the Board of Directors named in the complaint breached their fiduciary duties by failing to timely adopt a stockholder rights plan, which resulted in the loss of the ability to auction the Company off to the highest bidder without interference from Zeff Capital, L.P., QAR Industries, Inc. and Fintech Consulting LLC; (2) damages derivatively on behalf of the Company for unspecified harm caused by the ~~former~~named Directors’ alleged breaches of fiduciary duties; (3) damages and equitable relief derivatively on behalf of the Company for the ~~former~~named Directors’ alleged failure to adopt proper corporate governance practices; and (4) damages and injunctive relief against Zeff Capital, L.P., QAR Industries, Inc. and Fintech Consulting LLC based on their knowing dissemination of false or misleading public statements concerning their status as a group. The complaint ~~has~~did not ~~assigned~~assign any monetary values to alleged damages.

(Continued)

~~Page 39~~F-16

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, ~~2020~~2021 and ~~2019~~2020

On July 15, 2019, the Company filed an answer to the amended complaint in the Stockholder Litigation and cross-claims against Zeff Capital, L.P., QAR Industries, Inc. and Fintech Consulting LLC for breaches of their fiduciary duties, aiding and abetting breaches of fiduciary duties, and indemnification and contribution based on their misappropriation of material nonpublic information and their failure to disclose complete and accurate information in SEC filings concerning their group actions to attempt a creeping takeover of the Company, which was thereafter amended on July 26, 2019.

~~In addition, on~~On December 21, 2018, the Company filed a complaint in the United States District Court, Southern District of New York, against Zeff Capital, L.P., Zeff Holding Company, LLC, Daniel Zeff, QAR Industries, Inc., Robert Fitzgerald, Fintech Consulting LLC, and Tajuddin Haslani for violations of the disclosure and anti-fraud requirements of the federal securities laws under Sections 13(d) and 14(a) of the Securities Exchange Act of 1934 (“Exchange Act”), and the related rules and regulations promulgated by the SEC, for failing to disclose to the Company and its stockholders their formation of a group and the group’s intention to seize control of the Company (the “SDNY Action”). The complaint ~~requests~~requested that the court, among other things, declare that the defendants have solicited proxies without filing timely, accurate and complete reports on Schedule 13D and Schedule 14A in violation of Sections 13(d) and 14(a) of the Exchange Act, direct the defendants to file with the SEC complete and accurate disclosures, enjoin the defendants from voting any of their shares prior to such time as complete and accurate disclosures have been filed, and enjoin the defendants from further violations of the Exchange Act with respect to the securities of the Company.

On January 7, 2019, Ms. Paskowitz filed a related action against Zeff Capital, L.P., Zeff Holding Company, LLC, Daniel Zeff, QAR Industries, Inc., Robert Fitzgerald, Fintech Consulting LLC, and Tajuddin Haslani in the Southern District of New York, which ~~asserts~~asserted claims against them for breach of fiduciary duty and under federal securities laws similar to those asserted in the Company’s action. Although the Company is not a party to Ms. Paskowitz’s action, the court has determined to treat the Company’s and Ms. Paskowitz’s respective actions as related.

On August 7, 2019, following the Company’s initial rescheduling of the 2018 Annual Meeting for September 13, 2019 and the filing of Preliminary Proxy Statements by the Company and Zeff Capital, L.P., Zeff Capital, L.P. filed a complaint in the Delaware Court of Chancery against the Company seeking an order requiring the Company to hold its next annual meeting of stockholders on or around September 13, 2019, and obligating the Company to elect Class I and Class III directors at that annual meeting.

On August 13, 2019, the Company filed a motion for preliminary injunction in the SDNY Action in advance of the Company’s 2018 Annual Meeting originally scheduled for September 13, 2019, and requested leave to file a motion for expedited discovery. The Court denied the Company’s motion for preliminary injunction but ordered Zeff to “make clear that the second set of directors” described by Zeff in its preliminary proxy statement “is contingent upon the resolution of a proceeding in Delaware Chancery Court.”

On August 30, 2019, the Company entered into a settlement and release agreement (the “Settlement Agreement”) with Zeff Capital, L.P., Zeff Holding Company, LLC, Daniel Zeff, QAR Industries, Inc., Robert Fitzgerald, Fintech Consulting LLC and Tajuddin Haslani (collectively, the ~~Settlement Agreement with the Investor Parties~~“Investor Parties”) with respect to the proxy contest pertaining to the election of directors at the 2018 Annual Meeting, which was held on October 22, 2019. Pursuant to the Settlement Agreement, the parties agreed to forever settle and resolve any and all disputes between the parties, including without limitation disputes arising out of or relating to the following litigations:

(i) The complaint relating to alleged breaches of fiduciary duties filed on November 1, 2018 by Fintech Consulting LLC against the Company in the Delaware Court of Chancery, which was previously dismissed voluntarily;

~~(Continued)~~

~~Page 40~~

~~TSR, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued~~

~~May 31, 2020 and 2019~~

(ii) The complaint for declaratory and injunctive relief for violations of the federal securities laws filed on December 21, 2018 by the Company against the Investor Parties in the United States District Court in the Southern District of New York;

(iii) Cross-claims relating to alleged breaches of fiduciary duties and for indemnification and contribution filed on July 26, 2019 by the Company against the Investor Parties in New York Supreme Court, Queens County; and

(iv) The complaint to compel annual meeting of stockholders filed on August 7, 2019 by Zeff Capital, L.P. against the Company in the Delaware Court of Chancery.

(Continued)

F-17

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2021 and 2020

No party admitted any liability by entering into the Settlement Agreement. The Settlement Agreement did not resolve the Stockholder Litigation filed by Susan Paskowitz against the Company, Joseph F. Hughes, Winifred M. Hughes and certain former directors of the Company in the Supreme Court of the State of New York on October 11, 2018.

Concurrently with the Settlement Agreement, the parties entered into a share repurchase agreement (the “Repurchase Agreement”) which provided for the purchase by the Company and Christopher Hughes, the Company’s former President and Chief Executive Officer, of the shares of the Company’s Common Stock held by the Investor Parties (the “Repurchase”). The Settlement Agreement also contemplated that, if the Repurchase was completed, the Company would make a settlement payment to the Investor Parties at the closing of the Repurchase in an amount of approximately $1,500,000 (the “Settlement Payment”). However, the Repurchase and Settlement Payment were not completed by the deadline of December 30, 2019.

Pursuant to the Settlement Agreement, (1) the Company agreed to adopt an amendment to the Company’s Amended and Restated By-Laws, dated April 9, 2015 (the “By-Laws Amendment”), providing that stockholders of the Company owning at least forty percent (40%) of the issued and outstanding Common Stock may request a special meeting of stockholders; (2) the Investor Parties agreed not to take any action to call or otherwise cause a special meeting of stockholders to occur prior to December 30, 2019 (unless the Company had failed to hold the 2018 Annual Meeting); (3) the Company agreed to amend and restate the Company’s Rights Agreement, dated August 29, 2018 (the “Amended Rights Agreement”), to confirm that a Distribution Date (as defined in the Amended Rights Agreement) shall not occur as a result of any request by any of the Investor Parties for a special meeting; (4) the Company agreed that prior to the earlier of (A) the completion of the Repurchase and the payment of the Settlement Payment and (B) January 1, 2020, the Board of Directors shall not consist of more than seven (7) directors.

Pursuant to the terms of the Settlement Agreement, the two nominees for director made by Zeff Capital, L.P. were elected as directors at the Company’s 2018 Annual Meeting held on October 22, 2019. Please see the Company’s current Report on Form 8-K filed with the SEC on October 21, 2019 for more information about the background of the election of directors at the Company’s 2018 Annual Meeting.

Pursuant to the terms of the Settlement Agreement, inasmuch as the Repurchase was not completed and the Settlement Payment was not made by December 30, 2019, the members of the Board of Directors (other than the two directors who were nominated by Zeff Capital, L.P. and elected as directors at the 2018 Annual Meeting) resigned from the Board effective 5:00 p.m. Eastern Time on December 30, 2019. Immediately thereafter, the two remaining directors appointed Robert Fitzgerald to the Board of Directors. Please see the Company’s Current Report on Form 8-K filed with the SEC on December 31, 2019 for more information about the background and the appointment of Robert Fitzgerald.

The foregoing is not a complete description of the terms of the Settlement Agreement and the Share Repurchase Agreement. For a further description of the terms of the Settlement Agreement and the Share Repurchase Agreement, including copies of the Settlement Agreement and Share Repurchase Agreement, please see the Company’s Current Report on Form 8-K filed by the Company with the SEC on September 3, 2019.

~~(Continued)~~

~~Page 41~~

~~TSR, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued~~

~~May 31, 2020 and 2019~~

On October 21, 2019, the Company entered into a Memorandum of Understanding (the “MOU”) with Susan Paskowitz providing for the settlement of the Stockholder Litigation filed by Ms. Paskowitz on October 11, 2018. The MOU provides for the settlement of the claims by Ms. Paskowitz that (1) the ~~former~~ members of the Board named in the original complaint allegedly breached their fiduciary duties by failing to immediately adopt a rights plan that would have prevented the sale by Joseph F. Hughes and Winifred M. Hughes of an aggregate of 819,491 shares of the Company’s common stock to the Investor Parties; (2) the ~~former~~ members of the Board named in the amended complaint allegedly breached their fiduciary duties and failed to adopt proper corporate governance practices; and (3) the Investor Parties acted as “partners” and constituted a “group” in their purchase of shares from Joseph F. Hughes and Winifred M. Hughes and knowingly disseminated false or misleading public statements concerning their status as a group.

Pursuant to the terms of the MOU, the Company will (1) implement certain corporate governance reforms described in the MOU within 30 days of a final order and judgment entered by the court, and keep these corporate governance reforms in place for 5 years from the time of the final order and judgment; and (2) acknowledge that the plaintiff, Ms. Paskowitz, and her counsel provided a substantial benefit to the Company and its stockholders through the prosecution of the Stockholder Litigation and other related actions filed by Ms. Paskowitz described above.

(Continued)

F-18

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2021 and 2020

On December 16, 2019, the Company entered into a Stipulation and Agreement of Settlement (the “Stipulation”) with Susan Paskowitz in the Stockholder ~~Litigation. The Stipulation retains~~Litigation, which retained the terms and conditions of settlement of the Stockholder Litigation contained in the MOU described in the preceding paragraph, with the addition that the Company will pay to plaintiff’s counsel an award of attorneys’ fees and reimbursement of expenses in the amount of $260,000 (collectively, the “Stockholder Litigation Settlement”). The Stockholder Litigation Settlement is intended to fully, finally, and forever compromise, settle, release, resolve, and dismiss with prejudice the Stockholder Litigation and all claims asserted therein directly against all present and former defendants and derivatively against them on behalf of the Company. The Stockholder Litigation Settlement does not contain any admission of liability, wrongdoing or responsibility by any of the parties, and provides for mutual releases by all parties. Each stockholder of the Company is a member of the plaintiff class unless such stockholder opts out of the class. The ~~Company expects that the full amount of the $260,000 settlement payment will be covered by insurance proceeds. The Stipulation remains subject to approval by the court. The~~ Stipulation is independent of the Settlement Agreement and ~~Share~~ Repurchase Agreement that the Company had entered into with the Investor Parties.

On December 24, 2019, Ms. Paskowitz moved for preliminary approval of the Stipulation. On May 21, 2020, the Court entered an order preliminarily approving the Stipulation. The ~~parties have agreed on a proposed scheduling order for final approval of the Stipulation and a proposed mailing notice of the stipulation to TSR stockholders, which are both currently pending~~ Court ~~approval. If approved, the Court will set~~conducted a settlement hearing ~~for~~on April 20, 2021 to consider final approval of the Stipulation. ~~Although~~On May 25, 2021, the ~~Company believes that~~Court issued a final order and judgment approving all material terms in the Stipulation. Pursuant to the terms of the final order, the Court fully and finally approved the settlement set forth in the Stipulation ~~represents a fair~~ and ~~reasonable compromise of the matters in dispute in~~dismissed the Stockholder Litigation ~~there can be no assurance that~~with prejudice. The settlement payment was paid by the ~~court will approve the Stipulation as proposed, or at all.~~Company’s insurance provider under its insurance policy.

~~Inasmuch as~~Please also refer to Note 8, Termination of Former CEO, regarding an ongoing lawsuit originally filed by the Company did not complete the Repurchase and make the Settlement Payment prior to the December 30, 2019 deadline, the members of the Board of Directors (other than the two directors who were elected as directors at the 2018 Annual Meeting) resigned from the Board effective at 5:00 p.m. Eastern Time on December 30, 2019. Immediately thereafter, the two remaining directors, Bradley M. Tirpak and H. Timothy Eriksen, appointed Robert Fitzgerald as a new director. Each of Messrs. Tirpak, Eriksen and Fitzgerald qualifies as an “independent director” under the NASDAQ Stock Market Rules. These three individuals were also appointed to the Audit Committee, Nominating Committee, Compensation Committee and Special Committee. The Board appointed Mr. Tirpak as Chairman of the Board to succeed Christopher Hughes. Mr. Hughes continued to serve as theCompany’s former Chief Executive Officer ~~President and Treasurer~~against the Company in the Supreme Court of the ~~Company until January 17,~~State of New York in March 2020. Additionally, the Board appointed Mr. Eriksen as Lead Independent Director, Chairman of the Audit Committee and Chairman of the Nominating Committee. The Board also appointed Mr. Fitzgerald as the Chairman of the Compensation Committee and Chairman of the Special Committee.

~~(Continued)~~

~~Page 42~~

~~TSR, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued~~

~~May 31, 2020 and 2019~~

During the quarter ending February 29, 2020, the Company negotiated a settlement with Zeff Capital, L.P. to reimburse it for legal expenses of $900,000 (net present value of $818,000 accrued at February 29, 2020) by entering into a binding term sheet on April 1, 2020. The parties entered into a final agreement reflecting these terms on August 13, 2020. (See Note 5.)

(8)

Termination of Former CEO

The Company terminated Christopher Hughes, the former Chief Executive Officer of the Company (“Hughes”), effective February 29, 2020 for “Cause” as defined in Section 6(a) of his Amended and Restated Employment Agreement dated August 9, 2018 (the “Employment Agreement”) ~~and~~. Despite having already been terminated from employment, on March 2, 2020, the Company received a letter from Mr. Hughes, providing notice of his intent to resign for “Good Reason” as defined in Section 7(c) of the Employment Agreement pursuant to which he claimed to be entitled to the “Enhanced Severance Amount” under the Employment Agreement. Hughes filed a complaint against the Company in the Supreme Court of the State of New York in March 2020 alleging two causes of action: (1) breach of his employment contract; and (2) breach of duty of good faith and fair dealing. Plaintiff Hughes alleges that he was terminated without cause or in the alternative that he resigned for good reason and therefore, pursuant to the ~~Amended and Restated~~ Employment Agreement, ~~dated August 9, 2018, between the Company and Plaintiff. Plaintiff~~ Hughes seeks ~~contractual~~ severance pay in the amount of $1,000,000 and reasonable costs and attorney’s fees. The Company denies Plaintiff’s allegations in their entirety and has filed counterclaims against Plaintiff for (1) declaratory relief; (2) breach of confidence/non-compete agreement; (3) declaratory and injunctive relief – confidence/non-compete; (4) tortious interference with current and prospective contractual and economic relations; (5) breach of fiduciary duty; (6) misappropriation of trade secrets; (7) declaratory and injunctive relief – unfair competition; and (8) conversion. The Company intends to vigorously defend and litigate this matter while recognizing the costs of litigation, including that it may divert the attention of management and key personnel from business operations.

(9)

COVID-19

The COVID-19 outbreak in the United States has caused business disruption through mandated and voluntary closing of various businesses. While the disruption is currently expected to be temporary, there is considerable uncertainty around the duration of the ~~closings.~~closings and the impact of the pandemic on our business. Therefore, the Company expects this matter to continue to negatively impact its operating results in future periods. However, the full financial impact and duration cannot be reasonably estimated at this time.

(Continued)

F-19

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2021 and 2020

(10)

Payroll Protection Program Loan

On April 15, 2020, ~~TSR, Inc. (the “Company”)~~the Company received loan proceeds of $6,659,220 under the Paycheck Protection Program (the “PPP Loan”). The Paycheck Protection Program (“PPP”) was established under the ~~recent congressionally-approved Coronavirus Aid, Relief, and Economic Security~~CARES Act ~~(the “CARES Act”)~~ and is administered by the U.S. Small Business Administration (“SBA”). The PPP Loan to the Company is being made through JPMorgan Chase Bank, N.A., a national banking association (the ~~“Lender”~~“PPP Lender”).

~~The original term~~In March 2021, the Company submitted a PPP Loan forgiveness application to the SBA through the PPP Lender.

On July 7, 2021, the Company received notification from the PPP Lender that the SBA approved the Company’s application for forgiveness of the entire principal amount of the PPP Loan, ~~was two years.~~plus all accrued interest. The ~~term has been extended~~PPP Lender will apply the forgiveness amount to ~~five years by the SBA. The annual interest rate on~~satisfy the PPP ~~Loan is 0.98%. Payments of principal and interest on the loan will be deferred for the first six months of the term of the loan.~~Loan. The ~~promissory note evidencing~~Company has no further obligations with respect to the PPP ~~Loan contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the promissory note.~~Loan. The occurrence of an event of default may trigger the immediate repayment of all amounts outstanding, collection of all amounts owing from the Company, and/or filing suit and obtaining a judgment against the Company.

Under the terms of the CARES Act, PPP Loan recipients may apply for and be granted forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payroll costs and mortgage interest, rent or utility costs and the maintenance of employee and compensation levels. While the Company believes that it has acted in compliance with the program and plans to seek forgiveness of the PPP Loan ~~no assurance can~~will be recognized during the Company’s fiscal 2022 first quarter ending August 31, 2021.

(11)

Geneva Consulting Group Acquisition

On September 1, 2020, the Company completed the acquisition of all of the outstanding stock of Geneva Consulting Group, Inc., a New York corporation (“Geneva”) and provider of temporary and permanent information technology personnel based in Port Washington, New York. The stock of Geneva was purchased from the three shareholders of Geneva (the “Sellers”), none of which had, or will have following the acquisition, a material relationship with the Company or its affiliates.

The purchase price for the shares of Geneva was comprised of the following: (i) $1,452,000 in cash paid to Sellers at the closing of the acquisition, (ii) an amount of $748,000, that is equal to the amount of Geneva’s loan under the PPP that was not assumed by the Company and is expected to be substantially forgiven by the SBA, (iii) an amount up to $300,000 which may be paid as an earnout payment in part in February 2021 and in part in August 2021 (the “Earnout Payments”), (iv) bonus payments payable in $10,000 increments, (v) $747,000 for the net working capital of Geneva as of closing and (vi) other purchase price adjustments of which $36,000 has been paid to date. Any Earnout Payments and bonus payments will be determined based upon the achievement of certain criteria relating to the number the Company’s contractors working full-time at the Company’s clients on such dates.

The purchase agreement for the Geneva acquisition provided for a earn-out of up to $300,000 plus bonus amounts in $10,000 increments which are earned through August 31, 2021. The initial earn-out liability was valued at its fair value using an option pricing based approach with a risk-neutral framework using Black Scholes due to the option-like nature of the earn-out payment structure (Level 3 of the fair value hierarchy). The earn-out was revalued quarterly prior to the settlement discussed below, using a present value approach and any resulting increase or decrease was recorded into selling, general and administrative expenses. Any changes in the amount of the actual results and forecasted scenarios could impact the fair value. Significant judgment was employed in determining the appropriateness of the assumptions used in calculating the fair value of the earn-out as of the acquisition date and subsequent period ends.

On March 17, 2021, the Company entered into an agreement with the Sellers’ representatives pursuant to which the parties agreed to settle certain interpretive differences regarding the Sellers’ entitlement to the bonus payments described above. Pursuant to this agreement, and in full satisfaction of the Company’s obligations for deferred payments under the purchase agreement for the Geneva acquisition, the Sellers’ representative acknowledged receipt of the first Earnout Payment in the amount of $100,000, the parties agreed that the Company ~~will obtain forgiveness~~would make aggregate bonus payments to the Sellers’ representatives in the amount of $260,000, and the Company agreed to instruct the escrow agent to release to the Sellers’ representatives the second Earnout Payment in the amount of $200,000. All amounts relating to the Earnout Payments and bonus payments that had not been paid as of the ~~PPP Loan in whole~~date of the agreement were either paid by the Company or ~~in part.~~ released by the escrow agent on March 18, 2021. No further earnout or bonus amounts can be earned or will be paid subsequent to March 18, 2021.

~~Page 43~~(Continued)

F-20

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2021 and 2020

The acquisition was accounted for as an acquisition of a business in accordance with the acquisition method of accounting. The acquired assets and assumed liabilities have been recorded at their estimated fair values. The Company determined the estimated fair values with the assistance of valuations performed by an independent third-party specialist. There have been no changes made to the valuation as of May 31, 2021.

The Company has incurred approximately $498,000 in legal fees, business broker fees, valuation services, accounting fees and other expenses to complete the Geneva acquisition, of which $220,000 of these expenses were recorded in the quarter ended February 28, 2021. This amount primarily relates to the accrual of additional bonus payments to the Sellers of $210,000 related to the March 17, 2021 agreement discussed above. All acquisition related costs have been expensed as incurred and included in selling, general and administrative expenses.

The following table summarizes the components of the purchase price at fair values at September 1, 2020:

Cash consideration paid to date	$	2,983,264
Estimated earnout and other liabilities		358,796
Total purchase price	$	3,342,060

The following table summarizes the allocation of purchase price at preliminary estimated fair values at September 1, 2020:

Cash	$	241,946
Accounts receivable		778,930
Prepaid expenses		5,249
Intangible assets (see Note 13)		1,800,000
Goodwill		785,883
Accrued expenses		(269,948	)
Net assets	$	3,342,060

The following unaudited pro forma financial information presents the combined operating results of the Company and Geneva as if the acquisition had occurred as of the beginning of the earliest period presented. Pro forma data is subject to various assumptions and estimates and is presented for informational purposes only. This pro forma data does not purport to represent or be indicative of the consolidated operating results that would have been reported had the transaction been completed as described herein, and the data should not be taken as indicative of future operating results.

Unaudited pro forma financial information assuming the acquisition of Geneva as of June 1, 2019 is presented in the following table (in thousands):

	Fiscal Year Ended
	May 31,			May 31,
	2021			2020
Revenue	$	70,258		$	68,340
Net loss	$	(756	)	$	(1,060	)
Earnings loss per share	$	(0.39	)	$	(0.54	)

(Continued)

F-21

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2021 and 2020

(12)

Goodwill

Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill is not amortized but is subject to impairment analysis at least once annually or more frequently upon the occurrence of an event or when circumstances indicate that the carrying amount of a unit is greater than its fair value.

(13)

Intangible Assets

The Company amortizes its intangible assets over their estimated useful lives and will review these assets for impairment when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value.

Intangible assets identified in the Geneva acquisition are as follows:

	September 1, 2020		Amortization		May 31, 2021
Database (estimated life 5 years)	$	230,000	$	34,500	$	195,500
Non-compete agreement (estimated life 2 years)		10,000		3,750		6,250
Trademark (estimated life 3 years)		60,000		15,000		45,000
Customer relationships (estimated life 15 years)		1,500,000		75,000		1,425,000
Total	$	1,800,000	$	128,250	$	1,671,750

No instances of triggering events or impairment indicators were identified at May 31, 2021.

(14)

Related Party Transactions

On January 5, 2021, the members of the Board of Directors of TSR other than Robert Fitzgerald approved providing a waiver to QAR Industries, Inc. for its contemplated acquisition of shares owned by Fintech Consulting LLC under the Company’s A&R Rights Agreement so that a Distribution Date would not occur as a result of the Acquisition. QAR Industries, Inc. and Fintech Consulting LLC were both principal stockholders of the Company, each owning more than 5% of the Company’s outstanding common stock prior to the consummation of the Acquisition. Robert Fitzgerald is the President and majority shareholder of QAR Industries, Inc. The other directors of the Company are not affiliated with QAR Industries, Inc.

On February 3, 2021, the Acquisition was completed and QAR Industries, Inc. purchased 348,414 shares of TSR common stock from Fintech Consulting LLC at a price of $7.25 per share. At the same time, Bradley M. Tirpak, Chairman of TSR, purchased 27,586 shares of TSR common stock from Fintech Consulting LLC at a price of $7.25 per share.

F-22

TSR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

May 31, 2021 and 2020

(15)

Stock-based Compensation Expense

On January 28, 2021 the Company granted 108,333 shares in time vesting stock awards and 69,167 shares in time and performance vesting stock awards to officers, directors and key employees under the TSR, Inc. 2020 Equity Incentive Plan (the “Plan”). The time vesting shares vest in tranches at the one, two and three-year anniversaries of the grants (“service condition”). These shares had a grant date fair value of $826,000 based on the closing price of TSR common stock on the day prior to the grants. The associated compensation expense is recognized on a straight-line basis over the time between grant date and the date the shares vest (the “service period”). The time and performance vesting shares also vest in tranches at or after the two and three-year anniversaries of the grants. The performance condition is defined in the grant agreements and relates to the market price of the Company’s common stock over a stated period of time (“market condition”). These shares had a grant date value $262,000 based on the closing price of TSR common shares on the day prior to the grants discounted by an estimated forfeiture rate of 40-60%. The Company took into account the historical volatility of its common stock to assess the probability of satisfying the market condition. The associated compensation expense is recognized on a straight-line basis between the time the achievement of the performance criteria is deemed probable and the time the shares may vest. During the fiscal year ending May 31, 2021, $236,000 has been record as stock-based compensation expense and included in selling, general and administrative expenses. As of May 31, 2021, there is approximately $852,000 of unearned compensation expense that will be expensed through February 2024; 142,666 stock awards expected to vest; and zero vested awards.

(Continued)

F-23

TSR, INC. AND SUBSIDIARIES

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, ~~2020.~~2021.

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

As previously disclosed, on April 1, 2020, the Company entered into a binding term sheet (“Term Sheet”) with Zeff Capital, L.P. (“Zeff”) pursuant to which it agreed to pay Zeff an amount of $900,000 over a period of three years in cash or cash and stock in settlement of expenses incurred by Zeff during its solicitations in 2018 and 2019 in connection with the annual meetings of the Company, the costs incurred in connection with the litigation initiated by and against the Company as well as negotiation, execution and enforcement of the Settlement and Release Agreement, dated as of August 30, 2019, by and between the Company, Zeff and certain other parties. In exchange for certain mutual releases, the Term Sheet calls for a cash payment of $300,000 on June 30, 2021, a second cash payment of $300,000 on June 30, 2022 and a third payment of $300,00 also on June 30, 2022, which can be paid in cash or common stock at the Company’s option. There is no interest due on these payments. The agreement also has protections to defer such payment dates so that the debt covenants with the Company’s lender are not breached. On August 13, 2020, the Company, Zeff, Zeff Holding Company, LLC and Daniel Zeff entered into a settlement agreement to reflect these terms. Any installment payment which is deferred as permitted above will accrue interest at the prime rate plus 3.75%, and Zeff shall thereby have the option to convert such deferred amounts (plus accrued interest if any) into shares of the Company’s common stock. The foregoing descriptions do not purport to be complete and are qualified in their entirety by the full text of the agreement, which iswas attached to ~~this~~the Annual Report for the fiscal year ended May 31, 2020 as Exhibit 10.6 and incorporated herein by reference.

Page 4422

TSR, INC. AND SUBSIDIARIES

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 ~~2020~~2021 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 ~~2020~~2021 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 ~~2020~~2021 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 ~~2020~~2021 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 ~~2020~~2021 Annual Meeting of Stockholders.

Page 23

TSR, INC. AND SUBSIDIARIES

Part IV

Item 15. Exhibits and Financial Statement Schedules

(a)

The following documents are filed as part of this report:

~~The consolidated financial statements as indicated in the index set forth on page 21.~~

1. The consolidated financial statements as indicated in the index set forth on page 21.

Financial Statement Schedules have been omitted, since they are either not applicable, not required or the information is included elsewhere herein.

~~Exhibits as listed in Exhibit Index on page 47.~~

2. Exhibits as listed in Exhibit Index on page 26.

Page 4524

TSR, INC. AND SUBSIDIARIES

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/ Thomas Salerno
		Thomas Salerno, Chief Executive Officer, President, Treasurer and Principal Executive Officer
	~~Thomas Salerno,~~
	~~Chief Executive Officer, President,~~
	~~Treasurer and Principal Executive Officer~~	Dated: August 23, 2021

~~Dated: August 17, 2020~~

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/ Thomas Salerno

Thomas Salerno, Chief Executive Officer, President, Treasurer and Principal Executive Officer


/s/ John G. Sharkey

John G. Sharkey, Sr. Vice President, Chief Financial Officer, Secretary, Principal Financial Officer and Principal Accounting Officer


/s/ Bradley M. Tirpak

Bradley M. Tirpak, Chairman of the Board of Directors

	/s/ H. Timothy Eriksen
	H. Timothy Eriksen, Director

	/s/ Robert Fitzgerald
	Robert Fitzgerald, Director

~~/s/ H. Timothy Eriksen~~
~~H. Timothy Eriksen, Director~~

~~/s/ Robert Fitzgerald~~
~~Robert Fitzgerald, Director~~	Dated: August 23, 2021

~~Dated: August 17, 2020~~

Page 4625

TSR, INC. AND SUBSIDIARIES

EXHIBIT INDEX

FORM 10-K, MAY 31, ~~2020~~2021

Exhibit Number		Exhibit
3.1		Certificate of Incorporation, as ~~amended, incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K for the fiscal year ended May 31, 1998 filed by the Company on August 26, 1998.~~amended.

3.2		Certificate of ~~Designations~~Elimination of Class A Preferred Stock, Series One of TSR, Inc., as filed with the Secretary of State of the State of Delaware on April 1, 2021, incorporated by reference to Exhibit ~~3.2 to the Current Report on Form 8-K by the Company filed on August 29, 2018.~~

~~3.3~~		~~Amended and Restated Bylaws, as amended.~~

~~4.1~~		~~Description of Registered Securities.~~

~~4.2~~		~~Amended and Restated Rights Agreement dated as of September 3, 2019 between the Company and Continental Stock Transfer & Trust Company as Rights Agent, incorporated by reference to Exhibit 4.1~~3.1 to the Current Report on Form 8-K filed by the Company on ~~September 3, 2019.~~April 1, 2021.

3.3		Amended and Restated Bylaws, as amended, incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K for the year ended May 31, 2020 filed by the Company on August 17, 2020.

4.1		Description of Registered Securities.

10.1		Amended and Restated Employment Agreement dated as of ~~June 1, 2019~~November 2, 2020 between the Company and John G. Sharkey, incorporated by reference to Exhibit ~~10.1~~10.2 to the Current Report on Form 8-K filed by the Company on ~~May 24, 2019.~~November 6, 2020.

10.2		Employment Agreement, dated as of ~~July 11, 2018~~November 2, 2020 between the Company and Thomas ~~Salerno.~~

~~10.3~~		~~Note, dated as of April 8, 2020 between JPMorgan Chase Bank, N.A. and the Company,~~Salerno, incorporated by reference to Exhibit 10.1 to the Current Report on Form ~~8-K~~8-k filed by the Company on ~~April 17,~~November 6, 2020.

~~10.4~~10.3		Loan and Security Agreement dated as of November 27, 2019 among Access Capital, Inc., TSR, Inc., TSR Consulting Services, Inc., Logixtech Solutions, LLC and Eurologix S.A.R.L., incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on December 2, 2019.

~~10.5~~ 10.4		Term Sheet, dated as of April 1, 2020, by and between Zeff Capital, L.P. and the Company, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on April 6, 2020.

~~10.6~~10.5		Agreement dated August 13, 2020, by and among the Company, Zeff Capital, L.P., Zeff Holding Company, LLC and Daniel ~~Zeff.~~

~~10.7~~		~~Settlement and Release Agreement, dated as of August 30, 2019, by and among TSR, Inc.,~~ Zeff, ~~Capital, L.P., Zeff Holding Company, LLC, Daniel Zeff, QAR Industries, Inc., Robert Fitzgerald, Fintech Consulting, LLC and Tajuddin Haslani,~~ incorporated by reference to Exhibit ~~10.1~~10.6 to the ~~Current~~Annual Report on Form ~~8-K~~10-K for the year ended May 31, 2020 filed by the Company on ~~September 3, 2019.~~August 17, 2020.

~~10.8~~ 10.6		~~Share Repurchase Agreement, dated as~~Form of ~~August 30, 2019, by~~Restricted Stock Grant Notice and ~~among TSR, Inc., Christopher Hughes, Zeff Capital, L.P., Zeff Holding Company, LLC, Daniel Zeff, QAR Industries, Inc., Robert Fitzgerald, Fintech Consulting, LLC and Tajuddin Haslani,~~Restricted Stock Purchase Agreement, incorporated by reference to ~~Exhibit 10.2 to the Current Report~~our current report on Form 8-K filed with the SEC on February 1, 2021 as Exhibit 10.1.

10.7		TSR, Inc. 2020 Equity Incentive Plan, incorporated by reference to our current report on Form S-8 filed with the ~~Company~~SEC on ~~September 3, 2019.~~December 18, 2020 as Exhibit 4.6.

21		List of Subsidiaries.

23.1		Consent of CohnReznick LLP, Independent Registered Accounting Firm

Page 26

TSR, INC. AND SUBSIDIARIES

EXHIBIT INDEX (continued)

FORM 10-K, MAY 31, 2021

Exhibit

Number

Exhibit

31.1

Certification by Thomas Salerno Pursuant to Securities Exchange Act Rule 13a-14(a).

~~Page 47~~

~~TSR, INC. AND SUBSIDIARIES~~

~~EXHIBIT INDEX (continued)~~

~~FORM 10-K, MAY 31, 2020~~

~~Exhibit~~ ~~Number~~		~~Exhibit~~
31.2		Certification by John G. Sharkey Pursuant to Securities Exchange Act Rule 13a-14(a).

32.1		Certification of Thomas Salerno 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.

99.1		Stipulation and Agreement of Settlement, dated as of December 16, 2019, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on December 17, 2019.

101		XBRL (extensible Business Reporting Language). The following materials from the Company’s Annual Report on Form 10-K for the year ended May 31, ~~2020~~2021 formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Stockholders’ Equity (Deficit), (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to the Consolidated Financial Statements.

Page 4827

Delaware		13-2635899
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	TSRI	NASDAQ Capital Market
~~Preferred Share Purchase Rights~~¹	--	--

☐ Large accelerated filer	☐ Accelerated filer	☒ Non-accelerated filer
☒ Smaller Reporting Company	☐ Emerging growth company

	JUNE 1, 2019 – MAY 31, 2020
	1ST		2ND		3RD		4TH
	QUARTER		QUARTER		QUARTER		QUARTER

High Sales Price	$	4.93	$	4.39	$	8.88	$	3.96
Low Sales Price		4.23		3.20		2.64		2.70

	JUNE 1, 2020 – MAY 31, 2021
	1ST QUARTER		2ND QUARTER		3RD QUARTER		4TH QUARTER
High Sales Price	$	6.69	$	7.25	$	18.73	$	14.70
Low Sales Price		3.26		4.47		6.20		7.57

			Page No.
Part I

Item 1.	Business		1
Item 1A.	Risk Factors	3	5
Item 1B1B.	Unresolved Staff Comments		11
Item 2.	Properties	11	12
Item 3.	Legal Proceedings	11	12
Item 4.	Mine Safety Disclosures	14	15

Part II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	15	16
Item 6.	Selected Financial Data	15	16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16	17
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		20
Item 8.	Financial Statements and Supplementary Data		21
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	44	22
Item 9A.	Controls and Procedures	44	22
Item 9B.	Other Information	44	22

Part III

Item 10.	Directors, Executive Officers and Corporate Governance	45	23
Item 11.	Executive Compensation	45	23
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	45	23
Item 13.	Certain Relationships and Related Transactions, and Director Independence	45	23
Item 14.	Principal Accounting Fees and Services	45	23

Part IV.

Item 15.	Exhibits and Financial Statement Schedules	45
~~Signatures~~		4624
	Signatures		25

	JUNE 1, 2018 – MAY 31, 2019
	1ST		2ND		3RD		4TH
	QUARTER		QUARTER		QUARTER		QUARTER

High Sales Price	$	9.40	$	7.92	$	6.96	$	6.20
Low Sales Price		4.40		4.65		4.50		4.67

	Years Ended
	May 31,			May 31,			May 31,		May 31,		May 31,
	2020			2019			2018		2017		2016

Revenue, Net	$	59,121		$	63,340		$	64,990	$	62,573	$	60,998

Income (Loss) From Operations		(1,751	)		(1,848	)		909		562		839

Net Income (Loss) Attributable to TSR, Inc.		(1,126	)		(1,336	)		486		268		399

Basic and Diluted Net Income (Loss) Per TSR, Inc. Common Share		(0.57	)		(0.68	)		0.25		0.14		0.20

Working Capital		12,239			6,225			8,113		7,689		9,391

Total Assets		18,876			12,534			13,372		14,535		14,090

Total TSR, Inc. Equity		5,762			6,888			8,224		7,738		9,432

Book Value Per TSR, Inc. Common Share		2.94			3.51			4.19		3.94		4.81
(Total TSR Equity Divided by Common Shares Outstanding)

Cash Dividends Declared Per TSR, Inc. Common Share	$	0.00		$	0.00		$	0.00	$	1.00	$	0.00

	Years Ended May 31, (Dollar Amounts in Thousands)												Years Ended May 31, (Dollar Amounts in Thousands)
	2020						2019						2021						2020
	Amount			% of Revenue			Amount			% of Revenue			Amount			% of Revenue			Amount			% of Revenue
Revenue, Net	$	59,121			100.0	%	$	63,340			100.0	%	$	68,821			100.0	%	$	59,121			100.0	%
Cost of Sales		49,943			84.5			53,515			84.5			57,500			83.6			49,943			84.5
Gross Profit		9,178			15.5			9,825			15.5			11,321			16.4			9,178			15.5
Selling, General and Administrative Expenses		10,929			18.5			11,673			18.4			11,809			17.1			10,929			18.5
Loss from Operations		(1,751	)		(3.0	)		(1,848	)		(2.9	)		(488	)		(0.7	)		(1,751	)		(3.0	)
Other Income (Expense), Net		(59	)		(0.1	)		11			0.0
Other Expense, Net														(198	)		(0.3	)		(59	)		(0.1	)
Loss Before Income Taxes		(1,810	)		(3.1	)		(1,837	)		(2.9	)		(686	)		(1.0	)		(1,810	)		(3.1	)
Benefit for Income Taxes		(712	)		(1.2	)		(538	)		(0.8	)
Benefit from Income Taxes														(109	)		(0.1	)		(712	)		(1.2	)
Consolidated Net Loss		(1,098	)		(1.9	)		(1,299	)		(2.1	)		(577	)		(0.9	)		(1,098	)		(1.9	)
Net Income Attributable to Noncontrolling Interest		28			0.0			37			0.0			24			0.0			28			0.0
Net Loss Attributable to TSR, Inc.	$	(1,126	)		(1.9	)%	$	(1,336	)		(2.1	)%	$	(601	)		(0.9	)%	$	(1,126	)		(1.9	)%

		Page


Report of Independent Registered Public Accounting Firm	22	F-1

Consolidated Financial Statements:

Consolidated Balance Sheets as of May 31, ~~2020~~2021 and ~~2019~~2020	23	F-2

Consolidated Statements of Operations for the years ended May 31, ~~2020~~2021 and ~~2019~~2020	25	F-4

Consolidated Statements of Equity for the years ended May 31, ~~2020~~2021 and ~~2019~~2020	26	F-5

Consolidated Statements of Cash Flows for the years ended May 31, ~~2020~~2021 and ~~2019~~2020	27	F-6

Notes to Consolidated Financial Statements	28	F-7

	2021		2020
Current Assets:

Cash and cash equivalents	$	7,370,646	$	9,730,022
Marketable securities		45,696		50,344
Accounts receivable:
Trade, net of allowance for doubtful accounts of $181,000 in 2021 and 2020		9,660,742		7,057,365
Other		32,508		5,088
		9,693,250		7,062,453

Prepaid expenses		253,694		202,862
Prepaid and recoverable income taxes		8,671		598,893
Total Current Assets		17,371,957		17,644,574

Equipment and leasehold improvements, at cost:
Equipment		154,499		112,435
Furniture and fixtures		64,766		124,371
Leasehold improvements		51,979		60,058
		271,244		296,864

Less accumulated depreciation and amortization		155,006		276,673
		116,238		20,191

Other assets		47,663		49,653
Right-of-use asset		895,573		377,182
Intangible assets, net		1,671,750		-
Goodwill		785,883		-
Deferred income taxes		941,000		784,000
Total Assets	$	21,830,064	$	18,875,600

	Shares of				Additional											Non-						Shares of common stock		Common stock		Additional paid-in capital		Retained earnings			Treasury stock			TSR, Inc. equity			Non- controlling interest			Total equity
	common		Common		paid-in		Retained			Treasury			TSR, Inc.			controlling			Total
	stock		stock		capital		earnings			stock			equity			interest			equity
Balance at June 1, 2018		3,114,163	$	31,142	$	5,102,868	$	16,604,219		$	(13,514,003	)	$	8,224,226		$	44,552		$	8,268,778

Net income attributable to noncontrolling interest		-		-		-		-			-			-			36,940			36,940
Distribution to noncontrolling interest		-		-		-		-			-			-			(52,700	)		(52,700	)

Net loss attributable to TSR, Inc.		-		-		-		(1,335,995	)		-			(1,335,995	)		-			(1,335,995	)
Balance at May 31, 2019		3,114,163		31,142		5,102,868		15,268,224			(13,514,003	)		6,888,231			28,792			6,917,023
Balance at June 1, 2019																							3,114,163	$	31,142	$	5,102,868	$	15,268,224		$	(13,514,003	)	$	6,888,231		$	28,792		$	6,917,023

Net income attributable to noncontrolling interest		-		-		-		-			-			-			28,379			28,379			-		-		-		-			-			-			28,379			28,379

Distribution to noncontrolling interest		-		-		-		-			-			-			(28,791	)		(28,791	)		-		-		-		-			-			-			(28,791	)		(28,791	)

Net loss attributable to TSR, Inc.		-		-		-		(1,126,428	)		-			(1,126,428	)		-			(1,126,428	)		-		-		-		(1,126,428	)		-			(1,126,428	)		-			(1,126,428	)

Balance at May 31, 2020		3,114,163	$	31,142	$	5,102,868	$	14,141,796		$	(13,514,003	)	$	5,761,803		$	28,380		$	5,790,183			3,114,163		31,142		5,102,868		14,141,796			(13,514,003	)		5,761,803			28,380			5,790,183

Net income attributable to noncontrolling interest																							-		-		-		-			-			-			23,889			23,889

Distribution to noncontrolling interest																							-		-		-		-			-			-			(28,378	)		(28,378	)

Non-cash stock compensation																							-		-		236,332		-			-			236,332			-			236,332

Net loss attributable to TSR, Inc.																							-		-		-		(600,974	)		-			(600,974	)		-			(600,974	)

Balance at May 31, 2021																							3,114,163	$	31,142	$	5,339,200	$	13,540,822		$	(13,514,003	)	$	5,397,161		$	23,891		$	5,421,052

	~~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-~~	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.

	Level 1		Level 2		Level 3		Total
May 31, 2020
May 31, 2021									Level 1		Level 2		Level 3		Total
Equity Securities	$	50,344	$	-	$	-	$	50,344	$	45,696	$	-	$	-	$	45,696
	$	50,344	$	-	$	-	$	50,344

			Gross		Gross
			Unrealized		Unrealized
	Amortized		Holding		Holding		Recorded
	Cost		Gains		Losses		Value

May 31, 2020
Current
Equity Securities	$	16,866	$	33,478	$	-	$	50,344
	$	16,866	$	33,478	$	-	$	50,344

May 31, 2019
Current
Certificates of Deposit	$	492,000	$	-	$	-	$	492,000
Equity Securities		16,866		18,366		-		35,232
	$	508,866	$	18,366	$	-	$	527,232

May 31, 2021	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Recorded Value
Equity Securities	$	16,866	$	28,830	$	-	$	45,696

May 31, 2020
Equity Securities	$	16,866	$	33,478	$	-	$	50,344

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

	Federal			State			Total
2020: Current	$	(586,000	)	$	22,000		$	(564,000	)
Deferred		16,000			(164,000	)		(148,000	)
	$	(570,000	)	$	(142,000	)	$	(712,000	)

2019: Current	$	(10,000	)	$	30,000		$	20,000
Deferred		(383,000	)		(175,000	)		(558,000	)
	$	(393,000	)	$	(145,000	)	$	(538,000	)

	2020		2019

Balance at beginning of fiscal year	$	30,000	$	30,000
Additions based on tax positions related to current year		-		-
Additions for tax positions of prior years		-		-
Reductions for tax positions of prior years		-		-
Settlements		-		-
Balance at end of fiscal year	$	30,000	$	30,000

Twelve Months Ended May 31,
2022	$	371,155
2023		256,605
2024		179,035
2025		123,840
2026		126,936
Thereafter		130,109
Total undiscounted operating lease payments		1,187,680
Less imputed interest		170,580
Present value of operating lease payments	$	1,017,100

Twelve Months Ended May 31,
2021	$	208,777
2022		160,912
2023		40,629

Total undiscounted operating lease payments		410,318
Less imputed interest		29,110
Present value of operating lease payments	$	381,208