Research Solutions, Inc 10-Q for FY2021 Q1
Research Solutions, Inc. (RSSS)
About this 10-Q
Research Solutions, Inc filed this 10-Q on November 12, 2020, covering the quarter ended September 30, 2020 (FY2021 Q1).
Headline figures
Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $7.75M
- up 2.0% from $7.6M a year earlier
- Net income
- $14.65K
- compared with a net loss of $81.46K a year earlier
- Diluted EPS
- $0.00
- compared with $0.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) | |
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 2020
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to _____________
Commission File No. 000-53501
RESEARCH SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 11-3797644 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 10624 S. Eastern Ave., Ste. A-614, Henderson, NV | 89052 |
| (Address of principal executive offices) | (Zip Code) |
(310) 477-0354
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each Class | Trading Symbol(s) | Name of each Exchange on which registered |
| Common stock, $0.001 par value | RSSS | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ¨ | Accelerated filer ¨ |
| Non-accelerated filer x | Smaller reporting company x |
| Emerging growth company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
| Title of Class | Number of Shares Outstanding on November 6, 2020 | |
| Common Stock, $0.001 par value | 26,255,983 |
TABLE OF CONTENTS
2
PART 1 — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Research Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| September 30, | ||||||||
| 2020 | June 30, | |||||||
| (unaudited) | 2020 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 10,187,333 | $ | 9,311,556 | ||||
| Accounts receivable, net of allowance of $88,102 and $88,485, respectively | 4,455,091 | 4,449,260 | ||||||
| Prepaid expenses and other current assets | 240,381 | 241,747 | ||||||
| Prepaid royalties | 1,042,558 | 720,367 | ||||||
| Total current assets | 15,925,363 | 14,722,930 | ||||||
| Other assets: | ||||||||
| Property and equipment, net of accumulated depreciation of $810,349 and $804,999, respectively | 12,091 | 11,276 | ||||||
| Deposits and other assets | 6,183 | 6,155 | ||||||
| Right of use asset, net of accumulated amortization of $421,469 and $390,691, respectively | 41,553 | 72,331 | ||||||
| Total assets | $ | 15,985,190 | $ | 14,812,692 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 7,382,741 | $ | 6,349,845 | ||||
| Deferred revenue | 3,555,579 | 3,524,507 | ||||||
| Lease liability, current portion | 45,550 | 79,326 | ||||||
| Total current liabilities | 10,983,870 | 9,953,678 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock; $0.001 par value; 20,000,000 shares authorized; no shares issued and outstanding | - | - | ||||||
| Common stock; $0.001 par value; 100,000,000 shares authorized; 26,190,713 and 26,032,263 shares issued and outstanding, respectively | 26,191 | 26,032 | ||||||
| Additional paid-in capital | 26,261,156 | 26,134,819 | ||||||
| Accumulated deficit | (21,162,154 | ) | (21,176,799 | ) | ||||
| Accumulated other comprehensive loss | (123,873 | ) | (125,038 | ) | ||||
| Total stockholders’ equity | 5,001,320 | 4,859,014 | ||||||
| Total liabilities and stockholders’ equity | $ | 15,985,190 | $ | 14,812,692 | ||||
See notes to condensed consolidated financial statements
3
Research Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss)
(Unaudited)
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2020 | 2019 | |||||||
| Revenue: | ||||||||
| Platforms | $ | 1,141,688 | $ | 856,445 | ||||
| Transactions | 6,606,737 | 6,738,668 | ||||||
| Total revenue | 7,748,425 | 7,595,113 | ||||||
| Cost of revenue: | ||||||||
| Platforms | 203,952 | 150,470 | ||||||
| Transactions | 5,094,897 | 5,128,108 | ||||||
| Total cost of revenue | 5,298,849 | 5,278,578 | ||||||
| Gross profit | 2,449,576 | 2,316,535 | ||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | 2,428,938 | 2,435,680 | ||||||
| Depreciation and amortization | 3,723 | 7,558 | ||||||
| Total operating expenses | 2,432,661 | 2,443,238 | ||||||
| Income (loss) from operations | 16,915 | (126,703 | ) | |||||
| Other income | 235 | 25,549 | ||||||
| Income (loss) from operations before provision for income taxes | 17,150 | (101,154 | ) | |||||
| Provision for income taxes | (2,505 | ) | (6,494 | ) | ||||
| Income (loss) from continuing operations | 14,645 | (107,648 | ) | |||||
| Gain from sale of discontinued operations | - | 26,191 | ||||||
| Net income (loss) | 14,645 | (81,457 | ) | |||||
Other comprehensive income (loss): Foreign currency translation | 1,165 | (3,568 | ) | |||||
| Comprehensive income (loss) | $ | 15,810 | $ | (85,025 | ) | |||
| Basic income (loss) per common share: | ||||||||
| Income (loss) per share from continuing operations | $ | - | $ | - | ||||
| Income per share from discontinued operations | $ | - | $ | - | ||||
| Net income (loss) per share | $ | - | $ | - | ||||
| Basic weighted average common shares outstanding | 25,898,900 | 24,095,266 | ||||||
| Diluted income (loss) per common share: | ||||||||
| Income (loss) per share from continuing operations | $ | - | $ | - | ||||
| Income per share from discontinued operations | $ | - | $ | - | ||||
| Net income (loss) per share | $ | - | $ | - | ||||
| Basic weighted average common shares outstanding | 26,511,180 | 24,095,266 | ||||||
See notes to condensed consolidated financial statements
4
Research Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
For the Three Months Ended September 30, 2020
(Unaudited)
| Common Stock | Additional Paid-in | Accumulated | Other Comprehensive | Total Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Loss | Equity | |||||||||||||||||||
| Balance, July 1, 2020 | 26,032,263 | $ | 26,032 | $ | 26,134,819 | $ | (21,176,799 | ) | $ | (125,038 | ) | $ | 4,859,014 | |||||||||||
| Fair value of vested stock options | - | - | 77,627 | - | - | 77,627 | ||||||||||||||||||
| Fair value of vested restricted common stock | 120,000 | 120 | 93,044 | - | - | 93,164 | ||||||||||||||||||
| Repurchase of common stock | (25,500 | ) | (25 | ) | (58,370 | ) | - | - | (58,395 | ) | ||||||||||||||
| Common stock issued upon exercise of stock options | 63,950 | 64 | 14,036 | - | - | 14,100 | ||||||||||||||||||
| Net income for the period | - | - | - | 14,645 | - | 14,645 | ||||||||||||||||||
| Foreign currency translation | - | - | - | - | 1,165 | 1,165 | ||||||||||||||||||
| Balance, September 30, 2020 | 26,190,713 | $ | 26,191 | $ | 26,261,156 | $ | (21,162,154 | ) | $ | (123,873 | ) | $ | 5,001,320 | |||||||||||
See notes to condensed consolidated financial statements
5
Research Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
For the Three Months Ended September 30, 2019
(Unaudited)
| Common Stock | Additional Paid-in | Accumulated | Other Comprehensive | Total Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Loss | Equity | |||||||||||||||||||
| Balance, July 1, 2019 | 24,375,948 | $ | 24,376 | $ | 23,631,481 | $ | (20,514,557 | ) | $ | (109,585 | ) | $ | 3,031,715 | |||||||||||
| Fair value of vested stock options | - | - | 58,198 | - | - | 58,198 | ||||||||||||||||||
| Fair value of vested restricted common stock | 70,000 | 70 | 84,404 | - | - | 84,474 | ||||||||||||||||||
| Repurchase of common stock | (28,750 | ) | (28 | ) | (71,847 | ) | - | - | (71,875 | ) | ||||||||||||||
| Common stock issued upon exercise of stock options | 24,307 | 24 | (24 | ) | - | - | - | |||||||||||||||||
| Net loss for the period | - | - | - | (81,457 | ) | - | (81,457 | ) | ||||||||||||||||
| Foreign currency translation | - | - | - | - | (3,568 | ) | (3,568 | ) | ||||||||||||||||
| Balance, September 30, 2019 | 24,441,505 | $ | 24,442 | $ | 23,702,212 | $ | (20,596,014 | ) | $ | (113,153 | ) | $ | 3,017,487 | |||||||||||
See notes to condensed consolidated financial statements
6
Research Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash flow from operating activities: | ||||||||
| Net income (loss) | $ | 14,645 | $ | (81,457 | ) | |||
| Adjustment to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Gain from sale of discontinued operations | - | (26,191 | ) | |||||
| Depreciation and amortization | 3,723 | 7,558 | ||||||
| Amortization of lease right | 30,778 | 29,513 | ||||||
| Fair value of vested stock options | 77,627 | 58,198 | ||||||
| Fair value of vested restricted common stock | 93,164 | 84,474 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (5,831 | ) | 116,362 | |||||
| Prepaid expenses and other current assets | 1,366 | 89,902 | ||||||
| Prepaid royalties | (322,191 | ) | (69,699 | ) | ||||
| Accounts payable and accrued expenses | 1,032,896 | 23,829 | ||||||
| Deferred revenue | 31,072 | 108,589 | ||||||
| Lease liability | (33,776 | ) | (31,346 | ) | ||||
| Net cash provided by operating activities | 923,473 | 309,732 | ||||||
| Cash flow from investing activities: | ||||||||
| Purchase of property and equipment | (4,304 | ) | - | |||||
| Net cash used in investing activities | (4,304 | ) | - | |||||
| Cash flow from financing activities: | ||||||||
| Proceeds from the exercise of stock options | 14,100 | - | ||||||
| Common stock repurchase and retirement | (58,395 | ) | (71,875 | ) | ||||
| Net cash used in financing activities | (44,295 | ) | (71,875 | ) | ||||
| Effect of exchange rate changes | 903 | (3,114 | ) | |||||
| Net increase in cash and cash equivalents | 875,777 | 234,743 | ||||||
| Cash and cash equivalents, beginning of period | 9,311,556 | 5,353,090 | ||||||
| Cash and cash equivalents, end of period | $ | 10,187,333 | $ | 5,587,833 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for income taxes | $ | 2,505 | $ | 6,494 | ||||
See notes to condensed consolidated financial statements
7
RESEARCH SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended September 30, 2020 and 2019 (Unaudited)
Note 1. Organization, Nature of Business and Basis of Presentation
Organization
Research Solutions, Inc. (the “Company,” “Research Solutions,” “we,” “us” or “our”) was incorporated in the State of Nevada on November 2, 2006, and is a publicly traded holding company with two wholly owned subsidiaries: Reprints Desk, Inc., a Delaware corporation and Reprints Desk Latin America S. de R.L. de C.V, an entity organized under the laws of Mexico.
Nature of Business
We provide two service offerings to our customers: annual licenses that allow customers to access and utilize certain premium features of our cloud based software-as-a-service (“SaaS”) research intelligence platform (“Platforms”) and the transactional sale of published scientific, technical, and medical (“STM”) content managed, sourced and delivered through the Platform (“Transactions”). Platforms and Transactions are packaged as a single solution that enable life science and other research intensive organizations to speed up research and development activities with faster, single sourced access and management of content and data used throughout the intellectual property development lifecycle.
Platforms
Our cloud-based SaaS research intelligence platform consists of proprietary software and Internet-based interfaces sold to customers for an annual subscription fee. Legacy functionality allows customers to initiate orders, route orders for the lowest cost acquisition, manage transactions, obtain spend and usage reporting, automate authentication, and connect seamlessly to in-house and third-party software systems. Customers can also enhance the information resources they already own or license and collaborate around bibliographic information.
Additional functionality has recently been added to our Platform in the form of interactive app-like gadgets. An alternative to manual data filtering, identification and extraction, gadgets are designed to gather, augment, and extract data across a variety of formats, including bibliographic citations, tables of contents, RSS feeds, PDF files, XML feeds, and web content. We are rapidly developing new gadgets in order to build an ecosystem of gadgets. Together, these gadgets will provide researchers with an “all in one” toolkit, delivering efficiencies in core research workflows and knowledge creation processes.
Our Platform is deployed as a single, multi-tenant system across our entire customer base. Customers securely access the Platform through online web interfaces and via web service APIs that enable customers to leverage Platform features and functionality from within in-house and third-party software systems. The Platform can also be configured to satisfy a customer’s individual preferences. We leverage our Platform’s efficiencies in scalability, stability and development costs to fuel rapid innovation and competitive advantage.
Transactions
Our Platform provides our customers with a single source to the universe of published STM content that includes over 70 million existing STM articles and over one million newly published STM articles each year. STM content is sold to our customers on a transaction basis. Researchers and knowledge workers in life science and other research-intensive organizations generally require single copies of published STM journal articles for use in their research activities. These individuals are our primary users.
Our Platform allows customers to find and download digital versions of STM articles that are critical to their research. Customers submit orders for the articles they need which we source and electronically deliver to them generally in under an hour. This service is generally known in the industry as single article delivery or document delivery. We also obtain the necessary permission licenses from the content publisher or other rights holder so that our customer’s use complies with applicable copyright laws. We have arrangements with hundreds of content publishers that allow us to distribute their content. The majority of these publishers provide us with electronic access to their content, which allows us to electronically deliver single articles to our customers often in a matter of minutes.
Principles of Consolidation
The accompanying financial statements are consolidated and include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.
8
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020 filed with the SEC. The condensed consolidated balance sheet as of June 30, 2020 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including notes, required by GAAP.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company's financial position and results of operations for the interim periods reflected. Except as noted, all adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not necessarily indicative of fiscal year-end results.
Note 2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.
These estimates and assumptions include estimates for reserves of uncollectible accounts, accruals for potential liabilities, assumptions made in valuing equity instruments issued for services or acquisitions, and realization of deferred tax assets.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents and accounts receivable. The Company places its cash with high quality financial institutions and at times may exceed the FDIC $250,000 insurance limit. The Company does not anticipate incurring any losses related to these credit risks. The Company extends credit based on an evaluation of the customer's financial condition, generally without collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and intends to maintain allowances for anticipated losses, as required.
Cash denominated in Euros with a US Dollar equivalent of $133,713 and $134,175 at September 30, 2020 and June 30, 2020, respectively, was held by Reprints Desk in accounts at financial institutions located in Europe.
The Company has no customers that represent 10% of revenue or more for the three months ended September 30, 2020 and 2019.
The following table summarizes accounts receivable concentrations:
| As of | ||||||||
| September 30, | June 30, | |||||||
| 2020 | 2020 | |||||||
| Customer A | 15 | % | * | |||||
* Less than 10%
The following table summarizes vendor concentrations:
Three Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Vendor A | 18 | % | 20 | % | ||||
| Vendor B | 13 | % | 12 | % | ||||
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), ("ASC 606"). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. The Company adopted the guidance of ASC 606 on July 1, 2018. The implementation of ASC 606 had no impact on the condensed consolidated financial statements and no cumulative effect adjustment was recognized.
9
Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company derives its revenues from two sources: annual licenses that allow customers to access and utilize certain premium features of our cloud based SaaS research intelligence platform (“Platforms”) and the transactional sale of STM content managed, sourced and delivered through the Platform (“Transactions”).
The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
• identify the contract with a customer;
• identify the performance obligations in the contract;
• determine the transaction price;
• allocate the transaction price to performance obligations in the contract; and
• recognize revenue as the performance obligation is satisfied.
Platforms
We charge a subscription fee that allows customers to access and utilize certain premium features of our Platform. Revenue is recognized ratably over the term of the subscription agreement, which is typically one year, provided all other revenue recognition criteria have been met. Billings or payments received in advance of revenue recognition are recorded as deferred revenue.
Transactions
We charge a transactional service fee for the electronic delivery of single articles, and a corresponding copyright fee for the permitted use of the content. We recognize revenue from single article delivery services upon delivery to the customer provided all other revenue recognition criteria have been met.
Deferred Revenue
Contract liabilities, such as deferred revenue, exist where the Company has the obligation to transfer services to a customer for which the entity has received consideration, or when the consideration is due, from the customer.
Cash payments received or due in advance of performance are recorded as deferred revenue. Deferred revenue is primarily comprised of cloud-based software subscriptions which are generally billed in advance. The deferred revenue balance is presented as a current liability on the Company's consolidated balance sheets.
Cost of Revenue
Platforms
Cost of Platform revenue consists primarily of personnel costs of our operations team, and to a lesser extent managed hosting providers and other third-party service and data providers.
Transactions
Cost of Transaction revenue consists primarily of the respective copyright fee for the permitted use of the content, less a discount in most cases, and to a much lesser extent, personnel costs of our operations team and third-party service providers.
Stock-Based Compensation
The Company periodically issues stock options and restricted stock awards to employees and non-employees for services. The Company accounts for such grants issued and vesting based on ASC 718, whereby the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. The Company recognizes the fair value of stock-based compensation within its Statements of Operations with classification depending on the nature of the services rendered.
10
Foreign Currency
The accompanying condensed consolidated financial statements are presented in United States dollars, the functional currency of the Company. Capital accounts of foreign subsidiaries are translated into US Dollars from foreign currency at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rate as of the balance sheet date. Income and expenditures are translated at the average exchange rate of the period. Although the majority of our revenue and costs are in US dollars, the costs of Reprints Desk Latin America are in Mexican Pesos. As a result, currency exchange fluctuations may impact our revenue and the costs of our operations. We currently do not engage in any currency hedging activities.
Gains and losses from foreign currency transactions, which result from a change in exchange rates between the functional currency and the currency in which a foreign currency transaction is denominated, are included in selling, general and administrative expenses and amounted to a gain of $24,249 for the three months ended September 30, 2020 and a loss of $12,123 for the three months ended September 30, 2019. Cash denominated in Euros with a US Dollar equivalent of $133,713 and $134,175 at September 30, 2020 and June 30, 2020, respectively, was held in accounts at financial institutions located in Europe.
The following table summarizes the exchange rates used:
| Three Months Ended September 30, | Year Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Period end Euro : US Dollar exchange rate | 1.17 | 1.09 | 1.12 | 1.14 | ||||||||||||
| Average period Euro : US Dollar exchange rate | 1.16 | 1.12 | 1.14 | 1.14 | ||||||||||||
| Period end Mexican Peso : US Dollar exchange rate | 0.04 | 0.05 | 0.04 | 0.05 | ||||||||||||
| Average period Mexican Peso : US Dollar exchange rate | 0.04 | 0.05 | 0.05 | 0.05 | ||||||||||||
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period, excluding shares of unvested restricted common stock. Shares of restricted stock are included in the basic weighted average number of common shares outstanding from the time they vest. Diluted earnings per share is computed by dividing the net income applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Shares of restricted stock are included in the diluted weighted average number of common shares outstanding from the date they are granted. Potential common shares are excluded from the computation when their effect is antidilutive. At September 30, 2020 potentially dilutive securities include options to acquire 3,340,580 shares of common stock, warrants to acquire 385,000 shares of common stock and unvested restricted common stock of 259,238. At September 30, 2019 potentially dilutive securities include options to acquire 3,297,335 shares of common stock, warrants to acquire 1,885,000 shares of common stock and unvested restricted common stock of 292,283. The dilutive effect of potentially dilutive securities is reflected in diluted net income per share if the exercise prices were lower than the average fair market value of common shares during the reporting period.
For the three months ended September 30, 2020, the calculation of diluted earnings per share includes unvested restricted common stock, stock options and warrants, calculated under the treasury stock method. For the three months ended September 30, 2019, basic and diluted net loss per common share is the same because all stock options, warrants, and unvested restricted common stock are anti-dilutive.
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Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company beginning January 1, 2023, and early adoption is permitted. The Company does not believe the potential impact of the new guidance and related codification improvements will be material to its financial position, results of operations and cash flows.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.
Note 3. Line of Credit
The Company entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB”) on July 23, 2010, which, as amended, provides for a revolving line of credit for the lesser of $2,500,000, or 80% of eligible accounts receivable. The line of credit matures on February 14, 2022, and is subject to certain financial and performance covenants with which we were in compliance as of September 30, 2020. Financial covenants include maintaining an adjusted quick ratio of unrestricted cash and net accounts receivable, divided by current liabilities plus debt less deferred revenue of at least 1.15 to 1.0, and maintaining tangible net worth of $1,500,000, plus 50% of net income for the fiscal quarter ended from and after December 31, 2017, plus 50% of the dollar value of equity issuances after October 1, 2017 and the principal amount of subordinated debt. The line of credit bears interest at an annual rate equal to the greater of 1% above the prime rate and 5.5%. The interest rate on the line of credit was 5.5% as of September 30, 2020. The line of credit is secured by the Company’s consolidated assets.
There were no outstanding borrowings under the line as of September 30, 2020 and June 30, 2020, respectively. As of September 30, 2020, there was approximately $2,057,000 of available credit.
Note 4. Lease Obligations
On December 30, 2016, the Company entered into a 48 month non-cancellable lease for its office facilities that will require monthly payments ranging from $10,350 to $11,475 through January 2021. In accounting for the lease, the Company adopted ASU 2016-02, Leases which requires a lessee to record a right-of-use asset and a corresponding lease liability at the inception of the lease initially measured at the present value of the lease payments. The Company classified the lease as an operating lease and determined that the value of the lease assets and liability at the inception of the lease was $463,000 using a discount rate of 3.75%. During the three months ended September 30, 2020, the Company made payments of $33,776 towards the lease liability. As of September 30, 2020 and June 30, 2020, lease liability amounted to $45,550 and $79,326, respectively. ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. Rent expense, including real estate taxes, for the three months ended September 30, 2020 and 2019 was $12,505 and $37,122, respectively. The right of use asset at June 30, 2020 was $72,331. During the three months ended September 30, 2020, the Company reflected amortization of right of use asset of $30,778 related to this lease, resulting in a net asset balance of $41,553 as of September 30, 2020.
On October 8, 2019, the Company entered into an agreement to sublease its office facilities from November 1, 2019 through January 31, 2021, the end of the lease term, for $8,094 per month with one month of abated rent. The Company recorded rent income of $24,282 during the three months ended September 30, 2020. This amount is reflected as an offset to rent expense that is included in general and administrative expenses in the accompanying statements of operations.
Note 5. Stockholders’ Equity
Stock Options
In December 2007, we established the 2007 Equity Compensation Plan (the “2007 Plan”) and in November 2017 we established the 2017 Omnibus Incentive Plan (the “2017 Plan”), collectively (the “Plans”). The Plans were approved by our board of directors and stockholders. The purpose of the Plans is to grant stock and options to purchase our common stock, and other incentive awards, to our employees, directors and key consultants. On November 10, 2016, the maximum number of shares of common stock that may be issued pursuant to awards granted under the 2007 Plan increased from 5,000,000 to 7,000,000. On November 21, 2017, the Company’s stockholders approved the adoption of the 2017 Plan (previously adopted by our board of directors on September 14, 2017), which authorized a maximum of 1,874,513 shares of common stock that may be issued pursuant to awards granted under the 2017 Plan. On November 12, 2019, the Company’s stockholders approved an increase in the maximum number of shares of common stock that may be issued pursuant to awards granted under the 2017 Omnibus Incentive Plan from 1,874,513 to 2,374,513. Upon adoption of the 2017 Plan we ceased granting incentive awards under the 2007 Plan and commenced granting incentive awards under the 2017 Plan. The shares of our common stock underlying cancelled and forfeited awards issued under the 2017 Plan may again become available for grant under the 2017 Plan. Cancelled and forfeited awards issued under the 2007 Plan that were cancelled or forfeited prior to November 21, 2017 became available for grant under the 2007 Plan. As of September 30, 2020, there were 348,179 shares available for grant under the 2017 Plan, and no shares were available for grant under the 2007 Plan. All incentive stock award grants prior to the adoption of the 2017 Plan on November 21, 2017 were made under the 2007 Plan, and all incentive stock award grants after the adoption of the 2017 Plan on November 21, 2017 were made under the 2017 Plan.
The majority of awards issued under the Plan vest immediately or over three years, with a one year cliff vesting period, and have a term of ten years. Stock-based compensation cost is measured at the grant date, based on the fair value of the awards that are ultimately expected to vest, and recognized on a straight-line basis over the requisite service period, which is generally the vesting period.
12
The following table summarizes vested and unvested stock option activity:
| All Options | Vested Options | Unvested Options | ||||||||||||||||||||||
| Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||||||||
| Outstanding at June 30, 2020 | 3,327,580 | $ | 1.56 | 3,081,745 | $ | 1.50 | 245,835 | $ | 2.34 | |||||||||||||||
| Granted | 173,000 | 2.45 | - | - | 173,000 | 2.45 | ||||||||||||||||||
| Options vesting | - | - | 56,583 | 2.22 | (56,583 | ) | 2.22 | |||||||||||||||||
| Exercised | (141,250 | ) | 1.39 | (141,250 | ) | 1.39 | - | - | ||||||||||||||||
| Forfeited/Cancelled | (18,750 | ) | 1.95 | - | - | (18,750 | ) | 1.95 | ||||||||||||||||
| Outstanding at September 30, 2020 | 3,340,580 | $ | 1.61 | 2,997,078 | $ | 1.52 | 343,502 | $ | 2.44 | |||||||||||||||
The weighted average remaining contractual life of all options outstanding as of September 30, 2020 was 5.82 years. The remaining contractual life for options vested and exercisable at September 30, 2020 was 5.44 years. Furthermore, the aggregate intrinsic value of options outstanding as of September 30, 2020 was $2,515,705, and the aggregate intrinsic value of options vested and exercisable at September 30, 2020 was $2,496,297, in each case based on the fair value of the Company’s common stock on September 30, 2020.
During the three months ended September 30, 2020, the Company granted 173,000 options to employees with a fair value of $238,740 which amount will be amortized over the vesting period. The total fair value of options that vested during the three months ended September 30, 2020 was $77,627 and is included in selling, general and administrative expenses in the accompanying statement of operations. As of September 30, 2020, the amount of unvested compensation related to stock options was $451,628 which will be recorded as an expense in future periods as the options vest. During the three months ended September 30, 2020, the Company issued 63,950 net shares of common stock upon the exercise of 141,250 options, resulting in net cash proceeds of $14,000.
The following table presents the assumptions used to estimate the fair values based upon a Black-Scholes option pricing model of the stock options granted during the three months ended September 30, 2020 and 2019.
Three Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Expected dividend yield | 0 | % | 0 | % | ||||
| Risk-free interest rate | 0.37 | % | 1.61 | % | ||||
| Expected life (in years) | 6 | 6 | ||||||
| Expected volatility | 63 | % | 64 | % | ||||
Additional information regarding stock options outstanding and exercisable as of September 30, 2020 is as follows:
| Option Exercise Price | Options Outstanding | Remaining Contractual Life (in years) | Options Exercisable | |||||||||||
| $ | 0.59 | 8,150 | 1.75 | 8,150 | ||||||||||
| 0.60 | 5,000 | 1.75 | 5,000 | |||||||||||
| 0.65 | 6,150 | 1.75 | 6,150 | |||||||||||
| 0.70 | 225,000 | 5.18 | 225,000 | |||||||||||
| 0.77 | 49,500 | 2.83 | 49,500 | |||||||||||
| 0.80 | 16,000 | 4.89 | 16,000 | |||||||||||
| 0.90 | 25,667 | 3.56 | 25,667 | |||||||||||
| 0.97 | 6,000 | 1.75 | 6,000 | |||||||||||
| 1.00 | 28,249 | 3.18 | 28,249 | |||||||||||
| 1.02 | 2,000 | 1.75 | 2,000 | |||||||||||
| 1.05 | 400,529 | 5.84 | 400,529 | |||||||||||
| 1.07 | 33,898 | 2.04 | 33,898 | |||||||||||
| 1.09 | 124,165 | 5.09 | 124,165 | |||||||||||
| 1.10 | 105,000 | 4.75 | 105,000 | |||||||||||
| 1.14 | 3,674 | 1.75 | 3,674 | |||||||||||
| 1.15 | 209,400 | 3.86 | 209,400 | |||||||||||
| 1.20 | 352,414 | 6.82 | 352,414 | |||||||||||
| 1.25 | 32,000 | 2.37 | 32,000 | |||||||||||
| 1.30 | 243,000 | 1.43 | 243,000 | |||||||||||
| 1.50 | 195,000 | 2.13 | 195,000 | |||||||||||
| 1.59 | 35,000 | 7.61 | 29,165 | |||||||||||
| 1.75 | 1,067 | 1.75 | 1,067 | |||||||||||
| 1.80 | 94,050 | 2.88 | 94,050 | |||||||||||
| 1.85 | 24,000 | 2.34 | 24,000 | |||||||||||
| 1.95 | 200,000 | 7.76 | 150,000 | |||||||||||
| 2.40 | 398,667 | 8.13 | 347,167 | |||||||||||
| 2.45 | 173,000 | 9.85 | - | |||||||||||
| 2.49 | 50,000 | 8.99 | 20,833 | |||||||||||
| 2.50 | 20,000 | 8.63 | 10,000 | |||||||||||
| 2.99 | 8,000 | 9.62 | - | |||||||||||
| 3.13 | 258,000 | 9.12 | 250,000 | |||||||||||
| 3.50 | 8,000 | 9.37 | - | |||||||||||
| Total | 3,340,580 | 2,997,078 | ||||||||||||
13
Warrants
The following table summarizes warrant activity:
| Number of Warrants | Weighted Average Exercise Price | |||||||
| Outstanding, June 30, 2020 | 385,000 | $ | 1.24 | |||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Expired/Cancelled | - | - | ||||||
| Outstanding, September 30, 2020 | 385,000 | $ | 1.24 | |||||
| Exercisable, June 30, 2020 | 385,000 | $ | 1.24 | |||||
| Exercisable, September 30, 2020 | 385,000 | $ | 1.24 | |||||
The intrinsic value for all warrants outstanding as of September 30, 2020 was $391,850, based on the fair value of the Company’s common stock on September 30, 2020.
Additional information regarding warrants outstanding and exercisable as of September 30, 2020 is as follows:
| Warrant Exercise Price | Warrants Outstanding | Remaining Contractual Life (in years) | Warrants Exercisable | |||||||||||
| $ | 1.19 | 50,000 | 1.22 | 50,000 | ||||||||||
| 1.25 | 335,000 | 0.63 | 335,000 | |||||||||||
| Total | 385,000 | 385,000 | ||||||||||||
Restricted Common Stock
Prior to July 1, 2020, the Company issued 2,277,366 shares of restricted common stock to employees valued at $2,709,318, of which 1,871,187 shares have vested, 214,324 shares with fair value of $188,203 have been forfeited, and $1,785,857 has been recognized as an expense. The balance of the non-vested shares of restricted common stock was 191,855 at June 30, 2020.
During the three months ended September 30, 2020, the Company issued an additional 120,000 shares of restricted stock to employees. These shares vest over a three year period, with a one year cliff vesting period, and remain subject to forfeiture if vesting conditions are not met. The aggregate fair value of the stock awards was $294,000 based on the market price of our common stock price of $2.45 per share on the date of grant, which will be amortized over the three-year vesting period.
14
The total fair value of restricted common stock vesting during the three months ended September 30, 2020 was $93,164 and is included in selling, general and administrative expenses in the accompanying statements of operations. As of September 30, 2020, the amount of unvested compensation related to issuances of restricted common stock was $595,133, which will be recognized as an expense in future periods as the shares vest. When calculating basic net income (loss) per share, these shares are included in weighted average common shares outstanding from the time they vest. When calculating diluted net income per share, these shares are included in weighted average common shares outstanding as of their grant date.
The following table summarizes restricted common stock activity:
| Number of Shares | Fair Value | Weighted Average Grant Date Fair Value | ||||||||||
| Non-vested, June 30, 2020 | 191,855 | $ | 394,297 | $ | 2.51 | |||||||
| Granted | 120,000 | 294,000 | 2.45 | |||||||||
| Vested | (52,617 | ) | (93,164 | ) | 2.32 | |||||||
| Forfeited | - | - | - | |||||||||
| Non-vested, September 30, 2020 | 259,238 | $ | 595,133 | $ | 2.52 | |||||||
Common Stock Repurchase and Retirement
Effective as of February 11, 2020, the Compensation Committee of our Board of Directors authorized the repurchase, during calendar year 2020 on the last day of each trading window and otherwise in accordance with our insider trading policies, of up to $400,000 of outstanding common stock (at prices no greater than $4.00 per share) from our employees to satisfy their tax obligations in connection with the vesting of stock incentive awards. The actual number of shares repurchased will be determined by applicable employees in their discretion, and will depend on their evaluation of market conditions and other factors.
During the three months ended September 30, 2020, the Company repurchased 25,500 shares of our common stock from employees at an average market price of approximately $2.29 per share for an aggregate amount of $58,395.
As of September 30, 2020, $219,379 remains available under the 2020 plan to repurchase common stock from its employees. The shares of common stock were surrendered by employees to cover tax withholding obligations with respect to the vesting of restricted stock. Shares repurchased are retired and deducted from common stock for par value and from additional paid in capital for the excess over par value.
Note 6. Contingencies
COVID-19
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
To date, we have not experienced any significant changes in our business that would have a significant negative impact on our consolidated statements of operations or cash flows.
The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of Company’s financial statements, the extent to which the COVID-19 pandemic may in the future materially impact the Company’s financial condition, liquidity or results of operations is uncertain.
Note 7. Subsequent Events
On October 5, 2020, the Company issued 50,000 shares of common stock upon the exercise of warrants for $62,500 in proceeds.
On October 26, 2020, the Company issued 15,270 net shares of common stock upon the cashless exercise of stock options underlying 33,270 shares of common stock for 18,000 shares of common stock used as payment.
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Notice Regarding Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations for the three months ended September 30, 2020 and 2019 should be read in conjunction with our consolidated financial statements and related notes to those financial statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date hereof and, except as required by law, we assume no obligation to update any such forward-looking statements.
Overview
Research Solutions was incorporated in the State of Nevada on November 2, 2006, and is a publicly traded holding company with two wholly owned subsidiaries at June 30, 2020: Reprints Desk, Inc., a Delaware corporation and Reprints Desk Latin America S. de R.L. de C.V, an entity organized under the laws of Mexico.
We provide two service offerings to our customers: annual licenses that allow customers to access and utilize certain premium features of our cloud based software-as-a-service (“SaaS”) research intelligence platform (“Platforms”) and the transactional sale of published scientific, technical, and medical (“STM”) content managed, sourced and delivered through the Platform (“Transactions”). Platforms and Transactions are packaged as a single solution that enable life science and other research intensive organizations to speed up research and development activities with faster, single sourced access and management of content and data used throughout the intellectual property development lifecycle.
Platforms
Our cloud-based SaaS research intelligence platform consists of proprietary software and Internet-based interfaces sold to customers for an annual subscription fee. Legacy functionality allows customers to initiate orders, route orders for the lowest cost acquisition, manage transactions, obtain spend and usage reporting, automate authentication, and connect seamlessly to in-house and third-party software systems. Customers can also enhance the information resources they already own or license and collaborate around bibliographic information.
Additional functionality has recently been added to our Platform in the form of interactive app-like gadgets. An alternative to manual data filtering, identification and extraction, gadgets are designed to gather, augment, and extract data across a variety of formats, including bibliographic citations, tables of contents, RSS feeds, PDF files, XML feeds, and web content. We are rapidly developing new gadgets in order to build an ecosystem of gadgets. Together, these gadgets will provide researchers with an “all in one” toolkit, delivering efficiencies in core research workflows and knowledge creation processes.
Our Platform is deployed as a single, multi-tenant system across our entire customer base. Customers securely access the Platform through online web interfaces and via web service APIs that enable customers to leverage Platform features and functionality from within in-house and third-party software systems. The Platform can also be configured to satisfy a customer’s individual preferences. We leverage our Platform’s efficiencies in scalability, stability and development costs to fuel rapid innovation and competitive advantage.
Transactions
Our Platform provides our customers with a single source to the universe of published STM content that includes over 70 million existing STM articles and over one million newly published STM articles each year. STM content is sold to our customers on a transaction basis. Researchers and knowledge workers in life science and other research-intensive organizations generally require single copies of published STM journal articles for use in their research activities. These individuals are our primary users.
Our Platform allows customers to find and download digital versions of STM articles that are critical to their research. Customers submit orders for the articles they need which we source and electronically deliver to them generally in under an hour. This service is generally known in the industry as single article delivery or document delivery. We also obtain the necessary permission licenses from the content publisher or other rights holder so that our customer’s use complies with applicable copyright laws. We have arrangements with hundreds of content publishers that allow us to distribute their content. The majority of these publishers provide us with electronic access to their content, which allows us to electronically deliver single articles to our customers often in a matter of minutes.
16
COVID-19
We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as the responses that we, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
To date, we have not experienced any significant changes in our business that would have a significant negative impact on our consolidated statements of operations or cash flows.
The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on our customers, service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of our financial statements, the extent to which the COVID-19 pandemic may in the future materially impact our financial condition, liquidity or results of operations is uncertain.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States, or GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. When making these estimates and assumptions, we consider our historical experience, our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances. Actual results may differ under different estimates and assumptions.
The accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), ("ASC 606"). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. We adopted the guidance of ASC 606 on July 1, 2018. The implementation of ASC 606 had no impact on the condensed consolidated financial statements and no cumulative effect adjustment was recognized.
Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. We derive our revenues from two sources: annual licenses that allow customers to access and utilize certain premium features of our cloud based SaaS research intelligence platform (“Platforms”) and the transactional sale of STM content managed, sourced and delivered through the Platform (“Transactions”).
| Customers | ||
 | ||
| Paid Premium Platform Features PLATFORM REVENUE |
Free Basic Platform Features | |
 |
| |
| Transactional Sale of STM Content TRANSACTION REVENUE | ||
We apply the following five steps in order to determine the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our agreements:
• identify the contract with a customer;
• identify the performance obligations in the contract;
• determine the transaction price;
• allocate the transaction price to performance obligations in the contract; and
• recognize revenue as the performance obligation is satisfied.
Platforms
We charge a subscription fee that allows customers to access and utilize certain premium features of our Platform. Revenue is recognized ratably over the term of the subscription agreement, which is typically one year, provided all other revenue recognition criteria have been met. Billings or payments received in advance of revenue recognition are recorded as deferred revenue.
17
Transactions
We charge a transactional service fee for the electronic delivery of single articles, and a corresponding copyright fee for the permitted use of the content. We recognize revenue from single article delivery services upon delivery to the customer provided all other revenue recognition criteria have been met.
Stock-Based Compensation
The fair value of our stock options is estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or restricted stock, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.
Recent Accounting Pronouncements
Please refer to footnote 2 to the condensed consolidated financial statements contained elsewhere in this Form 10-Q for a discussion of Recent Accounting Pronouncements.
Quarterly Information (Unaudited)
The following table sets forth unaudited and quarterly financial data for the most recent eight quarters:
| Sept. 30, | June 30, | Mar. 31, | Dec. 31, | Sept. 30, | June 30, | Mar. 31, | Dec. 31, | |||||||||||||||||
| 2020 | 2020 | 2020 | 2019 | 2019 | 2019 | 2019 | 2018 | |||||||||||||||||
| Revenue: | ||||||||||||||||||||||||
| Platforms | $ | 1,141,688 | $ | 1,066,630 | $ | 1,017,789 | $ | 949,825 | $ | 856,445 | $ | 803,917 | $ | 748,726 | $ | 667,545 | ||||||||
| Transactions | 6,606,737 | 6,819,150 | 7,029,617 | 6,580,613 | 6,738,668 | 6,670,685 | 6,629,231 | 6,321,297 | ||||||||||||||||
| Total revenue | 7,748,425 | 7,885,780 | 8,047,406 | 7,530,438 | 7,595,113 | 7,474,602 | 7,377,957 | 6,988,842 | ||||||||||||||||
| Cost of revenue: | ||||||||||||||||||||||||
| Platforms | 203,952 | 153,241 | 177,919 | 162,508 | 150,470 | 142,368 | 134,672 | 122,077 | ||||||||||||||||
| Transactions | 5,094,897 | 5,224,006 | 5,330,473 | 5,094,130 | 5,128,108 | 5,104,629 | 5,063,624 | 4,878,526 | ||||||||||||||||
| Total cost of revenue | 5,298,849 | 5,377,247 | 5,508,392 | 5,256,638 | 5,278,578 | 5,246,997 | 5,198,296 | 5,000,603 | ||||||||||||||||
| Gross profit: | ||||||||||||||||||||||||
| Platforms | 937,736 | 913,389 | 839,870 | 787,317 | 705,975 | 661,549 | 614,054 | 545,468 | ||||||||||||||||
| Transactions | 1,511,840 | 1,595,144 | 1,699,144 | 1,486,483 | 1,610,560 | 1,566,056 | 1,565,607 | 1,442,771 | ||||||||||||||||
| Total gross profit | 2,449,576 | 2,508,533 | 2,539,014 | 2,273,800 | 2,316,535 | 2,227,605 | 2,179,661 | 1,988,239 | ||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Sales and marketing | 498,374 | 692,096 | 626,956 | 638,837 | 550,349 | 659,108 | 542,641 | 445,879 | ||||||||||||||||
| Technology and product dev. | 622,961 | 537,830 | 536,238 | 548,719 | 499,191 | 549,198 | 537,685 | 553,272 | ||||||||||||||||
| General and administrative | 1,161,061 | 1,132,483 | 1,230,580 | 1,270,375 | 1,231,345 | 1,060,269 | 1,129,461 | 1,180,599 | ||||||||||||||||
| Depreciation and amortization | 3,723 | 3,746 | 5,510 | 6,840 | 7,558 | 8,351 | 9,617 | 9,733 | ||||||||||||||||
| Stock-based comp. expense | 170,791 | 143,054 | 142,237 | 523,632 | 142,672 | 126,903 | 131,072 | 453,288 | ||||||||||||||||
| Foreign currency transaction loss (gain) | (24,249) | 4,214 | 8,648 | (5,456) | 12,123 | 7,193 | 2,302 | 10,025 | ||||||||||||||||
| Total operating expenses | 2,432,661 | 2,513,423 | 2,550,169 | 2,982,947 | 2,443,238 | 2,411,022 | 2,352,778 | 2,652,796 | ||||||||||||||||
| Other income (expenses and income taxes) | (2,270) | 4,331 | 23,101 | 25,721 | 19,055 | 27,289 | 22,393 | 16,322 | ||||||||||||||||
| Income (loss) from continuing operations | 14,645 | (559) | 11,946 | (683,426) | (107,648) | (156,128) | (150,724) | (648,235) | ||||||||||||||||
| Gain on sale of discontinued operations | - | - | - | 91,254 | 26,191 | 84,275 | 33,044 | 55,698 | ||||||||||||||||
| Net income (loss) | 14,645 | (559) | 11,946 | (592,172) | (81,457) | (71,853) | (117,680) | (592,537) | ||||||||||||||||
| Basic income (loss) per common share: | ||||||||||||||||||||||||
| Income (loss) per share from continuing operations | $ | - | $ | - | $ | - | $ | (0.03) | $ | - | $ | - | $ | - | $ | (0.03) | ||||||||
| Income per share from discontinued operations | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||
| Net income (loss) per share | $ | - | $ | - | $ | - | $ | (0.03) | $ | - | $ | - | $ | - | $ | (0.03) | ||||||||
| Basic weighted average common shares outstanding | 25,898,900 | 25,815,163 | 24,960,394 | 24,185,966 | 24,095,266 | 23,987,137 | 23,845,798 | 23,787,836 | ||||||||||||||||
| Diluted income (loss) per common share: | ||||||||||||||||||||||||
| Income (loss) per share from continuing operations | $ | - | $ | - | $ | - | $ | (0.03) | $ | - | $ | - | $ | - | $ | (0.03) | ||||||||
| Income per share from discontinued operations | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||
| Net income (loss) per share | $ | - | $ | - | $ | - | $ | (0.03) | $ | - | $ | - | $ | - | $ | (0.03) | ||||||||
| Diluted weighted average common shares outstanding | 26,511,180 | 25,815,163 | 25,717,403 | 24,185,966 | 24,095,266 | 23,987,137 | 23,845,798 | 23,787,836 | ||||||||||||||||
18
Comparison of the Three Months Ended September 30, 2020 and 2019
Results of Operations
| Three Months Ended September 30, | ||||||||||||||||
| 2020 | 2019 | $ Change | % Change | |||||||||||||
| Revenue: | ||||||||||||||||
| Platforms | $ | 1,141,688 | $ | 856,445 | $ | 285,243 | 33.3 | % | ||||||||
| Transactions | 6,606,737 | 6,738,668 | (131,931 | ) | (2.0 | )% | ||||||||||
| Total revenue | 7,748,425 | 7,595,113 | 153,312 | 2.0 | % | |||||||||||
| Cost of revenue: | ||||||||||||||||
| Platforms | 203,952 | 150,470 | 53,482 | 35.5 | % | |||||||||||
| Transactions | 5,094,897 | 5,128,108 | (33,211 | ) | (0.6 | )% | ||||||||||
| Total cost of revenue | 5,298,849 | 5,278,578 | 20,271 | 0.4 | % | |||||||||||
| Gross profit: | ||||||||||||||||
| Platforms | 937,736 | 705,975 | 231,761 | 32.8 | % | |||||||||||
| Transactions | 1,511,840 | 1,610,560 | (98,720 | ) | (6.1 | )% | ||||||||||
| Total gross profit | 2,449,576 | 2,316,535 | 133,041 | 5.7 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing | 498,374 | 550,349 | (51,975 | ) | (9.4 | )% | ||||||||||
| Technology and product development | 622,961 | 499,191 | 123,770 | 24.8 | % | |||||||||||
| General and administrative | 1,161,061 | 1,231,345 | (70,284 | ) | (5.7 | )% | ||||||||||
| Depreciation and amortization | 3,723 | 7,558 | (3,835 | ) | (50.7 | )% | ||||||||||
| Stock-based compensation expense | 170,791 | 142,672 | 28,119 | 19.7 | % | |||||||||||
| Foreign currency transaction loss (gain) | (24,249 | ) | 12,123 | (36,372 | ) | (300.0 | )% | |||||||||
| Total operating expenses | 2,432,661 | 2,443,238 | (10,577 | ) | (0.4 | )% | ||||||||||
| Income (loss) from operations | 16,915 | (126,703 | ) | 143,618 | (113.4 | )% | ||||||||||
| Other income | 235 | 25,549 | (25,314 | ) | (99.1 | )% | ||||||||||
| Income (loss) from operations before provision for income taxes | 17,150 | (101,154 | ) | 118,304 | 117.0 | % | ||||||||||
| Provision for income taxes | (2,505 | ) | (6,494 | ) | 3,989 | 61.4 | % | |||||||||
| Income (loss) from continuing operations | 14,645 | (107,648 | ) | 122,293 | 113.6 | % | ||||||||||
| Gain from sale of discontinued operations | - | 26,191 | (26,191 | ) | (100.0 | )% | ||||||||||
| Net income (loss) | $ | 14,645 | $ | (81,457 | ) | $ | 96,102 | 118.0 | % | |||||||
19
Revenue
| Three Months Ended September 30, | ||||||||||||||||
| 2020 | 2019 | $ Change | % Change | |||||||||||||
| Revenue: | ||||||||||||||||
| Platforms | $ | 1,141,688 | $ | 856,445 | $ | 285,243 | 33.3 | % | ||||||||
| Transactions | 6,606,737 | 6,738,668 | (131,931 | ) | (2.0 | )% | ||||||||||
| Total revenue | $ | 7,748,425 | $ | 7,595,113 | $ | 153,312 | 2.0 | % | ||||||||
Total revenue increased $153,312, or 2.0%, for the three months ended September 30, 2020 compared to the prior year, due to the following:
| Category | Impact | Key Drivers | |||
| Platforms | é | $ | 285,243 | Increased due to additional deployments to new and existing customers, and expansion from existing customers. Revenue is recognized ratably over the term of the subscription agreement, which is typically one year, provided all other revenue recognition criteria have been met. Billings or payments received in advance of revenue recognition are recorded as deferred revenue. | |
| Transactions | ê | $ | 131,931 | Decreased primarily due to lower order volume. | |
Cost of Revenue
| Three Months Ended September 30, | ||||||||||||||||
| 2020 | 2019 | $ Change | % Change | |||||||||||||
| Cost of Revenue: | ||||||||||||||||
| Platforms | $ | 203,952 | $ | 150,470 | $ | 53,482 | 35.5 | % | ||||||||
| Transactions | 5,094,897 | 5,128,108 | (33,211 | ) | (0.6 | )% | ||||||||||
| Total cost of revenue | $ | 5,298,849 | $ | 5,278,578 | $ | 20,271 | 0.4 | % | ||||||||
| Three Months Ended September 30, | ||||||||||||
| 2020 | 2019 | % Change * | ||||||||||
| As a percentage of revenue: | ||||||||||||
| Platforms | 17.9 | % | 17.6 | % | 0.3 | % | ||||||
| Transactions | 77.1 | % | 76.1 | % | 1.0 | % | ||||||
| Total | 68.4 | % | 69.5 | % | (1.1 | )% | ||||||
* The difference between current and prior period cost of revenue as a percentage of revenue
Total cost of revenue as a percentage of revenue decreased 1.1%, from 69.5% for the previous year to 68.4%, for the three months ended September 30, 2020.
| Category | Impact as percentage of revenue |
Key Drivers | ||||
| Platforms | é | 0.3% | Increased primarily due to proportionally higher personnel costs. | |||
| Transactions | é | 1.0% | Increased primarily due to proportionally higher copyright and personnel costs. | |||
20
Gross Profit
| Three Months Ended September 30, | ||||||||||||||||
| 2020 | 2019 | $ Change | % Change | |||||||||||||
| Gross Profit: | ||||||||||||||||
| Platforms | $ | 937,736 | $ | 705,975 | $ | 231,761 | 32.8 | % | ||||||||
| Transactions | 1,511,840 | 1,610,560 | (98,720 | ) | (6.1 | )% | ||||||||||
| Total gross profit | $ | 2,449,576 | $ | 2,316,535 | $ | 133,041 | 5.7 | % | ||||||||
| Three Months Ended September 30, | ||||||||||||
| 2020 | 2019 | % Change * | ||||||||||
| As a percentage of revenue: | ||||||||||||
| Platforms | 82.1 | % | 82.4 | % | (0.3 | )% | ||||||
| Transactions | 22.9 | % | 23.9 | % | (1.0 | )% | ||||||
| Total | 31.6 | % | 30.5 | % | 1.1 | % | ||||||
* The difference between current and prior period gross profit as a percentage of revenue
Operating Expenses
| Three Months Ended September 30, | ||||||||||||||||
| 2020 | 2019 | $ Change | % Change | |||||||||||||
| Operating Expenses: | ||||||||||||||||
| Sales and marketing | $ | 498,374 | $ | 550,349 | $ | (51,975 | ) | (9.4 | )% | |||||||
| Technology and product development | 622,961 | 499,191 | 123,770 | 24.8 | % | |||||||||||
| General and administrative | 1,161,061 | 1,231,345 | (70,284 | ) | (5.7 | )% | ||||||||||
| Depreciation and amortization | 3,723 | 7,558 | (3,835 | ) | (50.7 | )% | ||||||||||
| Stock-based compensation expense | 170,791 | 142,672 | 28,119 | 19.7 | % | |||||||||||
| Foreign currency transaction loss (gain) | (24,249 | ) | 12,123 | (36,372 | ) | (300.0 | )% | |||||||||
| Total operating expenses | $ | 2,432,661 | $ | 2,443,238 | $ | (10,577 | ) | (0.4 | )% | |||||||
| Category | Impact | Key Drivers | ||||
| Sales and marketing | ê | $ | 51,975 | Decreased primarily due to lower advertising media spend partially offset by greater personnel costs. | ||
| Technology and product development | é | $ | 123,770 | Increased due to greater personnel costs. | ||
| General and administrative | ê | $ | 70,284 | Decreased primarily due to lower consulting, rent and travel expenses. | ||
Net Income (Loss)
| Three Months Ended September 30, | ||||||||||||||||
| 2020 | 2019 | $ Change | % Change | |||||||||||||
| Net Income (Loss): | ||||||||||||||||
| Income (loss) from continuing operations | $ | 14,645 | $ | (107,648 | ) | $ | 122,293 | 113.6 | % | |||||||
| Income from discontinued operations | - | 26,191 | (26,191 | ) | (100.0 | )% | ||||||||||
| Total net income (loss) | $ | 14,645 | $ | (81,457 | ) | $ | 96,102 | 118.0 | % | |||||||
Income from continuing operations increased $122,293 or 113.6%, for the three months ended September 30, 2020 compared to the prior year, primarily due to increased gross profit and decreased operating expenses as described above.
Liquidity and Capital Resources
| Three Months Ended September 30, | ||||||||
| Consolidated Statements of Cash Flow Data: | 2020 | 2019 | ||||||
| Net cash provided by operating activities | $ | 923,473 | $ | 309,732 | ||||
| Net cash used in investing activities | (4,304 | ) | - | |||||
| Net cash used in financing activities | (44,295 | ) | (71,875 | ) | ||||
| Effect of exchange rate changes | 903 | (3,114 | ) | |||||
| Net increase in cash and cash equivalents | 875,777 | 234,743 | ||||||
| Cash and cash equivalents, beginning of period | 9,311,556 | 5,353,090 | ||||||
| Cash and cash equivalents, end of period | $ | 10,187,333 | $ | 5,587,833 | ||||
21
Liquidity
As of September 30, 2020, we had cash and cash equivalents of $10,187,333, compared to $9,311,556 as of June 30, 2020, an increase of $875,777. This increase was primarily due to cash provided by operating activities.
Operating Activities
Net cash provided by operating activities was $923,473 for the three months ended September 30, 2020 and resulted primarily from an increase in accounts payable and accrued expenses of $1,032,896, partially offset by an increase in prepaid royalties of $322,191.
Net cash provided by operating activities was $309,732 for the three months ended September 30, 2019 and resulted primarily from a decrease in accounts receivable of $116,362 and an increase in deferred revenue of $108,589, partially offset by an increase in prepaid royalties of $69,699.
Investing Activities
Net cash used in investing activities was $4,304 for the three months ended September 30, 2020 and resulted from the purchase of property and equipment.
No cash was used in or provided by investing activities for the three months ended September 30, 2019.
Financing Activities
Net cash used in financing activities was $44,295 for the three months ended September 30, 2020 and resulted from the repurchase of common stock of $58,395, partially offset by the proceeds from the exercise of stock options of $14,100.
Net cash used in financing activities was $71,875 for the three months ended September 30, 2019 and resulted from the repurchase of common stock.
We entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB”) on July 23, 2010, which, as amended, provides for a revolving line of credit for the lesser of $2,500,000, or 80% of eligible accounts receivable. The line of credit matures on February 14, 2022, and is subject to certain financial and performance covenants with which we were in compliance as of September 30, 2020. Financial covenants include maintaining an adjusted quick ratio of unrestricted cash and net accounts receivable, divided by current liabilities plus debt less deferred revenue of at least 1.15 to 1.0, and maintaining tangible net worth of $1,500,000, plus 50% of net income for the fiscal quarter ended from and after December 31, 2017, plus 50% of the dollar value of equity issuances after October 1, 2017 and the principal amount of subordinated debt. The line of credit bears interest at an annual rate equal to the greater of 1% above the prime rate and 5.5%. The interest rate on the line of credit was 5.5% as of September 30, 2020. The line of credit was secured by our consolidated assets.
There were no outstanding borrowings under the line as of September 30, 2020 and June 30, 2020, respectively. As of September 30, 2020, there was approximately $2,057,000 of available credit.
Non-GAAP Measure – Adjusted EBITDA
In addition to our GAAP results, we present Adjusted EBITDA as a supplemental measure of our performance. However, Adjusted EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of liquidity. We define Adjusted EBITDA as net income (loss), plus interest expense, other income (expense), foreign currency transaction loss, provision for income taxes, depreciation and amortization, stock-based compensation, income from discontinued operations and gain on sale of discontinued operations. Management considers our core operating performance to be that which our managers can affect in any particular period through their management of the resources that affect our underlying revenue and profit generating operations that period. Non-GAAP adjustments to our results prepared in accordance with GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
Set forth below is a reconciliation of Adjusted EBITDA to net income (loss) for the three months ended September 30, 2020 and 2019:
| Three Months Ended September 30, | ||||||||||||
| 2020 | 2019 | $ Change | ||||||||||
| Net income (loss) | $ | 14,645 | $ | (81,457 | ) | $ | 96,102 | |||||
| Add (deduct): | ||||||||||||
| Other (income) expense | (235 | ) | (25,549 | ) | 25,314 | |||||||
| Foreign currency transaction loss (gain) | (24,249 | ) | 12,123 | (36,372 | ) | |||||||
| Provision for income taxes | 2,505 | 6,494 | (3,989 | ) | ||||||||
| Depreciation and amortization | 3,723 | 7,558 | (3,835 | ) | ||||||||
| Stock-based compensation | 170,791 | 142,672 | 28,119 | |||||||||
| Gain on sale of discontinued operations | - | (26,191 | ) | 26,191 | ||||||||
| Adjusted EBITDA | $ | 167,180 | $ | 35,650 | $ | 131,530 | ||||||
22
We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA in developing our internal budgets, forecasts and strategic plan; in analyzing the effectiveness of our business strategies in evaluating potential acquisitions; and in making compensation decisions and in communications with our board of directors concerning our financial performance. Adjusted EBITDA has limitations as an analytical tool, which includes, among others, the following:
| · | Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; |
| · | Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
| · | Adjusted EBITDA does not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; and |
| · | Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements. |
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. For purposes of this section, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2020, the end of the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level.
Inherent Limitations on the Effectiveness of Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
23
Changes in Internal Control Over Financial Reporting
In addition, our management with the participation of our principal executive officer and principal financial officer have determined that no change in our internal control over financial reporting (as that term is defined in Rules 13(a)-15(f) and 15(d)-15(f) of the Exchange Act) occurred during the quarter ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The COVID-19 pandemic may reduce the number of articles ordered by our transactional customers, or may reduce the number of platform subscriptions, either of which could have a material adverse impact on our business and financial performance.
We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as the responses that we, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
To date, we have not experienced any significant changes in our business that would have a significant negative impact on our consolidated statements of operations or cash flows. However, the COVID-19 pandemic’s continued impact on the economy and our customers may reduce the number of articles ordered by our transactional customers, or may reduce the number of platform subscriptions, either of which could have a material adverse impact on our business and financial performance.
The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on our customers, service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of our financial statements for the fiscal quarter ended September 30, 2020, the extent to which the COVID-19 pandemic may in the future materially impact our financial condition, liquidity or results of operations is uncertain.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Effective as of February 11, 2020, the Compensation Committee of our Board of Directors authorized the repurchase, during calendar year 2020 on the last day of each trading window and otherwise in accordance with our insider trading policies, of up to $400,000 of outstanding common stock (at prices no greater than $4.00 per share) from our employees to satisfy their tax obligations in connection with the vesting of stock incentive awards. The actual number of shares repurchased will be determined by applicable employees in their discretion, and will depend on their evaluation of market conditions and other factors.
During the three months ended September 30, 2020, we repurchased 25,500 shares of our common stock from employees at an average market price of approximately $2.29 per share for an aggregate amount of $58,395.
As of September 30, 2020, $219,379 remains available under the 2020 plan to repurchase common stock from our employees. The shares of common stock were surrendered by employees to cover tax withholding obligations with respect to the vesting of restricted stock. Shares repurchased are retired and deducted from common stock for par value and from additional paid in capital for the excess over par value.
The following table summarizes repurchases of our common stock on a monthly basis:
| Period | Total Number of Shares Purchased 1 | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||
| July 2020 | - | - | - | $ | 277,774 | |||||||||||
| August 2020 | - | - | - | $ | 277,774 | |||||||||||
| September 2020 | 25,500 | $ | 2.29 | - | $ | 219,379 | ||||||||||
| Total | 25,500 | $ | 2.29 | - | - | |||||||||||
1 Consists of shares of common stock purchased from an employee to satisfy tax obligations in connection with the vesting of stock incentive awards.
|
Exhibit Number |
Description | |
| 10.1 | Consulting Agreement dated July 1, 2020, between Reprints Desk, Inc. and Michiel van der Heijden BV. Incorporated by reference to Exhibit 10.35 to the Registrant’s Annual Report on Form 10-K filed September 24, 2020. | |
| 31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | |
| 31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | |
| 32.1 | Section 1350 Certification of Chief Executive Officer * | |
| 32.2 | Section 1350 Certification of Chief Financial Officer * | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
* Furnished herewith
++ Indicates management contract or compensatory plan
24
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| RESEARCH SOLUTIONS, INC. | |||
| By: | /s/ Peter Victor Derycz | ||
| Peter Victor Derycz | |||
| Date: November 12, 2020 | Chief Executive Officer (Principal Executive Officer) | ||
| By: | /s/ Alan Louis Urban | ||
| Alan Louis Urban | |||
| Date: November 12, 2020 | Chief Financial Officer (Principal Financial and Accounting Officer) | ||
25
Exhibit 31.1
RULE 13a-14(a) CERTIFICATION
I, Peter Victor Derycz, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Research Solutions, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 12, 2020 | /s/ Peter Victor Derycz |
| Peter Victor Derycz | |
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
RULE 13a-14(a) CERTIFICATION
I, Alan Louis Urban, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Research Solutions, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 12, 2020 | /s/ Alan Louis Urban |
| Alan Louis Urban | |
| Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Research Solutions, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter Victor Derycz, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Peter Victor Derycz | ||
| Peter Victor Derycz | ||
| Chief Executive Officer (Principal Executive Officer) | ||
| November 12, 2020 |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Research Solutions, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alan Louis Urban, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Alan Louis Urban | ||
| Alan Louis Urban | ||
| Chief Financial Officer (Principal Financial and Accounting Officer) | ||
| November 12, 2020 |