Last10K.com

Research Solutions, Inc. (RSSS) SEC Filing 10-Q Quarterly Report for the period ending Thursday, September 30, 2021

Research Solutions, Inc.

CIK: 1386301 Ticker: RSSS
Document And Entity Information - shares
3 Months Ended
Sep. 30, 2021
Nov. 05, 2021
Document And Entity Information  
Document Type10-Q 
Document Quarterly Reporttrue 
Document Transition Reportfalse 
Document Period End DateSep. 30, 2021 
Entity File Number001-39256 
Entity Registrant NameRESEARCH SOLUTIONS, INC. 
Entity Incorporation, State or Country CodeNV 
Entity Tax Identification Number11-3797644 
Entity Address, Address Line OneAddress not applicable1  
Entity Address, City or TownN/A 
Entity Address, State or ProvinceNV 
Entity Address, Postal Zip CodeN/A 
City Area Code310 
Local Phone Number477-0354 
Title of 12(b) SecurityCommon stock, $0.001 par value 
Trading SymbolRSSS 
Security Exchange NameNASDAQ 
Entity Current Reporting StatusYes 
Entity Interactive Data CurrentYes 
Entity Filer CategoryNon-accelerated Filer 
Entity Small Businesstrue 
Entity Emerging Growth Companyfalse 
Entity Shell Companyfalse 
Entity Common Stock, Shares Outstanding 26,744,119
Current Fiscal Year End Date--06-30 
Document Fiscal Year Focus2022 
Document Fiscal Period FocusQ1 
Entity Central Index Key0001386301 
Amendment Flagfalse 
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2021

          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. 001-39256

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.)

 

 

Address not applicable1

N/A

(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 þ 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  þ      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 þ

Smaller reporting company þ

 

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 þ

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 5, 2021

Common Stock, $0.001 par value

 

26,744,119

1 In November 2019, we became a fully remote company. Accordingly, we do not currently have principal executive offices.

PART 1 — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Research Solutions, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

    

September 30, 

    

    

2021

    

June 30, 

(unaudited)

2021

Assets

  

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

10,871,336

$

11,004,337

Accounts receivable, net of allowance of $47,695 and $51,495, respectively

 

4,702,686

 

4,717,453

Prepaid expenses and other current assets

 

207,813

 

270,252

Prepaid royalties

 

265,156

 

904,921

Total current assets

 

16,046,991

 

16,896,963

 

  

 

  

Other assets:

 

  

 

  

Property and equipment, net of accumulated depreciation of $825,050 and $824,123, respectively

 

21,187

 

20,755

Deposits and other assets

 

876

 

906

Total assets

$

16,069,054

$

16,918,624

 

  

 

  

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities:

 

 

Accounts payable and accrued expenses

$

6,461,726

$

6,687,188

Deferred revenue

 

4,438,591

 

4,804,351

Total current liabilities

 

10,900,317

 

11,491,539

 

  

 

  

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; 26,594,119 and 26,498,215 shares issued and outstanding, respectively

 

26,594

 

26,498

Additional paid-in capital

 

27,098,585

 

26,982,052

Accumulated deficit

 

(21,833,890)

 

(21,461,888)

Accumulated other comprehensive loss

 

(122,552)

 

(119,577)

Total stockholders’ equity

 

5,168,737

 

5,427,085

Total liabilities and stockholders’ equity

$

16,069,054

$

16,918,624

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, 

    

2021

    

2020

Revenue:

  

 

  

Platforms

$

1,509,874

$

1,141,688

Transactions

 

6,232,630

 

6,606,737

Total revenue

 

7,742,504

 

7,748,425

 

  

 

  

Cost of revenue:

 

  

 

  

Platforms

 

245,656

 

203,952

Transactions

 

4,836,473

 

5,094,897

Total cost of revenue

 

5,082,129

 

5,298,849

Gross profit

 

2,660,375

 

2,449,576

 

  

 

  

Operating expenses:

 

  

 

  

Selling, general and administrative

 

3,023,987

 

2,428,938

Depreciation and amortization

 

2,896

 

3,723

Total operating expenses

 

3,026,883

 

2,432,661

Income (loss) from operations

 

(366,508)

 

16,915

 

  

 

  

Other income

 

276

 

235

 

  

 

  

Income (loss) from operations before provision for income taxes

 

(366,232)

 

17,150

Provision for income taxes

 

(5,770)

 

(2,505)

 

  

 

  

Net income (loss)

 

(372,002)

 

14,645

 

  

 

  

Other comprehensive income (loss):

 

 

Foreign currency translation

 

(2,975)

 

1,165

Comprehensive income (loss)

$

(374,977)

$

15,810

 

  

 

  

Income (loss) per common share:

Basic

$

(0.01)

$

Diluted

$

(0.01)

$

Weighted average common shares outstanding:

Basic

26,277,116

25,898,900

Diluted

26,277,116

26,511,180

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, 2021

(Unaudited)

Additional

Other

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Loss

    

Equity

Balance, July 1, 2021

 

26,498,215

$

26,498

$

26,982,052

$

(21,461,888)

$

(119,577)

$

5,427,085

 

  

 

  

 

  

 

  

 

  

 

  

Fair value of vested stock options

 

 

 

71,999

 

 

 

71,999

 

  

 

  

 

  

 

  

 

  

 

  

Fair value of vested restricted common stock

 

115,909

 

116

 

98,995

 

 

 

99,111

 

  

 

  

 

  

 

  

 

  

 

  

Repurchase of common stock

 

(21,365)

 

(22)

 

(54,459)

 

 

 

(54,481)

Common stock issued upon exercise of stock options

 

1,360

 

2

(2)

 

 

 

 

 

 

 

 

 

  

Net loss for the period

 

 

 

 

(372,002)

 

 

(372,002)

 

  

 

  

 

  

 

  

 

  

 

  

Foreign currency translation

 

 

 

 

 

(2,975)

 

(2,975)

Balance, September 30, 2021

 

26,594,119

$

26,594

$

27,098,585

$

(21,833,890)

$

(122,552)

$

5,168,737

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, 2020

(Unaudited)

Additional

Other

Total

Common Stock

Paid-in

Accumulated

Comprehensive

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

6

Research Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Three Months Ended

September 30, 

    

2021

    

2020

Cash flow from operating activities:

 

  

 

  

Net income (loss)

$

(372,002)

$

14,645

Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

  

 

  

Depreciation and amortization

 

2,896

 

3,723

Amortization of lease right

 

 

30,778

Fair value of vested stock options

 

71,999

 

77,627

Fair value of vested restricted common stock

 

99,111

 

93,164

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

14,767

 

(5,831)

Prepaid expenses and other current assets

 

62,439

 

1,366

Prepaid royalties

 

639,765

 

(322,191)

Accounts payable and accrued expenses

 

(225,462)

 

1,032,896

Deferred revenue

 

(365,760)

 

31,072

Lease liability

 

 

(33,776)

Net cash provided by (used in) operating activities

 

(72,247)

 

923,473

 

  

 

  

Cash flow from investing activities:

 

  

 

  

Purchase of property and equipment

 

(3,643)

 

(4,304)

Net cash used in investing activities

 

(3,643)

 

(4,304)

 

  

 

  

Cash flow from financing activities:

 

Proceeds from the exercise of stock options

14,100

Common stock repurchase

(54,481)

(58,395)

Net cash used in financing activities

 

(54,481)

 

(44,295)

 

  

 

  

Effect of exchange rate changes

 

(2,630)

 

903

Net increase (decrease) in cash and cash equivalents

 

(133,001)

 

875,777

Cash and cash equivalents, beginning of period

 

11,004,337

 

9,311,556

Cash and cash equivalents, end of period

$

10,871,336

$

10,187,333

 

  

 

  

Supplemental disclosures of cash flow information:

 

  

 

  

Cash paid for income taxes

$

5,770

$

2,505

See notes to condensed consolidated financial statements

7

RESEARCH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended September 30, 2021 and 2020 (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: a cloud-based software-as-a-service (“SaaS”) research platform (“Platforms”) typically sold via annual auto-renewing license agreements and the sale of published scientific, technical, and medical (“STM”) content sold as individual articles (“Transactions”) either stand alone or via the Platform. When customers utilize the Platform to purchase Transactions it is packaged as a single solution that enables life science and other research intensive organizations to accelerate their research and development activities with faster, access and management of STM articles used throughout the intellectual property development lifecycle. The Platform typically delivers a ROI to the customer via more effectively managing Transaction costs and saving researchers time during the research process.

Platforms

Our cloud-based SaaS research 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 components. An alternative to manual data filtering, identification and extraction, the apps 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 continue to develop new apps in order to build an ecosystem of apps. Together, these apps 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; in many cases under one minute. This service is generally known in the industry

8

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.

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, 2021 filed with the SEC. The condensed consolidated balance sheet as of June 30, 2021 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 $68,567 and $88,807 at September 30, 2021 and June 30, 2021, 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, 2021 and 2020.

9

The following table summarizes accounts receivable concentrations:

As of

 

September 30, 

June 30, 

 

2021

  

  

2021

Customer A

18

%

14

%

The following table summarizes vendor concentrations:

Three Months Ended

 

September 30, 

 

2021

  

  

2020

Vendor A

19

%

18

%

Vendor B

13

%

13

%

Revenue Recognition

The Company accounts for revenue in accordance with 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.

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”).

Graphic

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.

10

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.

Revenue by Geographical Region

The following table summarizes revenue by geographical region:

Three Months Ended

 

September 30, 

 

2021

 

2020

United States

    

$

4,512,006

    

58.3

%  

$

4,347,646

56.1

%

Europe

 

2,658,962

 

34.3

%  

 

2,804,885

 

36.2

%

Rest of World

 

571,536

 

7.4

%  

 

595,894

 

7.7

%

Total

$

7,742,504

 

100

%  

$

7,748,425

 

100

%

Accounts Receivable by Geographical Region

The following table summarizes accounts receivable by geographical region:

As of September 30, 2021

 

As of June 30, 2021

United States

    

$

2,658,100

    

56.5

%  

$

2,798,224

59.3

%

Europe

 

1,852,354

 

39.4

%  

 

1,650,030

 

35.0

%

Rest of World

 

192,232

 

4.1

%  

 

269,199

 

5.7

%

Total

$

4,702,686

 

100

%  

$

4,717,453

 

100

%

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.

11

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.

Under ASC 718, Repurchase or Cancellation of equity awards, the amount of cash or other assets transferred (or liabilities incurred) to repurchase an equity award shall be charged to equity, to the extent that the amount paid does not exceed the fair value of the equity instruments repurchased at the repurchase date. Any excess of the repurchase price over the fair value of the instruments repurchased shall be recognized as additional compensation cost.

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 loss of $11,243 and a gain of $24,249 for the three months ended September 30, 2021 and 2020, respectively. Cash denominated in Euros with a US Dollar equivalent of $68,567 and $88,807 at September 30, 2021 and June 30, 2021, respectively, was held in accounts at financial institutions located in Europe.

The following table summarizes the exchange rates used:

Three Months Ended

 

Year Ended

September 30, 

 

June 30, 

    

2021

    

2020

 

2021

    

2020

Period end Euro : US Dollar exchange rate

1.16

1.17

1.19

1.12

Average period Euro : US Dollar exchange rate

 

1.18

 

1.16

1.19

 

1.11

 

 

 

Period end Mexican Peso : US Dollar exchange rate

 

0.05

 

0.04

0.05

 

0.04

Average period Mexican Peso : US Dollar exchange rate

 

0.05

 

0.04

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, 2021 potentially dilutive securities include options to acquire 3,316,695 shares of common stock, warrants to acquire 50,000 shares of common stock and unvested restricted common stock of 298,583. 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. 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.

Basic and diluted net loss per common share is the same for the three months ended September 30, 2021 because all stock options, warrants, and unvested restricted common stock are anti-dilutive. For the three months ended September

12

30, 2020, the calculation of diluted earnings per share includes unvested restricted common stock, stock options and warrants, calculated under the treasury stock method.

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, 2021. 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, 2021. The line of credit is secured by the Company’s consolidated assets.

There were no outstanding borrowings under the line as of September 30, 2021 and June 30, 2021, respectively. As of September 30, 2021, there was approximately $1,890,000 of available credit.

Note 4.   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 17, 2020, 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 2,374,513 to 3,374,513. 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, 2021, there were 919,991 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.

13

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.

The following table summarizes vested and unvested stock option activity:

All Options

Vested Options

Unvested Options

    

    

Weighted

    

    

Weighted

    

    

Weighted

Average

Average

Average

Exercise

Exercise

Exercise

Shares

Price

Shares

Price

Shares

Price

Outstanding at June 30, 2021

 

3,258,408

 

$

1.68

 

2,930,474

 

$

1.60

 

327,934

 

$

2.46

Granted

 

64,121

 

2.66

 

 

 

64,121

 

2.66

Options vesting

 

 

 

98,000

 

2.46

 

(98,000)

 

2.46

Exercised

 

(5,834)

 

2.40

 

(5,834)

 

2.40

 

 

Forfeited

 

 

 

 

 

 

Repurchased

 

 

 

 

 

 

Outstanding at September 30, 2021

 

3,316,695

$

1.70

 

3,022,640

$

1.63

 

294,055

$

2.47

The weighted average remaining contractual life of all options outstanding as of September 30, 2021 was 5.28 years. The remaining contractual life for options vested and exercisable at September 30, 2021 was 5.09 years. Furthermore, the aggregate intrinsic value of options outstanding as of September 30, 2021 was $3,167,497, and the aggregate intrinsic value of options vested and exercisable at September 30, 2021 was $3,115,487, in each case based on the fair value of the Company’s common stock on September 30, 2021.

During the three months ended September 30, 2021, the Company granted 64,121 options to employees with a fair value of $88,550 which amount will be amortized over the vesting period. The total fair value of options that vested during the three months ended September 30, 2021 was $71,999 and is included in selling, general and administrative expenses in the accompanying statement of operations. As of September 30, 2021, the amount of unvested compensation related to stock options was $357,141 which will be recorded as an expense in future periods as the options vest.  During the three months ended September 30, 2021, the Company issued 1,360 net shares of common stock upon the exercise of 5,834 options on a cashless basis.

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, 2021 and 2020.

Three Months Ended

 

September 30, 

    

2021

  

2020

Expected dividend yield

 

0

%  

0

%

Risk-free interest rate

 

0.92 - 1.01

%  

0.37

%

Expected life (in years)

 

6

 

6

Expected volatility

 

56

%  

63

%

14

Additional information regarding stock options outstanding and exercisable as of September 30, 2021 is as follows:

Option

    

    

Remaining

    

Exercise

Options

Contractual

Options

Price

Outstanding

Life (in years)

Exercisable

$

0.59

 

8,150

 

0.75

 

8,150

0.60

 

5,000

 

0.75

 

5,000

0.65

 

6,150

 

0.75

 

6,150

0.70

 

225,000

 

4.18

 

225,000

0.77

 

49,500

 

1.83

 

49,500

0.80

 

16,000

 

3.89

 

16,000

0.90

 

25,667

 

2.56

 

25,667

0.97

 

6,000

 

0.75

 

6,000

1.00

 

28,249

 

2.18

 

28,249

1.02

 

2,000

 

0.75

 

2,000

1.05

 

315,529

 

4.76

 

315,529

1.07

 

33,898

 

1.04

 

33,898

1.09

 

75,000

 

3.87

 

75,000

1.10

 

105,000

 

3.75

 

105,000

1.15

 

128,400

 

1.35

 

128,400

1.20

 

274,000

 

5.80

 

274,000

1.25

 

32,000

 

1.37

 

32,000

1.30

 

243,000