Research Solutions 10Q 2022 Q1 Quarterly report

Research Solutions (RSSS) 10-Q2022 Q1 Quarterly report

Content analysis

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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.

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PART I — FINANCIAL INFORMATION	3
Item 1. Condensed Consolidated Financial Statements (unaudited)	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3. Quantitative and Qualitative Disclosures About Market Risk	27
Item 4. Controls and Procedures	27

PART II — OTHER INFORMATION	28
Item 1A. Risk Factors	28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 6. Exhibits	29

SIGNATURES	31

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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; 0 shares issued and outstanding		0		0
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

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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)	$	0
Diluted	$	(0.01)	$	0

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

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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	0		0		71,999		0		0		71,999

Fair value of vested restricted common stock	115,909		116		98,995		0		0		99,111

Repurchase of common stock	(21,365)		(22)		(54,459)		0		0		(54,481)

Common stock issued upon exercise of stock options	1,360		2		(2)		0		0		0

Net loss for the period	0		0		0		(372,002)		0		(372,002)

Foreign currency translation	0		0		0		0		(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

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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	0		0		77,627		0		0		77,627

Fair value of vested restricted common stock	120,000		120		93,044		0		0		93,164

Repurchase of common stock	(25,500)		(25)		(58,370)		0		0		(58,395)

Common stock issued upon exercise of stock options	63,950		64		14,036		0		0		14,100

Net income for the period	0		0		0		14,645		0		14,645

Foreign currency translation	0		0		0		0		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

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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		0		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		0		(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		0		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

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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 2 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 2 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.

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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 0 customers that represent 10% of revenue or more for the three months ended September 30, 2021 and 2020.

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The following table summarizes accounts receivable concentrations:

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 2 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.

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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.

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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

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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 0 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 0 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.

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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	%

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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	0.43	243,000
	1.50	185,000	1.22	185,000
	1.59	25,000	6.61	25,000
	1.80	94,050	1.88	94,050
	1.85	17,800	1.55	17,800
	1.95	200,000	6.76	200,000
	2.13	216,708	9.14	200,000
	2.17	36,000	9.62	—
	2.40	332,833	7.13	331,999
	2.43	61,250	9.68	31,250
	2.45	173,000	8.85	72,083
	2.49	88,435	8.59	56,250
	2.50	20,000	7.63	16,666
	2.64	30,882	9.85	—
	2.67	33,194	9.97	—
	2.99	8,000	8.62	4,000
	3.13	208,000	8.12	205,333
	3.50	8,000	8.37	4,666
	Total	3,316,695		3,022,640

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Warrants

The following table summarizes warrant activity:


		Weighted
		Average
	Number of	Exercise
	Warrants	Price
Outstanding, June 30, 2021	50,000	$	1.19
Granted	—		—
Exercised	—		—
Repurchased	—		—
Expired/Cancelled	—		—
Outstanding, September 30, 2021	50,000	$	1.19
Exercisable, June 30, 2021	50,000	$	1.19
Exercisable, September 30, 2021	50,000	$	1.19

The intrinsic value for all warrants outstanding as of September 30, 2021 was $71,500, based on the fair value of the Company’s common stock on September 30, 2021.

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


			Remaining
	Warrant	Warrants	Contractual	Warrants
	Exercise Price	Outstanding	Life (in years)	Exercisable
$	1.19	50,000	0.22	50,000
	Total	50,000		50,000

Restricted Common Stock

Prior to July 1, 2021, the Company issued 2,473,176 shares of restricted common stock to employees valued at $3,173,312, of which 2,013,600 shares have vested, 214,324 shares with fair value of $188,203 have been forfeited, and $2,503,156 has been recognized as an expense. The balance of the non-vested shares of restricted common stock was 245,252 at June 30, 2021, with an aggregate fair value of $481,953.

During the three months ended September 30, 2021, the Company issued an additional 115,909 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 $306,000 based on the market price of our common stock price of $2.64 per share on the date of grant, which will be amortized over the three-year vesting period.

The total fair value of restricted common stock vesting during the three months ended September 30, 2021 was $99,111 and is included in selling, general and administrative expenses in the accompanying statements of operations. As of September 30, 2021, the amount of unvested compensation related to issuances of restricted common stock was $688,842, 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.

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The following table summarizes restricted common stock activity:


				Weighted
				Average
	Number of			Grant Date
	Shares	Fair Value		Fair Value
Non-vested, June 30, 2021	245,252	$	481,953	$	2.47
Granted	115,909		306,000		2.64
Vested	(62,578)		(99,111)		2.52
Forfeited	—		—		—
Non-vested, September 30, 2021	298,583	$	688,842	$	2.53

Common Stock Repurchases

Effective as of February 9, 2021, the Compensation Committee of our Board of Directors authorized the repurchase, during calendar year 2021 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. As of June 30, 2021, $349,263 remained under the current authorization to repurchase our outstanding common stock from our employees.

During the three months ended September 30, 2021, the Company repurchased 21,365 shares of our common stock from employees at an average market price of approximately $2.55 per share for an aggregate amount of $54,481. As of September 30, 2021, $294,782 remains under the current authorization to repurchase our outstanding common stock from our employees.

Shares repurchased are retired and deducted from common stock for par value and from additional paid in capital for the excess over par value. Direct costs incurred to acquire the shares are included in the total cost of the shares.

Note 5. 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 6. Subsequent Events

On October 4, 2021, the Company issued William Nurthen 100,000 shares of restricted stock in connection with his employment with the Company. These shares will vest over a four year period.

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On November 5, 2021, the Company issued 50,000 shares of common stock upon the exercise of warrants for $59,500 in proceeds.

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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, 2021 and 2020 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, 2021.

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, 2021: 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: 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

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Transactions

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 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.

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

We account 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. We adopted the guidance of ASC 606 on July 1, 2018.

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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”).

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

Transactions

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.

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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,
	2021		2021		2021		2020		2020		2020		2020		2019
Revenue:
Platforms	$	1,509,874	$	1,429,160	$	1,344,183	$	1,220,535	$	1,141,688	$	1,066,630	$	1,017,789	$	949,825
Transactions		6,232,630		6,788,494		6,996,349		6,229,200		6,606,737		6,819,150		7,029,617		6,580,613
Total revenue		7,742,504		8,217,654		8,340,532		7,449,735		7,748,425		7,885,780		8,047,406		7,530,438

Cost of revenue:
Platforms		245,656		257,320		233,696		217,003		203,952		153,241		177,919		162,508
Transactions		4,836,473		5,218,118		5,404,196		4,841,150		5,094,897		5,224,006		5,330,473		5,094,130
Total cost of revenue		5,082,129		5,475,438		5,637,892		5,058,153		5,298,849		5,377,247		5,508,392		5,256,638

Gross profit:
Platforms		1,264,218		1,171,840		1,110,487		1,003,532		937,736		913,389		839,870		787,317
Transactions		1,396,157		1,570,376		1,592,153		1,388,050		1,511,840		1,595,144		1,699,144		1,486,483
Total gross profit		2,660,375		2,742,216		2,702,640		2,391,582		2,449,576		2,508,533		2,539,014		2,273,800

Operating expenses:
Sales and marketing		522,951		521,220		566,713		487,571		498,374		692,096		626,956		638,837
Technology and product dev.		821,460		732,371		664,195		624,747		622,961		537,830		536,238		548,719
General and administrative		1,497,223		1,354,244		1,233,603		1,118,750		1,161,061		1,132,483		1,230,580		1,270,375
Depreciation and amortization		2,896		2,694		2,066		3,039		3,723		3,746		5,510		6,840
Stock-based comp. expense		171,110		221,589		179,345		435,949		170,791		143,054		142,237		523,632
Foreign currency transaction loss (gain)		11,243		(890)		6,648		(17,469)		(24,249)		4,214		8,648		(5,456)
Total operating expenses		3,026,883		2,831,228		2,652,570		2,652,587		2,432,661		2,513,423		2,550,169		2,982,947
Other income (expenses and income taxes)		(5,494)		136		(322)		399		(2,270)		4,331		23,101		25,721
Income (loss) from continuing operations		(372,002)		(88,876)		49,748		(260,606)		14,645		(559)		11,946		(683,426)
Gain on sale of discontinued operations		—		—		—		—		—		—		—		91,254
Net income (loss)		(372,002)		(88,876)		49,748		(260,606)		14,645		(559)		11,946		(592,172)

Basic income (loss) per common share:
Income (loss) per share from continuing operations	$	(0.01)	$	—	$	—	$	(0.01)	$	—	$	—	$	—	$	(0.03)
Income per share from discontinued operations	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Net income (loss) per share	$	(0.01)	$	—	$	—	$	(0.01)	$	—	$	—	$	—	$	(0.03)
Basic weighted average common shares outstanding		26,277,116		26,145,794		26,027,665		25,988,117		25,898,900		25,815,163		24,960,394		24,185,966

Diluted income (loss) per common share:
Income (loss) per share from continuing operations	$	(0.01)	$	—	$	—	$	(0.01)	$	—	$	—	$	—	$	(0.03)
Income per share from discontinued operations	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Net income (loss) per share	$	(0.01)	$	—	$	—	$	(0.01)	$	—	$	—	$	—	$	(0.03)
Diluted weighted average common shares outstanding		26,277,116		26,145,794		26,565,892		25,988,117		26,511,180		25,815,163		25,717,403		24,185,966

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Comparison of the Three Months Ended September 30, 2021 and 2020

Results of Operations


	Three Months Ended September 30,
	2021		2020		$ Change		% Change

Revenue:
Platforms	$	1,509,874	$	1,141,688	$	368,186	32.2	%
Transactions		6,232,630		6,606,737		(374,107)	(5.7)	%
Total revenue		7,742,504		7,748,425		(5,921)	(0.1)	%

Cost of revenue:
Platforms		245,656		203,952		41,704	20.4	%
Transactions		4,836,473		5,094,897		(258,424)	(5.1)	%
Total cost of revenue		5,082,129		5,298,849		(216,720)	(4.1)	%

Gross profit:
Platforms		1,264,218		937,736		326,482	34.8	%
Transactions		1,396,157		1,511,840		(115,683)	(7.7)	%
Total gross profit		2,660,375		2,449,576		210,799	8.6	%

Operating expenses:
Sales and marketing		522,951		498,374		24,577	4.9	%
Technology and product development		821,460		622,961		198,499	31.9	%
General and administrative		1,497,223		1,161,061		336,162	29.0	%
Depreciation and amortization		2,896		3,723		(827)	(22.2)	%
Stock-based compensation expense		171,110		170,791		319	0.2	%
Foreign currency transaction loss (gain)		11,243		(24,249)		35,492	146.4	%
Total operating expenses		3,026,883		2,432,661		594,222	24.4	%

Income (loss) from operations		(366,508)		16,915		(383,423)	(2,266.8)	%

Other income		276		235		41	17.4	%

Income (loss) from operations before provision for income taxes		(366,232)		17,150		(383,382)	(2,235.5)	%
Provision for income taxes		(5,770)		(2,505)		(3,265)	(130.3)	%

Net income (loss)	$	(372,002)	$	14,645		(386,647)	(2,640.1)	%

Revenue


	Three Months Ended September 30,
	2021		2020		$ Change		% Change
Revenue:
Platforms	$	1,509,874	$	1,141,688	$	368,186	32.2	%
Transactions		6,232,630		6,606,737		(374,107)	(5.7)	%
Total revenue	$	7,742,504	$	7,748,425	$	(5,921)	(0.1)	%

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Total revenue decreased $5,921, or 0.1%, for the three months ended September 30, 2021 compared to the prior year, due to the following:


Category	Impact			Key Drivers
Platforms	↑	$	368,186	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	↓	$	(374,107)	Decreased primarily due to lower order volume.

Cost of Revenue


	Three Months Ended September 30,
	2021		2020		$ Change		% Change
Cost of Revenue:
Platforms	$	245,656	$	203,952	$	41,704	20.4	%
Transactions		4,836,473		5,094,897		(258,424)	(5.1)	%
Total cost of revenue	$	5,082,129	$	5,298,849	$	(216,720)	(4.1)	%


	Three Months Ended
	September 30,
	2021		2020		% Change *
As a percentage of revenue:
Platforms	16.3	%	17.9	%	(1.6)	%
Transactions	77.6	%	77.1	%	0.5	%
Total	65.6	%	68.4	%	(2.8)	%

*	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 2.8%, from 68.4% for the previous year to 65.6%, for the three months ended September 30, 2021.


	Impact as percentage
Category	of revenue			Key Drivers
Platforms	↓	1.6	%	Decreased primarily due to proportionally lower personnel costs.
Transactions	↑	0.5	%	Increased primarily due to proportionally higher personnel costs.

Gross Profit


	Three Months Ended September 30,
	2021		2020		$ Change		% Change
Gross Profit:
Platforms	$	1,264,218	$	937,736	$	326,482	34.8	%
Transactions		1,396,157		1,511,840		(115,683)	(7.7)	%
Total gross profit	$	2,660,375	$	2,449,576	$	210,799	8.6	%


	Three Months Ended
	September 30,
	2021		2020		% Change*
As a percentage of revenue:
Platforms	83.7	%	82.1	%	1.6	%
Transactions	22.4	%	22.9	%	(0.5)	%
Total	34.4	%	31.6	%	2.8	%

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*	The difference between current and prior period gross profit as a percentage of revenue

Operating Expenses


	Three Months Ended September 30,
	2021		2020		$ Change		% Change
Operating Expenses:
Sales and marketing	$	522,951	$	498,374	$	24,577	4.9	%
Technology and product development		821,460		622,961		198,499	31.9	%
General and administrative		1,497,223		1,161,061		336,162	29.0	%
Depreciation and amortization		2,896		3,723		(827)	(22.2)	%
Stock-based compensation expense		171,110		170,791		319	0.2	%
Foreign currency transaction loss (gain)		11,243		(24,249)		35,492	146.4	%
Total operating expenses	$	3,026,883	$	2,432,661	$	594,222	24.4	%


Category	Impact			Key Drivers
Sales and marketing	↑	$	24,577	Increased primarily due to greater consulting expenses partially offset by lower advertising media spend and personnel costs.
Technology and product development	↑	$	198,499	Increased due to greater consulting and recruiting expenses and personnel costs.
General and administrative	↑	$	336,162	Increased due to greater consulting and legal expenses and personnel costs.

Net Income (Loss)


	Three Months Ended September 30,
	2021		2020		$ Change		% Change
Net Income (Loss):
Income (loss)	$	(372,002)	$	14,645	$	(386,647)	(2,640.1)	%

Net loss increased $386,647 or 2,640.1%, for the three months ended September 30, 2021 compared to the prior year, primarily due to increased operating expenses, partially offset by increased gross profit as described above.

Liquidity and Capital Resources


	Three Months Ended September 30,
	2021		2020
Consolidated Statements of Cash Flow Data:
Net cash provided by (used in) operating activities	$	(72,247)	$	923,473
Net cash used in investing activities		(3,643)		(4,304)
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

Liquidity

As of September 30, 2021, we had cash and cash equivalents of $10,871,336, compared to $11,004,337 as of June 30, 2021, a decrease of $133,001. This decrease was primarily due to cash used in operating activities.

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Operating Activities

Net cash used in operating activities was $72,247 for the three months ended September 30, 2021 and resulted primarily from a net loss of $372,002, a decrease in accounts payable and accrued expenses of $225,462 and a decrease in deferred revenue of $365,760, partially offset by a decrease in prepaid royalties of $639,765 and a decrease in prepaid expenses and other current assets of $62,439.

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.

Investing Activities

Net cash used in investing activities was $3,643 for the three months ended September 30, 2021 and resulted from the purchase of property and equipment.

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.

Financing Activities

Net cash used in financing activities was $54,481 for the three months ended September 30, 2021 and resulted from the repurchase of common stock of $54,481.

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.

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, 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 was secured by our 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.

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

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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, 2021 and 2020:


	Three Months Ended
	September 30,
	2021		2020		$ Change
Net income (loss)	$	(372,002)	$	14,645	$	(386,647)
Add (deduct):
Other (income) expense		(276)		(235)		(41)
Foreign currency transaction loss (gain)		11,243		(24,249)		35,492
Provision for income taxes		5,770		2,505		3,265
Depreciation and amortization		2,896		3,723		(827)
Stock-based compensation		171,110		170,791		319
Adjusted EBITDA	$	(181,259)	$	167,180	$	(348,439)

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

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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, 2021, 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.

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, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1A. Risk Factors.

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.

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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, 2021, 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

During the three months ended September 30, 2021, we repurchased 21,365 shares of our common stock from employees at an average market price of approximately $2.55 per share for an aggregate amount of $54,481. As of September 30, 2021, $294,782 remains under the current authorization to repurchase our outstanding common stock from our employees.

The following table summarizes repurchases of our common stock on a monthly basis:


				Total Number of Shares	Approximate Dollar Value
	Total Number	Average		Purchased as Part of	of Shares that May Yet Be
	of Shares	Price Paid		Publicly Announced	Purchased Under the
Period	Purchased¹	per Share		Plans or Programs	Plans or Programs
July 2021	—		—	—	$	349,263
August 2021	—		—	—	$	349,263
September 2021	21,365	$	2.55	—	$	294,782
Total	21,365	$	2.55	—		—

¹ Consists of shares of common stock purchased from an employee to satisfy tax obligations in connection with the vesting of stock incentive awards.

Item 6. Exhibits

EXHIBIT INDEX

Exhibit Number	Description
10.1	Amended and Restated Executive Employment Agreement dated October 4, 2021, among Research Solutions, Inc., Reprints Desk, Inc. and Roy W. Olivier.++
10.2	Employment Agreement dated October 4, 2021, between Research Solutions, Inc. and William A. Nurthen.++
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

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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	INLINE 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
104	Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

* Furnished herewith

++ Indicates management contract or compensatory plan

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SIGNATURES

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/ Roy W. Olivier
		Roy W. Olivier
Date: November 12, 2021		Chief Executive Officer and President (Principal Executive Officer)

	By:	/s/ William Nurthen
		William Nurthen
Date: November 12, 2021		Chief Financial Officer (Principal Financial and Accounting Officer)

Positive
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Litigous
Readability	H.S. freshman Avg

September 30,

June 30,

Customer A