Research Solutions, Inc. 10-K

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Approximate Number of Holders of Common Stock As of March 23, 2020, our common stock is quoted on The NASDAQ Stock Market LLC’s Nasdaq Capital Market (the “NASDAQ”) under the symbol "RSSS," and prior to that it was quoted on the OTCQB. The following table sets forth, for the periods indicated, the reported high and low bid quotations for our common stock as reported on the NASDAQ or the OTCQB. The bid prices reflect inter-dealer quotations, do not include retail markups, markdowns, or commissions, and do not necessarily reflect actual transactions High Bid Low Bid Year Ended June 30, 2020: First Quarter (July 1 – September 30) $ 2.75 $ 2.07 Second Quarter (October 1 – December 31) $ 3.52 $ 2.16 Third Quarter (January 1 – March 31) $ 3.52 $ 2.25 Fourth Quarter (April 1 – June 30) $ 3.09 $ 1.98 Year Ended June 30, 2019: First Quarter (July 1 – September 30) $ 2.20 $ 1.50 Second Quarter (October 1 – December 31) $ 2.45 $ 1.60 Third Quarter (January 1 – March 31) $ 2.37 $ 2.00 Fourth Quarter (April 1 – June 30) $ 2.60 $ 2.00 As of September 18, 2020, we had a total of 26,207,040 shares of our common stock outstanding and the closing sales price was $2.29 per share on the NASDAQ. According to the records of our transfer agent, we had 33 record holders of our common stock as of September 18, 2020. Because brokers and other institutions hold shares on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders. Dividends We have never declared or paid dividends on our common stock. In addition, our Loan and Security Agreement with Silicon Valley Bank prohibits us from paying cash dividends. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our common stock in the foreseeable future, if at all. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant. Common Stock Repurchases Effective as of November 13, 2018, the Compensation Committee of our Board of Directors authorized the repurchase, during calendar year 2019 on the last day of each trading window and otherwise in accordance with our insider trading policies, of up to $300,000 of outstanding common stock (at prices no greater than $3.00 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. Effective as of February 11, 2020, the Compensation Committee of our Board of Directors authorized the repurchase, during calendar year 2020 on the last day of each trading window and otherwise in accordance with our insider trading policies, of up to $400,000 of outstanding common stock (at prices no greater than $4.00 per share) from our employees to satisfy their tax obligations in connection with the vesting of stock incentive awards. The actual number of shares repurchased will be determined by applicable employees in their discretion, and will depend on their evaluation of market conditions and other factors. During the years ended June 30, 2020 and 2019, we repurchased approximately 116,200 and 88,250 shares of our common stock under the repurchase plan at an average price of approximately $2.77 and $2.27 per share, respectively, for an aggregate amount of $321,602 and $200,023, respectively. As of June 30, 2020, $277,774 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. 14 The following table summarizes repurchases of our common stock on a monthly basis: Period Total Number of Shares Purchased 1 Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs April 2020 - - - $ 330,838 May 2020 - - - $ 330,838 June 2020 19,800 $ 2.68 - $ 277,774 Total 19,800 $ 2.68 - - 1 Consists of shares of common stock purchased from employees to satisfy tax obligations in connection with the vesting of stock incentive awards. Equity Compensation Plan Information Information relating to compensation plans under which our equity securities are authorized for issuance is set forth in Item 12 of this report under “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” Item 6. Selected Financial Data Not required. 15 Item 7. 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 years ended June 30, 2020 and 2019 should be read in conjunction with our consolidated financial statements and related notes to those financial statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under “Risk Factors” and elsewhere in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date hereof and, except as required by law, we assume no obligation to update any such forward-looking statements. Overview Research Solutions was incorporated in the State of Nevada on November 2, 2006, and is a publicly traded holding company with two wholly owned subsidiaries at June 30, 2020: Reprints Desk, Inc., a Delaware corporation and Reprints Desk Latin America S. de R.L. de C.V, an entity organized under the laws of Mexico. We provide two service offerings to our customers: annual licenses that allow customers to access and utilize certain premium features of our cloud based software-as-a-service (“SaaS”) research intelligence platform (“Platforms”) and the transactional sale of published scientific, technical, and medical (“STM”) content managed, sourced and delivered through the Platform (“Transactions”). Platforms and Transactions are packaged as a single solution that enable life science and other research intensive organizations to speed up research and development activities with faster, single sourced access and management of content and data used throughout the intellectual property development lifecycle. Platforms Our cloud-based SaaS research intelligence platform consists of proprietary software and Internet-based interfaces sold to customers for an annual subscription fee. Legacy functionality allows customers to initiate orders, route orders for the lowest cost acquisition, manage transactions, obtain spend and usage reporting, automate authentication, and connect seamlessly to in-house and third-party software systems. Customers can also enhance the information resources they already own or license and collaborate around bibliographic information. Additional functionality has recently been added to our Platform in the form of interactive app-like gadgets. An alternative to manual data filtering, identification and extraction, gadgets are designed to gather, augment, and extract data across a variety of formats, including bibliographic citations, tables of contents, RSS feeds, PDF files, XML feeds, and web content. We are rapidly developing new gadgets in order to build an ecosystem of gadgets. Together, these gadgets will provide researchers with an “all in one” toolkit, delivering efficiencies in core research workflows and knowledge creation processes. Our Platform is deployed as a single, multi-tenant system across our entire customer base. Customers securely access the Platform through online web interfaces and via web service APIs that enable customers to leverage Platform features and functionality from within in-house and third-party software systems. The Platform can also be configured to satisfy a customer’s individual preferences. We leverage our Platform’s efficiencies in scalability, stability and development costs to fuel rapid innovation and competitive advantage. Transactions Our Platform provides our customers with a single source to the universe of published STM content that includes over 70 million existing STM articles and over one million newly published STM articles each year. STM content is sold to our customers on a transaction basis. Researchers and knowledge workers in life science and other research-intensive organizations generally require single copies of published STM journal articles for use in their research activities. These individuals are our primary users. Our Platform allows customers to find and download digital versions of STM articles that are critical to their research. Customers submit orders for the articles they need which we source and electronically deliver to them generally in under an hour. This service is generally known in the industry as single article delivery or document delivery. We also obtain the necessary permission licenses from the content publisher or other rights holder so that our customer’s use complies with applicable copyright laws. We have arrangements with hundreds of content publishers that allow us to distribute their content. The majority of these publishers provide us with electronic access to their content, which allows us to electronically deliver single articles to our customers often in a matter of minutes. 16 COVID-19 We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as the responses that we, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain. To date, we have not experienced any significant changes in our business that would have a significant negative impact on our consolidated statements of operations or cash flows. The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on our customers, service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of our financial statements, the extent to which the COVID-19 pandemic may in the future materially impact our financial condition, liquidity or results of operations is uncertain. Critical Accounting Policies and Estimates The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States, or GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. When making these estimates and assumptions, we consider our historical experience, our knowledge of economic and market factors and various other factors that we believe to be reasonable under the circumstances. Actual results may differ under different estimates and assumptions. The accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties. Revenue Recognition In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), ("ASC 606"). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. We adopted the guidance of ASC 606 on July 1, 2018. The implementation of ASC 606 had no impact on the consolidated financial statements and no cumulative effect adjustment was recognized. Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. We derive our revenues from two sources: annual licenses that allow customers to access and utilize certain premium features of our cloud based SaaS research intelligence platform (“Platforms”) and the transactional sale of STM content managed, sourced and delivered through the Platform (“Transactions”). 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. 17 Platforms We charge a subscription fee that allows customers to access and utilize certain premium features of our Platform. Revenue is recognized ratably over the term of the subscription agreement, which is typically one year, provided all other revenue recognition criteria have been met. Billings or payments received in advance of revenue recognition are recorded as deferred revenue. Transactions We charge a transactional service fee for the electronic delivery of single articles, and a corresponding copyright fee for the permitted use of the content. We recognize revenue from single article delivery services upon delivery to the customer provided all other revenue recognition criteria have been met. Stock-Based Compensation We periodically issue stock options, warrants and restricted stock to employees and non-employees for services, in capital raising transactions, and for financing costs. We account for share-based payments under the guidance as set forth in the Share-Based Payment Topic 718 of the FASB Accounting Standards Codification, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. We estimate the fair value of stock option and warrant awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations. We estimate the fair value of restricted stock awards to employees and directors using the market price of our common stock on the date of grant, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations. In prior periods through June 30, 2019, we accounted for share-based payments to non-employees in accordance with Topic 505 of the FASB Accounting Standards Codification, whereby the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) the date at which the necessary performance to earn the equity instruments is complete. Stock-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, as necessary, in subsequent periods if actual forfeitures differ from those estimates. On July 1, 2019, we adopted Accounting Standards Update (ASU) 2018-07 which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. As a result, nonemployee share-based transactions will be measured by estimating the fair value of the equity instruments at the grant date, taking into consideration the probability of satisfying performance conditions. The adoption of the standard did not have a material impact on our financial statements. Allowance for doubtful accounts We evaluate the collectability of our trade accounts receivable based on a number of factors. In circumstances where we become aware of a specific customer’s inability to meet its financial obligations to us, we estimate and record a specific reserve for bad debts, which reduces the recognized receivable to the estimated amount we believe will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on our historical losses and an overall assessment of past due trade accounts receivable outstanding. We established an allowance for doubtful accounts of $88,485 and $100,175 as of June 30, 2020 and 2019, respectively. Foreign Currency The accompanying consolidated financial statements are presented in United States dollars, the functional currency of our company. Capital accounts of foreign subsidiaries are translated into US dollars from foreign currencies 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. The following table summarizes the exchange rates used: Year Ended June 30, 2020 2019 Period end Euro : US Dollar exchange rate 1.12 1.14 Average period Euro : US Dollar exchange rate 1.14 1.14 Period end Mexican Peso : US Dollar exchange rate 0.04 0.05 Average period Mexican Peso : US Dollar exchange rate 0.05 0.05 18 Quarterly Information (Unaudited) The following table sets forth unaudited and quarterly financial data for the four quarters of fiscal years 2020 and 2019: June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, 2020 2020 2019 2019 2019 2019 2018 2018 Revenue: Platforms $ 1,066,630 $ 1,017,789 $ 949,825 $ 856,445 $ 803,917 $ 748,726 $ 667,545 $ 589,013 Transactions 6,819,150 7,029,617 6,580,613 6,738,668 6,670,685 6,629,231 6,321,297 6,363,508 Total revenue 7,885,780 8,047,406 7,530,438 7,595,113 7,474,602 7,377,957 6,988,842 6,952,521 Cost of revenue: Platforms 153,241 177,919 162,508 150,470 142,368 134,672 122,077 108,259 Transactions 5,224,006 5,330,473 5,094,130 5,128,108 5,104,629 5,063,624 4,878,526 4,896,307 Total cost of revenue 5,377,247 5,508,392 5,256,638 5,278,578 5,246,997 5,198,296 5,000,603 5,004,566 Gross profit: Platforms 913,389 839,870 787,317 705,975 661,549 614,054 545,468 480,754 Transactions 1,595,144 1,699,144 1,486,483 1,610,560 1,566,056 1,565,607 1,442,771 1,467,201 Total gross profit 2,508,533 2,539,014 2,273,800 2,316,535 2,227,605 2,179,661 1,988,239 1,947,955 Operating expenses: Sales and marketing 692,096 626,956 638,837 550,349 659,108 542,641 445,879 431,417 Technology and product dev. 537,830 536,238 548,719 499,191 549,198 537,685 553,272 499,795 General and administrative 1,132,483 1,230,580 1,270,375 1,231,345 1,060,269 1,129,461 1,180,599 1,118,611 Depreciation and amortization 3,746 5,510 6,840 7,558 8,351 9,617 9,733 11,115 Stock-based comp. expense 143,054 142,237 523,632 142,672 126,903 131,072 453,288 115,909 Foreign currency transaction loss (gain) 4,214 8,648 (5,456 ) 12,123 7,193 2,302 10,025 4,980 Total operating expenses 2,513,423 2,550,169 2,982,947 2,443,238 2,411,022 2,352,778 2,652,796 2,181,827 Other income (expenses and income taxes) 4,331 23,101 25,721 19,055 27,289 22,393 16,322 14,264 Loss from continuing operations (559 ) 11,946 (683,426 ) (107,648 ) (156,128 ) (150,724 ) (648,235 ) (219,608 ) Gain on sale of discontinued operations - - 91,254 26,191 84,275 33,044 55,698 41,720 Net income (loss) (559 ) 11,946 (592,172 ) (81,457 ) (71,853 ) (117,680 ) (592,537 ) (177,888 ) Basic income (loss) per common share: Loss per share from continuing operations $ - $ - $ (0.03 ) $ - $ - $ - $ (0.03 ) $ (0.01 ) Income per share from discontinued operations $ - $ - $ - $ - $ - $ - $ - $ - Net income (loss) per share $ - $ - $ (0.03 ) $ - $ - $ - $ (0.03 ) $ (0.01 ) Basic weighted average common shares outstanding 25,815,163 24,960,394 24,185,966 24,095,266 23,987,137 23,845,798 23,787,836 23,644,787 Diluted income (loss) per common share: Loss per share from continuing operations $ - $ - $ (0.03 ) $ - $ - $ - $ (0.03 ) $ (0.01 ) Income per share from discontinued operations $ - $ - $ - $ - $ - $ - $ - $ - Net income (loss) per share $ - $ - $ (0.03 ) $ - $ - $ - $ (0.03 ) $ (0.01 ) Diluted weighted average common shares outstanding 25,815,163 25,717,403 24,185,966 24,095,266 23,987,137 23,845,798 23,787,836 23,644,787 19 Comparison of the Years Ended June 30, 2020 and 2019 Results of Operations Year Ended June 30, 2020 2019 $ Change % Change Revenue: Platforms $ 3,890,689 $ 2,809,201 $ 1,081,488 38.5 % Transactions 27,168,048 25,984,721 1,183,327 4.6 % Total revenue 31,058,737 28,793,922 2,264,815 7.9 % Cost of revenue: Platforms 644,138 507,375 136,763 27.0 % Transactions 20,776,717 19,943,086 833,631 4.2 % Total cost of revenue 21,420,855 20,450,461 970,394 4.7 % Gross profit: Platforms 3,246,551 2,301,826 944,725 41.0 % Transactions 6,391,331 6,041,635 349,696 5.8 % Total gross profit 9,637,882 8,343,461 1,294,421 15.5 % Operating expenses: Sales and marketing 2,508,238 2,079,045 429,193 20.6 % Technology and product development 2,121,978 2,139,950 (17,972 ) (0.8 )% General and administrative 4,864,783 4,488,941 375,842 8.4 % Depreciation and amortization 23,654 38,816 (15,162 ) (39.1 )% Stock-based compensation expense 951,595 827,172 124,423 15.0 % Foreign currency transaction loss (gain) 19,529 24,500 (4,971 ) (20.3 )% Total operating expenses 10,489,777 9,598,424 891,353 9.3 % Loss from operations (851,895 ) (1,254,963 ) 403,068 32.1 % Other income 80,044 107,308 (27,264 ) (25.4 )% Loss from operations before provision for income taxes (771,851 ) (1,147,655 ) 375,804 32.7 % Provision for income taxes (7,836 ) (27,040 ) 19,204 71.0 % Loss from continuing operations (779,687 ) (1,174,695 ) 395,008 33.6 % Gain from sale of discontinued operations 117,445 214,737 (97,292 ) (45.3 )% Net loss $ (662,242 ) $ (959,958 ) $ 297,716 31.0 % 20 Revenue Years Ended June 30, 2020 2020 $ Change % Change Revenue: Platforms $ 3,890,689 $ 2,809,201 $ 1,081,488 38.5 % Transactions 27,168,048 25,984,721 1,183,327 4.6 % Total revenue $ 31,058,737 $ 28,793,922 $ 2,264,815 7.9 % Total revenue increased $2,264,815, or 7.9%, for the year ended June 30, 2020 compared to the prior year, due to the following: Category Impact Key Drivers Platforms h $ 1,081,488 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 h $ 1,183,327 Increased primarily due to orders from new customers. Cost of Revenue Years Ended June 30, 2020 2019 $ Change % Change Cost of Revenue: Platforms $ 644,138 $ 507,375 $ 136,763 27.0 % Transactions 20,776,717 19,943,086 833,631 4.2 % Total cost of revenue $ 21,420,855 $ 20,450,461 $ 970,394 4.7 % Years Ended June 30, 2020 2019 % Change * As a percentage of revenue: Platforms 16.6 % 18.1 % (1.5 )% Transactions 76.5 % 76.7 % (0.2 )% Total 69.0 % 71.0 % (2.0 )% * 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 2.0%, from 71.0% for the previous year to 69.0%, for the year ended June 30, 2020. Category Impact as percentage of revenue Key Drivers Platforms i 1.5 % Decreased primarily due to proportionally lower third-party data costs. Transactions i 0.2 % Decreased primarily due to proportionally lower copyright and personnel costs. 21 Gross Profit Years Ended June 30, 2020 2019 $ Change % Change Gross Profit: Platforms $ 3,246,551 $ 2,301,826 $ 944,725 41.0 % Transactions 6,391,331 6,041,635 349,696 5.8 % Total gross profit $ 9,637,882 $ 8,343,461 $ 1,294,421 15.5 % Years Ended June 30, 2020 2020 % Change* As a percentage of revenue: Platforms 83.4 % 81.9 % 1.5 % Transactions 23.5 % 23.3 % 0.2 % Total 31.0 % 29.0 % 2.0 % * The difference between current and prior period gross profit as a percentage of revenue Operating Expenses Years Ended June 30, 2020 2019 $ Change % Change Operating Expenses: Sales and marketing $ 2,508,238 $ 2,079,045 $ 429,193 20.6 % Technology and product development 2,121,978 2,139,950 (17,972 ) (0.8 )% General and administrative 4,864,783 4,488,941 375,842 8.4 % Depreciation and amortization 23,654 38,816 (15,162 ) (39.1 )% Stock-based compensation expense 951,595 827,172 124,423 15.0 % Foreign currency transaction loss 19,529 24,500 (4,971 ) (20.3 )% Total operating expenses $ 10,489,777 $ 9,598,424 $ 891,353 9.3 % Category Impact Key Drivers Sales and marketing h $ 429,193 Increased primarily due to greater personnel costs and advertising media spend. General and administrative h $ 375,842 Increased primarily due to greater personnel costs, professional service fees and NASDAQ entry fee. Provision for Income Taxes During the years ended June 30, 2020 and 2019, we recorded a provision for income taxes of $7,836 and $27,040, respectively, a decrease of $19,204. Net Income (Loss) Year Ended June 30, 2020 2019 $ Change % Change Net Income (Loss): Loss from continuing operations $ (779,687 ) $ (1,174,695 ) $ 395,008 33.6 % Income from discontinued operations 117,445 214,737 (97,292 ) (45.3 )% Total net loss $ (662,242 ) $ (959,958 ) $ 297,716 31.0 % Loss from continuing operations decreased $395,008 or 33.6%, for the year ended June 30, 2020 compared to the prior year, primarily due to increased gross profit, partially offset by increased operating expenses as described above. 22 Liquidity and Capital Resources Year Ended June 30, Consolidated Statements of Cash Flow Data: 2020 2019 Net cash provided by operating activities $ 2,418,465 $ 576,446 Net cash used in investing activities - (15,828 ) Net cash provided by (used in) financing activities 1,553,399 (100,023 ) Effect of exchange rate changes (13,398 ) (15,685 ) Net increase (decrease) in cash and cash equivalents 3,958,466 444,910 Cash and cash equivalents, beginning of period 5,353,090 4,908,180 Cash and cash equivalents, end of period $ 9,311,556 $ 5,353,090 Liquidity As of June 30, 2020, we had cash and cash equivalents of $9,311,556, compared to $5,353,090 as of June 30, 2019, an increase of $3,958,466. This increase was primarily due to cash provided by operating and investing activities. Operating Activities Net cash provided by operating activities was $2,418,465 for the year ended June 30, 2020 and resulted primarily from an increase in accounts payable and accrued expenses of $1,486,950 and an increase in deferred revenue of $1,214,301, partially offset by an increase in prepaid royalties of $720,367. Net cash provided by operating activities was $576,446 for the year ended June 30, 2019 and resulted primarily from an increase in deferred revenue of $644,460, a decrease in prepaid expenses and other current assets of $218,033 and an increase in accounts payable and accrued expenses of $175,949, partially offset by an increase in accounts receivable of $241,918 and a decrease in lease liability of $119,786. Investing Activities No cash was used in or provided by investing activities for the year ended June 30, 2020. Net cash used in investing activities was $15,828 for the year ended June 30, 2019 and resulted from the purchase of property and equipment. Financing Activities Net cash provided by financing activities was $1,553,399 for the year ended June 30, 2020 and resulted from the proceeds from the exercise of warrants of $1,875,000, partially offset by the repurchase of common stock of $321,601. Net cash used in financing activities was $100,023 for the year ended June 30, 2019 and resulted from the repurchase of common stock partially offset by proceeds from the exercise of stock options. 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 June 30, 2020. Financial covenants include maintaining an adjusted quick ratio of unrestricted cash and net accounts receivable, divided by current liabilities plus debt less deferred revenue of at least 1.15 to 1.0, and maintaining tangible net worth of $1,500,000, plus 50% of net income for the fiscal quarter ended from and after December 31, 2017, plus 50% of the dollar value of equity issuances after October 1, 2017 and the principal amount of subordinated debt. The line of credit bears interest at an annual rate equal to the greater of 1% above the prime rate and 5.5%. The interest rate on the line of credit was 5.5% as of June 30, 2020. The line of credit was secured by our consolidated assets. There were no outstanding borrowings under the line as of June 30, 2020 and June 30, 2019, respectively. As of June 30, 2020, there was approximately $2,089,000 of available credit. 23 Non-GAAP Measure – Adjusted EBITDA In addition to our GAAP results, we present Adjusted EBITDA as a supplemental measure of our performance. However, Adjusted EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of liquidity. We define Adjusted EBITDA as net income (loss), plus interest expense, other income (expense), foreign currency transaction loss, provision for income taxes, depreciation and amortization, stock-based compensation, income from discontinued operations and gain on sale of discontinued operations. Management considers our core operating performance to be that which our managers can affect in any particular period through their management of the resources that affect our underlying revenue and profit generating operations that period. Non-GAAP adjustments to our results prepared in accordance with GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Set forth below is a reconciliation of Adjusted EBITDA to net income (loss) for the year ended June 30, 2020 and 2019: Years Ended June 30, 2020 2019 $ Change Net loss $ (662,242 ) $ (959,958 ) $ 297,716 Add (deduct): Other (income) expense (80,044 ) (107,308 ) 27,264 Foreign currency transaction loss 19,529 24,500 (4,971 ) Provision for income taxes 7,836 27,040 (19,204 ) Depreciation and amortization 23,654 38,816 (15,162 ) Stock-based compensation 951,595 827,172 124,423 Gain on sale of discontinued operations (117,445 ) (214,737 ) 97,292 Adjusted EBITDA $ 142,883 $ (364,475 ) $ 507,358 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. Recently Issued Accounting Pronouncements For information about recently issued accounting standards, refer to Note 2 to our Consolidated Financial Statements appearing elsewhere in this report. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not required. 24